Carbon risk and corporate capital structure

By Justin Hung Nguyen, Hieu V. Phan. Journal of Corporate Finance, 2020

333 citations recorded by the source corpus.

Abstract This research exploits Australia's ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/1f4440c617ff4391c43962ef09e1d1c958a8de6d

Citations in the corpus

• Investor rewards to environmental responsibility: Evidence from the COVID-19 crisis (2021, unknown): “For example, recent articles have looked at how carbon risk and drought risk affect capital structure (e.g., Ginglinger and Moreau, 2019; Nguyen and Phan, 2020).”