Carbon policy risk and corporate capital structure decision |
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| Affiliation: | 1. School of Business, Central South University, Changsha, P.R. China;2. Department of Social Sciences, Education University of Hong Kong, Tai Po, New Territories, Hong Kong, P.R. China;1. Department of Accounting and Finance, United Arab Emirates University, Al Ain, United Arab Emirates;2. School of Business and Law, Edith Cowan University, Joondalup, WA, Australia;3. Business School, University of Portsmouth, Portsmouth PO1 3DE, United Kingdom;4. Department of economics, University of Genoa, Italy;1. School of Economics, Nanjing University of Finance and Economics, Nanjing, China;2. Pearl River Delta Collaborative Innovation Center of Scientific Finance and Industry, Institute of Regional Finance, School of Finance, Guangdong University of Finance and Economics, China;3. University of Essex, Colchester, UK;4. Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China;1. Faculty of Business, Economics and Social Sciences, University of Hamburg, Hamburg, Germany;2. School of Business, Central South University, Changsha, P.R. China;3. Department of Social Sciences, Education University of Hong Kong, Tai Po, Hong Kong SAR, P.R. China;1. School of Economics, Hefei University of Technology, Hefei, China;2. Economics and Management School, Wuhan University, Wuhan, China;3. Economics School, Zhongnan University of Economics and Law, Wuhan, China |
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| Abstract: | This study examines the relationship between carbon policy risk and corporate capital structure in China. Using a sample of A-share listed firms from 1997 to 2018, we find that carbon policy risk reduces firms' financial leverage. The result is robust to the introduction of difference-in-differences tests, instrumental variable regression, and a placebo test used to address endogeneity, as well as to other tests of alternative measures. This negative relationship is more pronounced for non-state-owned enterprises, firms with low institutional investor ownership, firms with poor corporate social responsibility performance, firms belonging to competitive or carbon-sensitive industries, and firms located in provincial cities. Financing constraints, bankruptcy risk, and government power are potential mechanisms underlying this observation. Our findings provide practical suggestions through which firms can address carbon policy risk and provide guidance to governments and regulators for the further implementation of environmental policies. |
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