The effect of carbon risk on the cost of equity capital

Kim, Yeon-Bok; An, Hyoung Tae; Kim, Jong Dae

doi:10.1016/j.jclepro.2015.01.006

Cited by 154 publications

(126 citation statements)

References 23 publications

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“…This calculation allows firms to make optimal financing decisions that aim at reducing GHG emissions and CoD. A similar result was found by Kim et al () for the cost of equity.…”

Section: Resultssupporting

confidence: 76%

“…This intensity measure allows to control for the extreme difference that exists between sectors. Moreover, relative to total emissions, this intensity measure is more comparable across firms and between different reporting periods (Kim et al, ; Luo & Tang, ; Wegener et al, ).…”

Section: Methodsmentioning

confidence: 99%

“…Fifth, I use in this study a more comprehensive measure of CoD calculated by Bloomberg, compared with previous studies (Jung, Herbohn, & Clarkson, ; Li et al, ; Lorca, Sanchez‐Ballesta, & Garcia‐Meca, ; Orens, Aerts, & Cormier, ; Zhu, ) that used weak measures based on interest rates only. Finally, I include in my sample all activity sectors compared with other studies (Clarkson et al, ; Kim et al, ) that focused only on industrial and energy sectors.…”

Section: Introductionmentioning

confidence: 99%

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The effect of greenhouse gas emissions on cost of debt: Evidence from Canadian firms

Maaloul

2018

Corp Soc Responsibility Env

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The aim of this paper is to investigate the relation between greenhouse gas (GHG) emissions and cost of debt and to estimate the cost that lenders are imputing to GHG emissions. Data on GHG emissions were hand‐collected from Carbon Disclosure Project reports, whereas data on the cost of debt and other financial data were obtained from Bloomberg Professional database. Using a sample of Canadian firms, the results show that GHG emissions increase firms' cost of debt. In other words, for each additional tonne of GHG emissions, the cost of debt increases on average by 11–15%. These results imply that creditors incorporate firms' GHG emissions into their lending decisions and they penalize the polluting firms. This could encourage firms to reduce and manage their GHG emissions because there is a cost associated with these emissions. This study is one of the first to examine the relationship between GHG emissions and the cost of debt.

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“…This calculation allows firms to make optimal financing decisions that aim at reducing GHG emissions and CoD. A similar result was found by Kim et al () for the cost of equity.…”

Section: Resultssupporting

confidence: 76%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The effect of greenhouse gas emissions on cost of debt: Evidence from Canadian firms

Maaloul

2018

Corp Soc Responsibility Env

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“…Our study extends research on the influence of firms’ environmental reporting in lowering COC (e.g. El Ghoul et al ., ; Dhaliwal et al ., ; Kim et al ., ). We contribute to the extant literature by documenting how GHG influences COC and the differences that exist among reporting firms when examined from a multi‐country perspective.…”

Section: Introductionmentioning

confidence: 97%

Carbon disclosure, emission intensity and cost of equity capital: multi‐country evidence

Bui

Moses

Houqe

2019

Accounting & Finance

111

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This study examines the joint effect of carbon disclosure and greenhouse gas (GHG) emissions on firms’ implied cost of equity capital (COC). Based on 4655 firm‐year observations across 34 countries, we find firms’ GHG emission intensity to be positively associated with COC. However, we find also that the penalty linked with higher COC is moderated by extensive carbon disclosure. We provide evidence that the extent of carbon disclosure helps reduce the premium required by investors to compensate for poor carbon performance. Our study provides insights to policymakers, investors and managers on the combined effect of carbon disclosure, and emission intensity.

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“…Kim et al . (), for example, conclude that ‘[…] companies’ efforts to improve carbon productivity are compensated by the reduction of the cost of capital and the accordingly increased firm value’ (p. 286). In a similar vein, Nishitani and Kokubu () posit that ‘the reduction of GHG emissions […] is an appropriate business strategy that does not conflict with firms' economic incentives and, therefore, managers are recommended to reduce GHG emissions to improve their economic performance’ (p. 526).…”

Section: Introductionmentioning

confidence: 99%

Corporate Carbon and Financial Performance: The Role of Emission Reductions

2017

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This article uses econometric techniques to examine the effect of corporate carbon performance on corporate financial performance. I extend the existing literature in this research field by differentiating between two measurement perspectives: carbon performance expressed as annually reported carbon dioxide (CO2) emission equivalents and improvements in carbon performance over time. Thereby, the article re‐addresses the research question ‘when and how does it pay to be green?’ in the context of carbon emissions and climate change mitigation. Using a nonlinear modeling technique, the findings indicate that it pays to be green for companies with superior carbon performance but not for companies with inferior carbon performance. The results also show that carbon emission mitigation is linearly and significantly positive related to return on sales (ROS) but negatively related to Tobin's q. These contradictory findings help us to understand why – in spite of growing regulatory pressure – companies have been slow to respond with effective action to tackle climate change beyond marginal efficiency improvements that correspond to ‘low‐hanging fruits’. The empirical analysis is based on an unbalanced sample of 7625 firm‐year observations covering carbon emission data (Scope 1 and Scope 2) for 1640 international firms from 2003 to 2015. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

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The effect of carbon risk on the cost of equity capital

Cited by 154 publications

References 23 publications

The effect of greenhouse gas emissions on cost of debt: Evidence from Canadian firms

The effect of greenhouse gas emissions on cost of debt: Evidence from Canadian firms

Carbon disclosure, emission intensity and cost of equity capital: multi‐country evidence

Corporate Carbon and Financial Performance: The Role of Emission Reductions

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