IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v88y2023icp1104-1121.html

Carbon intensity, default risk, and investors’ attention to environment: Evidence from South Korea

Author

Listed:
  • Park, Dojoon
  • Kang, Yong Joo
  • Lee, Jiyoon

Abstract

We investigate the relationship between carbon intensity and default risk for South Korean firms and examine the role of investor attentiveness to environmental issues on this relationship. Using carbon emissions and Merton's distance-to-default, we find that carbon intensity is significantly negatively associated with the distance-to-default and that the negative association strengthens when foreign ownership is high. Furthermore, we find that default risk for firms subject to the South Korean emissions trading system increased after its adoption. Our results are robust to different default risk proxies and highlights the negative impact carbon intensity has on default risk for South Korean firms.

Suggested Citation

  • Park, Dojoon & Kang, Yong Joo & Lee, Jiyoon, 2023. "Carbon intensity, default risk, and investors’ attention to environment: Evidence from South Korea," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1104-1121.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1104-1121
    DOI: 10.1016/j.iref.2023.07.023
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056023002332
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2023.07.023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Duffie, Darrell & Saita, Leandro & Wang, Ke, 2007. "Multi-period corporate default prediction with stochastic covariates," Journal of Financial Economics, Elsevier, vol. 83(3), pages 635-665, March.
    2. Oestreich, A. Marcel & Tsiakas, Ilias, 2015. "Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 294-308.
    3. Su-Yol Lee & Dong-Kwon Choi, 2021. "Does Corporate Carbon Risk Management Mitigate the Cost of Debt Capital? Evidence from South Korean Climate Change Policies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(7), pages 2138-2151, May.
    4. Darwin Choi & Zhenyu Gao & Wenxi Jiang, 2020. "Attention to Global Warming," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1112-1145.
    5. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    6. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    7. John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2008. "In Search of Distress Risk," Journal of Finance, American Finance Association, vol. 63(6), pages 2899-2939, December.
    8. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    9. Won Oh & Young Chang & Aleksey Martynov, 2011. "The Effect of Ownership Structure on Corporate Social Responsibility: Empirical Evidence from Korea," Journal of Business Ethics, Springer, vol. 104(2), pages 283-297, December.
    10. Kabir, Md Nurul & Rahman, Sohanur & Rahman, Md Arifur & Anwar, Mumtaheena, 2021. "Carbon emissions and default risk: International evidence from firm-level data," Economic Modelling, Elsevier, vol. 103(C).
    11. Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
    12. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, vol. 100(1), pages 154-181, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Bin & Wang, Han & Ye, Yanyi, 2025. "Is carbon price uncertainty priced in the corporate bond yield spreads? Evidence from Chinese corporate bond markets," International Review of Financial Analysis, Elsevier, vol. 107(C).
    2. Xiaozhen Guo & Meena Bhatia & Bhumika Gupta & Enrico Battisti, 2026. "Green project investments and corporate responsibilities: enablers, challenges, and strategies for mitigating risks," Post-Print hal-05280243, HAL.
    3. Zhang, Yunhan & Li, Yan & Zhao, Wanli & Ji, Qiang, 2024. "Climate risk performance and returns integration of Chinese listed energy companies," Energy Economics, Elsevier, vol. 129(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Atawnah, Nader & Hossain, Md Zakir & Al Mamun, Md & Badarin, Louy, 2024. "Does product market competition affect corporate waste management? International evidence," International Review of Economics & Finance, Elsevier, vol. 95(C).
    2. Xing Chen & Fenghua Wen & Jinli Xiao & Gary Gang Tian, 2025. "Weathering the Risk: How Climate Uncertainty Fuels Corporate Fraud," Journal of Business Ethics, Springer, vol. 201(2), pages 519-547, October.
    3. Ferdous, Lutfa Tilat & Atawnah, Nader & Yeboah, Richard & Zhou, Yifan, 2024. "Firm-level climate risk and accounting conservatism: International evidence," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    4. Trinh, Vu Quang & Nguyen, Nga & Le, Phuong & Nguyen, Thao Ngoc, 2025. "Unraveling the ‘green-default paradox’: Assessing the influence of gender-diverse boards and socially responsible ratings," International Review of Financial Analysis, Elsevier, vol. 102(C).
    5. Gong, Xu & Song, Yijie & Fu, Chengbo & Li, Huijing, 2023. "Climate risk and stock performance of fossil fuel companies: An international analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    6. Chen, Yiyang & Mamon, Rogemar & Spagnolo, Fabio & Spagnolo, Nicola, 2025. "Stock market returns and climate risk in the U.S," Journal of Multinational Financial Management, Elsevier, vol. 77(C).
    7. Treepongkaruna, Sirimon & Lhaopadchan, Suntharee & Jiraporn, Pornsit, 2025. "Temporal dynamics of firm-specific climate change exposure: A text-based approach," Research in International Business and Finance, Elsevier, vol. 77(PB).
    8. Aharon, David Y. & Baig, Ahmed S. & Jacoby, Gady & Wu, Zhenyu, 2024. "Greenhouse gas emissions and the stability of equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    9. Hong Yang & Xujing Li & Meng Li, 2026. "ESG performance and corporate default risk: insights from investor perspectives," Risk Management, Palgrave Macmillan, vol. 28(1), pages 1-39, February.
    10. Chatjuthamard, Pattanaporn & Singh, Simran & Jiraporn, Pornsit & Lee, Sang Mook, 2024. "Climate change exposure, shareholder wealth, and the adoption of the Paris agreement: A text-based approach," International Review of Financial Analysis, Elsevier, vol. 94(C).
    11. Neophytos Lambertides & Dimitris Tsouknidis, 2024. "Climate regulation costs and firms’ distress risk," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(1), pages 3-30, February.
    12. Bardos, Katsiaryna Salavei & Mishra, Dev R. & Somé, Hyacinthe Y., 2025. "Firm-level climate sentiments, climate politics and implied cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 94(C).
    13. Meles, Antonio & Salerno, Dario & Sampagnaro, Gabriele & Verdoliva, Vincenzo & Zhang, Jianing, 2023. "The influence of green innovation on default risk: Evidence from Europe," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 692-710.
    14. Sirin, Selahattin Murat & Yilmaz, Berna N., 2025. "Tech firms and the renewable energy sector: Exploring the moderating effects of institutional ownership on financial connectedness," Research in International Business and Finance, Elsevier, vol. 80(C).
    15. Xie, Xuejing & Gong, Yukai & Cheng, Le, 2025. "Managerial myopia and carbon emission: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    16. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
    17. Azizpour, S & Giesecke, K. & Schwenkler, G., 2018. "Exploring the sources of default clustering," Journal of Financial Economics, Elsevier, vol. 129(1), pages 154-183.
    18. Sigrist, Fabio & Leuenberger, Nicola, 2023. "Machine learning for corporate default risk: Multi-period prediction, frailty correlation, loan portfolios, and tail probabilities," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1390-1406.
    19. Ricardo Gimeno & Clara I. González, 2022. "The role of a green factor in stock prices. When Fama & French go green," Working Papers 2207, Banco de España.
    20. Anand Deo & Sandeep Juneja, 2021. "Credit Risk: Simple Closed-Form Approximate Maximum Likelihood Estimator," Operations Research, INFORMS, vol. 69(2), pages 361-379, March.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1104-1121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.