Carbon policy risk and corporate capital structure decision

Shu, Hao; Tan, Weiqiang; Wei, Ping

doi:10.1016/j.irfa.2023.102523

Cited by 14 publications

(4 citation statements)

References 46 publications

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“…The authors also asserted that it is appropriate to apply the pecking order theory to small and medium-sized companies in India because it is difficult for small and medium-sized companies to access loans in the context of information asymmetry in the financial markets are still high. In another study, Shu et al 5 studied Chinese listed companies from 1997 to 2018 and confirmed that carbon policy risks reduce the financial leverage of companies. This negative relationship is more evident in non-state-owned enterprises, enterprises with low ownership ratio of institutional investors, enterprises with poor social responsibility performance and enterprises in the competitive or carbon-sensitive industry group, and businesses in provincial cities.…”

Section: Literature Reviewmentioning

confidence: 90%

What do we know about the capital structure choice of large firms – the case of Viet Nam?

Nguyen

2023

Sci. Tech. Dev. J. - Eco. Law Manag.

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In most countries, enterprises play a significant role in contributing to production, investment, job creation, and output. Enterprises are also the leading bird in applying science and technology, improving labor productivity, and implementing digital transformation in the context of the industrial revolution 4.0. Therefore, countries always want to create a favorable business environment, reduce transaction costs and market access costs, improve capital markets, and improve the quality of human resources to develop businesses and then make more contributions to socio-economic development. In particular, the financial market needs adjustments to improve the ability to provide and transfer capital to businesses at optimal costs, helping businesses achieve business efficiency. Using a sample size of 30 enterprises in Vietnam's stock market in the period 2011 to 2021, at the same time, using the panel-corrected standard error (PCSE) method to handle the defects in the estimated model and the phenomenon of cross-dependence between enterprises on the stock market, the research results confirmed that large-scale enterprises often have many advantages in accessing external loans to finance their investment projects. However, larger firm size is consistent with slower access to loans. On the contrary, small-scale enterprises often have high risks and are difficult to access bank loans, so small-scale enterprises should prioritize using their own capital to finance their investment projects. In addition, the study also affirmed that corporate profitability, board of directors’ size, board of directors’ meeting frequency, and foreign participation in the board of directors often orient enterprises to increase funding by equity as well as limited loan capital. The study also found no effect of sales growth on capital structure choice.

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Section: Literature Reviewmentioning

confidence: 90%

What do we know about the capital structure choice of large firms – the case of Viet Nam?

Nguyen

2023

Sci. Tech. Dev. J. - Eco. Law Manag.

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“…(2022) and Shu et al. (Shu et al., 2023)). Finally, Xu and Kim (2021) show that financially constrained firms trade abatement costs against potential liabilities, suggesting that financial sector withdrawal could exacerbate vulnerabilities to transition risks.…”

Section: Transition Risks From Non‐financial Agents’ Physical and Res...mentioning

confidence: 95%

“…Ivanov et al (2020) show that transition-exposed firms are more financially constrained. Kacperczyk and Peydro (2021) demonstrate that banks committed to decarbonization cut lending to brown firms, with no effect on their environmental performances and with possible perverse effects in furthering greenwashing (see also Degryse et al (2022) and Shu et al (Shu et al, 2023)). Finally, Xu and Kim (2021) show that financially constrained firms trade abatement costs against potential liabilities, suggesting that financial sector withdrawal could exacerbate vulnerabilities to transition risks.…”

Section: Adaptive Capacitymentioning

confidence: 95%

Financial stability, stranded assets and the low‐carbon transition – A critical review of the theoretical and applied literatures

Daumas

2023

Journal of Economic Surveys

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Transitioning to a low‐carbon economy will entail sweeping transformations of energy and economic systems. A growing research body has raised concerns about the effect of such strain on financial stability. This literature on “financial transition risk” has highlighted that the conjunction of climate policy, technological change and shifts in consumption patterns may propagate to financial markets. In extreme cases, these dynamics may result in a “Climate‐Minsky” moment with systemic implications. The field has developed quickly, covering many methods and research questions. While this expansion in literature is advantageous when studying a complex issue like the low‐carbon transition, it also comes with downsides. The large number of methods hampers result comparison, and the integration of research designs. It also makes it difficult to provide a synthetic view of results in the literature as well as identify remaining uncertainties. To bridge these gaps, I propose a critical review of the literature. I examine three sub‐fields: the asset stranding literature, the direct assessment of transition risks through prospective models and the financial empirics of the low‐carbon transition. I expound their main results, critically assess underlying methodologies and propose a framework to compare results. The review ends by suggesting some avenues for future research.

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“…(2022) concluded that carbon trading policy would increase the corporate risk-taking level of firms involved. Shu et al (2023) found that carbon policy risk reduces the financial leverage of A-share listed firms in China through three mechanisms: financial constraints, bankruptcy risk, and government power. Our study is different in that focusing on the energy-intensive industries and the carbon trading policy, we present innovative and rigorous theoretical mechanisms: the debt funding mechanism and the demand mechanism for equity issues.…”

Section: Open Access Edited Bymentioning

confidence: 99%

Impact of carbon trading policy on corporate capital structure: Empirical evidence from China

Zhang

Liao

et al. 2023

Front. Environ. Sci.

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Introduction: The Chinese government has taken the lead in proposing a carbon trading market policy to address the negative impact of excessive carbon emissions on global climate change. Since this policy’s implementation in 2011, it has had a profound impact on economic development and the structure of the national economy. In this context, we aim to study how environmental regulation and transition risks associated with climate change affect corporate capital structure.Methods: Based on data provided by listed companies in China’s energy-intensive sector, this study uses a Difference-in-Difference (DID) model to examine the effect of the carbon trading policy on corporate capital structure.Results: According to our results, we predict that the carbon trading policy will significantly reduce the corporate debt ratio, which remains true even when an instrumental variables approach is used to account for endogeneity and after robustness tests are conducted. This study also shows that the negative effect of the carbon trading policy on corporate capital structure is mainly a product of internal capital demand and external capital supply. In addition, the reduction effect that the carbon trading policy has on the corporate debt ratio is more significant among firms with lower government subsidies and among nonstate-owned firms.Discussion: These findings imply that under the implementation of a carbon trading market policy, firms’ financial decision-making will change significantly in response to the policy-induced shocks of elevated corporate risk behaviour.

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Carbon policy risk and corporate capital structure decision

Cited by 14 publications

References 46 publications

What do we know about the capital structure choice of large firms – the case of Viet Nam?

What do we know about the capital structure choice of large firms – the case of Viet Nam?

Financial stability, stranded assets and the low‐carbon transition – A critical review of the theoretical and applied literatures

Impact of carbon trading policy on corporate capital structure: Empirical evidence from China

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