Carbon risk, cost of debt financing and the moderation effect of media attention: Evidence from Chinese companies operating in high‐carbon industries

Abstract

The effect of carbon risk on the debt capital market has become increasingly prominent under carbon constraints. We use a panel regression model to examine the relationship between carbon risk and the cost of debt financing and the moderating effect of positive media attention on this relationship. Using a sample of 191 Chinese A‐share listed firms operating in high‐carbon industries covering the period 2011–15, we conduct an empirical study and find that the relationship between carbon risk and the cost of debt financing in China is a U‐shaped one. Thus, carbon risk exerts an “interval effect" on the cost of debt financing, which mainly exists in private firms rather than state‐owned firms. This relationship can be mitigated by positive media attention. Compared with private firms that receive low positive media attention, private firms with high positive media attention are more sensitive and less tolerant to environmental regulations. Our findings provide firms with practical advice on carbon risk management, particularly on improving carbon transparency and mitigating the cost of debt financing.

Environmental responsibility, market valuation, and firm characteristics: Evidence from China

“…There are a few studies on environmental issues in China. For example, some studies employ survey data (Guoyou, Saixing, Chiming, Haitao, & Hailiang, ; Tang, Walsh, Lerner, Fitza, & Li, ) and others focus only on highly polluting industries (Chang, Li, & Lu, ; Zhou, Zhang, Wen, Zeng, & Chen, ), which both result in significantly smaller sample size in terms of numbers of firms and years compared with our study. Still others focus on different interaction effects, such as how managerial concerns influence the relation between green technology and innovation and firm financial and environmental performance (Tang et al, ).…”

“…More relevant to our work, Tang et al () examined how managerial concern for green issues moderates the relationship between green innovation and firm performance for 188 manufacturing firms. Zhou et al () investigated the moderating effect of positive media attention on the relation between carbon risk and cost of debt financing for 191 firms in the high carbon industries. Chang et al () studied the influence of government engagement on environmental investment and firm performance in eight polluting industries.…”

The effect of carbon dissemination on cost of equity

“…Our paper makes several contributions to the extant literature. First, although the extant research (e.g., Balvers, Du, & Zhao, ; Chen & Gao, ; Gupta, ; Jung, Herbohn, & Clarkson, ; Kim, An, & Kim, ; Lee, Park, & Klassen, ; Li, Liu, Tang, & Xiong, ; Peng, Sun, & Luo, ; Sharfman & Fernando, ; Zhou, Zhang, Wen, Zeng, & Chen, ) focused on temperature shocks, managing climate/environmental risks and responding to the Carbon Disclosure Project (CDP) survey to examine market responses to firms' voluntary climate change information disclosure or their associations with the cost of debt financing/equity capital, this paper examines the dissemination effect of carbon‐related information via Twitter ( iCarbon ) on the COE. This broader effect is unlike that of disclosure and has its own capital market consequences (Bushee et al, ).…”

Does China's carbon emissions trading policy improve the technology innovation of relevant enterprises?

“…It called for the economic growth to shift from the traditional factor-driven and investment-driven modes to the innovation-driven mode. 11 Meanwhile, as the primary driving force for economic development, enterprise technology innovation has attracted wide attention (Doran & Ryan, 2016;Lartey et al, 2019;Zhou, Zhang, Wen, Zeng, & Chen, 2018). Porter and Linde (1995) propose that reasonable environmental policies can generate the "innovation offsets" effect and stimulate enterprises to carry out more innovative activities, and the "innovation offsets" effect will make up or even exceed environmental regulation costs, to achieve the "win-win" condition of both enterprise productivity and competitiveness, which is called the Porter hypothesis (Ambec, Cohen, Elgie, & Lanoie, 2013).…”