Corporate carbon performance and cost of debt: Evidence from Asia-Pacific countries

Eltayyeb Al-Fakir Al Rabab'a, Afzalur Rashid and Syed Shams

International Review of Financial Analysis, 2023, vol. 88, issue C

Abstract: This study examines the relationship between corporate carbon performance (CCP) and corporate cost of debt (COD) in Asia-Pacific countries. Using a sample of 3666 firm-year observations from 14 countries over the period 2003–2018, COD is found to be lower when a firm has higher carbon performance (CCP). We also find that CCP produces greater reductions in COD for firms in countries with weak governance quality. Thus, a country-level governance mechanism and debt markets are substitutes in addressing corporate carbon performance (CCP). The main results are robust after controlling for sample selection bias and endogeneity problems using alternative model specifications. The results are also robust after controlling for heterogeneity problems using sub-samples, accounting for the Global Financial Crisis (GFC), using an alternative COD measure, and controlling for potential simultaneous causality and for corporate governance variables.

Keywords: Carbon risk; Climate change; Environmental performance; Financial distress; Greenhouse gases (GHGs) (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:88:y:2023:i:c:s1057521923001576

DOI: 10.1016/j.irfa.2023.102641

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