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

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  • 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
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    Cited by:

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    2. 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).
    3. 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.
    4. 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).

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    Keywords

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    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

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