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Cross-border climate policy and corporate environmental investment: Evidence from the EU CBAM and Chinese firms

Author

Listed:
  • Wang, Yishu
  • Guo, Ruijia
  • Wan, Qing

Abstract

This paper examines how cross-border climate policies reshape corporate environmental decision-making under uncertainty. Using the 2021 EU Carbon Border Adjustment Mechanism (CBAM) proposal as a quasi-natural experiment, we employ a difference-in-differences (DID) approach to Chinese A-share listed firms from 2016 to 2024. The results show that the policy significantly increases environmental investments among affected exporters. Mechanism analyses indicate that this effect is driven by carbon tail-risk mitigation and a green signaling channel, whereby firms demonstrate proactive responses to transition risks and environmental commitment to stakeholders for securing external resources. Heterogeneity analyses further reveal that the effect is more pronounced among non-state-owned enterprises and firms with lower financing constraints. These findings provide micro-level evidence that international climate policy shocks compel exporters to accelerate irreversible low-carbon investments to reduce the cost of equity and enhance long-term firm value, offering important insights for integrating emerging economies into the global climate governance framework.

Suggested Citation

  • Wang, Yishu & Guo, Ruijia & Wan, Qing, 2026. "Cross-border climate policy and corporate environmental investment: Evidence from the EU CBAM and Chinese firms," Finance Research Letters, Elsevier, vol. 104(C).
    • Handle: RePEc:eee:finlet:v:104:y:2026:i:c:s1544612326007075
    DOI: 10.1016/j.frl.2026.110179
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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