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Carbon risk and cost of equity capital: Evidence from a quasi-natural experiment based on China's New Environmental Protection Law

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  • Chen, Yufeng
  • Liu, Longshan
  • Yuchi, Xiaojuan

Abstract

Low-carbon transformation and green transition of enterprises are essential for capitalizing management and economic sustainability. Whether carbon risk affects firms’ cost of equity capital is a critical question. This study examines the effect of carbon risk shocks on corporate equity financing costs using the implementation of China’s New Environmental Protection Law as a quasi-natural experiment. Results showed a positive effect, with an increase in corporate carbon risk mediated by exacerbating information asymmetry and environmental uncertainty. Heterogeneity analysis showed that the positive relation was relatively significant among state-owned enterprises, labor-intensive and technology-intensive corporations, and firms located in areas with greater environmental protection.

Suggested Citation

  • Chen, Yufeng & Liu, Longshan & Yuchi, Xiaojuan, 2026. "Carbon risk and cost of equity capital: Evidence from a quasi-natural experiment based on China's New Environmental Protection Law," Finance Research Letters, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:finlet:v:96:y:2026:i:c:s1544612326003107
    DOI: 10.1016/j.frl.2026.109780
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