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How Does Carbon Regulatory Policy Affect Debt Financing Costs? Empirical Evidence from China

Author

Listed:
  • Y.-S. Ren
  • S. Boubaker

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

  • P.-Z. Liu
  • O. Weber

Abstract

This study aimed to examine the effect of Chinese carbon regulatory policy on the debt financing costs of carbon-intensive corporations. We use a large sample covering the years between 2005 and 2018. The results of the difference-in-differences approach show that creditors increased debt financing costs for carbon-intensive corporations considerably due to the low-carbon policy, hence decreasing these corporations' profitability and value. Additional analyses show that the dynamic policy effect gradually increased from 2010 on and weakened later in 2015 owing to China's economic slowdown and the local stock market crash. The impacts of low-carbon policies on corporate debt financing costs are more pronounced for state-owned corporations and those with low analyst followings. Our findings provide corporations and governments with crucial insights into mitigating climate transition risk. \textcopyright 2023 Board of Trustees of the University of Illinois

Suggested Citation

  • Y.-S. Ren & S. Boubaker & P.-Z. Liu & O. Weber, 2023. "How Does Carbon Regulatory Policy Affect Debt Financing Costs? Empirical Evidence from China," Post-Print hal-04435562, HAL.
    • Handle: RePEc:hal:journl:hal-04435562
    DOI: 10.1016/j.qref.2023.05.006
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    Cited by:

    1. Xing, Lu & Han, DongHao & Hui, Xie, 2023. "The impact of carbon policy on corporate risk-taking with a double/debiased machine learning based difference-in-differences approach," Finance Research Letters, Elsevier, vol. 58(PC).
    2. Duppati, Geeta, 2025. "Carbon pricing and revenue growth valuation risk exposure," International Review of Economics & Finance, Elsevier, vol. 103(C).
    3. Peng Zhang & Lei Tan & Fei Liu, 2023. "Assessing the Implications of Ecological Civilization Pilots in Urban Green Energy Industry on Carbon Emission Mitigation: Evidence from China," Energies, MDPI, vol. 16(22), pages 1-18, November.
    4. Ren, Yi-Shuai & Huynh, Toan Luu Duc & Liu, Pei-Zhi & Narayan, Seema, 2024. "Is the carbon emission trading scheme conducive to promoting energy transition? Some empirical evidence from China," Energy Economics, Elsevier, vol. 134(C).
    5. Chu, Shaner & Chen, Limei, 2025. "Can the opening of high-speed rail help reduce corporate carbon emissions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 103(C).
    6. Wang, Yedong & Xiao, Junchao & Wang, Lei & Wang, Daoping, 2025. "News sentiment and the cost of debt11Our paper was accepted by the 2024 3rd Annual International Finance Conference (AIFC). The conference submission ID is “146”," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    7. Ma, Chao-Qun & Liu, Xukang & Klein, Tony & Ren, Yi-Shuai, 2025. "Decoding the nexus: How fintech and AI stocks drive the future of sustainable finance," International Review of Economics & Finance, Elsevier, vol. 98(C).
    8. Shanqing Liu & Jiacheng Qian & Huwei Wen & Ying Wang, 2025. "The Impact of Green Finance Pilot Cities on Enterprises’ Green Innovation Performance: An Empirical Study in China," Sustainability, MDPI, vol. 17(3), pages 1-21, January.
    9. Gan, Kai & Li, Rongnan & Zhou, Qi, 2024. "Climate transition risk, environmental news coverage, and stock price crash risk," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    10. Ren, Yi-Shuai & Klein, Tony & Jiang, Yong & Liu, Pei-Zhi & Weber, Olaf, 2025. "Dynamic connectedness between crude oil futures and energy industrial bond credit spread: Evidence from China," Energy Economics, Elsevier, vol. 143(C).
    11. Liu, Xukang & Ma, Chao-Qun & Ren, Yi-Shuai, 2025. "ESG reactions to fintech: The role of cross-border capital flows," Research in International Business and Finance, Elsevier, vol. 76(C).
    12. Arian, Adam & Naeem, Muhammad A., 2025. "Climate risk and corporate investment behavior in emerging economies," Emerging Markets Review, Elsevier, vol. 65(C).
    13. Ren, Yi-Shuai & Derouiche, Imen & Hassan, Majdi & Liu, Pei-Zhi, 2024. "Do creditors price climate transition risks? A natural experiment based on China's carbon emission trading scheme," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 138-155.
    14. Zadeh, Omid Razavi & Romagnoli, Silvia, 2024. "Financing sustainable energy transition with algorithmic energy tokens," Energy Economics, Elsevier, vol. 132(C).

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