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Firm carbon risk exposure and financial stability

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  • Owusu, Freeman Brobbey
  • Abdullah, Mohammad
  • Lee, Chi-Chuan
  • Gyeke-Dako, Agyapomaa

Abstract

This research investigates the influence of firm-level carbon risk on financial stability. Using a global sample of non-financial firms, we find that carbon risk negatively impacts financial stability. Financial constraints, corporate governance, and environmental innovation moderate this effect. The impact is stronger for firms with low R&D intensity and those in countries with high CO2 emissions, weak rule-of-law, low control of corruption, no carbon regulation, and low environmental regulation. Further tests show stronger effects in developing economies and in the post-global financial crisis and Paris Agreement periods. The findings highlight the need for tailored strategies to manage carbon risks.

Suggested Citation

  • Owusu, Freeman Brobbey & Abdullah, Mohammad & Lee, Chi-Chuan & Gyeke-Dako, Agyapomaa, 2025. "Firm carbon risk exposure and financial stability," Finance Research Letters, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325004672
    DOI: 10.1016/j.frl.2025.107204
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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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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