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Environmental litigation risks and dynamic adjustment of firm capital structure

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  • Deng, Wenjia

Abstract

The number of environmental-related litigation cases has increased rapidly. The present research tests how environmental litigation risk influences the adjustment of firms’ capital structure. Grounded in rich evidence from China, this research found that environmental litigation risk slows the speed at which companies adjust their leverage ratios to the optimal. This impact is especially larger for highly polluting enterprises and financially constrained enterprises. Increased borrowing cost is a vital mediating channel. These findings remain stable across a variety of econometric checks. In summary, the present research links environmental litigation risk to capital structure adjustment, thereby advancing relevant studies.

Suggested Citation

  • Deng, Wenjia, 2026. "Environmental litigation risks and dynamic adjustment of firm capital structure," Finance Research Letters, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:finlet:v:93:y:2026:i:c:s1544612325025395
    DOI: 10.1016/j.frl.2025.109290
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    References listed on IDEAS

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