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Carbon emission trading scheme and firm debt financing

Author

Listed:
  • Huang, Nan
  • He, Rong
  • Luo, Le
  • Shen, Hongtao

Abstract

This study examines the impact of firms’ participation in an emissions trading scheme (ETS) on their debt financing. Using a unique quasi-natural experimental setting in China, we find that the cost of debt increases and firm access to debt decreases when firms participate in an ETS, which indicates that lenders interpret firms’ participation in an ETS as a potential risk compared to nonparticipation. Further analyses show that the negative effect of participation in an ETS on firm debt financing is more significant for ETS participants that are less able to pass costs on, that operate in regions with less financial marketization, and that are less innovative. For firms that are covered by the national ETS, the restricted access to debt is alleviated for those with experience in a pilot ETS.

Suggested Citation

  • Huang, Nan & He, Rong & Luo, Le & Shen, Hongtao, 2024. "Carbon emission trading scheme and firm debt financing," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(1).
    • Handle: RePEc:eee:jocaae:v:20:y:2024:i:1:s1815566923000346
    DOI: 10.1016/j.jcae.2023.100384
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    Citations

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    Cited by:

    1. Cao, June & Huang, Zijie & Shahid, Ahmad Usman, 2025. "Fostering environmental integrity via investor-focused communications: Private in-house meeting disclosures and greenwashing behaviors," Journal of Economic Behavior & Organization, Elsevier, vol. 232(C).
    2. Yuan, Haojun & Liao, Jing & Young, Martin, 2025. "The impact of the carbon trading pilot program on the financing cost of green bonds," Finance Research Letters, Elsevier, vol. 78(C).
    3. Tao, Miaomiao & Wang, Jianda & Roubaud, David & Qi, Lingli, 2025. "Global reach, local impact: How China's outward foreign direct investment shapes corporate carbon risk management?," Energy Economics, Elsevier, vol. 144(C).
    4. Zhang, Pengcheng & Qi, Jiayin, 2025. "Carbon emission regulation and corporate financing constraints: A quasi-natural experiment based on China’s carbon emissions trading mechanism," Journal of Contemporary Accounting and Economics, Elsevier, vol. 21(1).
    5. repec:aag:wpaper:v:28:y:2024:i:3:p:23-49 is not listed on IDEAS
    6. Suzan Sameer Issa & Mosab I. Tabash & Hosam Alden Riyadh & Zilola Shamansurova & Md. Rehan Khan & Umar Farooq, 2024. "Corporate Social Responsibility and its Influence on Trade Credit: An Analysis of China’s A-Share Corporate Sector," Advances in Decision Sciences, Asia University, Taiwan, vol. 28(3), pages 25-51, September.
    7. Jiang, Yan & Luo, Le & Tsang, Albert & Zhang, Yueheng, 2025. "Carbon emission trading scheme and carbon performance: The role of carbon management system," The British Accounting Review, Elsevier, vol. 57(3).

    More about this item

    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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