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Will the Reduction of CO 2 Emissions Lower the Cost of Debt Financing? The Case of EU Countries

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  • Sylwester Kozak

    (Department of Economics and Economic Policy, Institute of Economics and Finance, Warsaw University of Life Sciences, Nowoursynowska Str. 166, 02-787 Warsaw, Poland)

Abstract

The main objective of this article is to test the relationship between the intensity of CO 2 emissions and company’s cost of debt capital. This study fills a gap in the financial literature on this compound by examining a sample of 225 large nonfinancial enterprises operating in 15 EU countries in the years 2018–2021. The fractional logit regression controlling for company’s characteristics (assets, profitability, liquidity and leverage) was used. The results show that by reducing the intensity of CO 2 emissions, a company can reduce the cost of debt. This relationship was confirmed for three measures of intensity, i.e., CO 2 emissions in relation to revenues, assets and number of employees. Markets and financial institutions impose an additional risk premium in relation to companies operating in an industry considered to be comprised of strong CO 2 emitters. The use of the latest data for a wide sample of European enterprises provides an up-to-date assessment of the analyzed issues and the results can be used by enterprises and public authorities when analyzing the benefits of implementing a technology that reduces CO 2 emissions.

Suggested Citation

  • Sylwester Kozak, 2021. "Will the Reduction of CO 2 Emissions Lower the Cost of Debt Financing? The Case of EU Countries," Energies, MDPI, vol. 14(24), pages 1-13, December.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:24:p:8361-:d:700326
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    References listed on IDEAS

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