Dealing with Carbon Risk and the Cost of Debt: Evidence from the European Market

Pizzutilo, Fabio; Mariani, Massimo; Caragnano, Alessandra; Zito, Marianna

doi:10.3390/ijfs8040061

Cited by 24 publications

(16 citation statements)

References 34 publications

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“…Second, inferences drawn from prior studies suggest that environmental regulation increases heavy-polluting firms' environmental liabilities and environmental risks (Schneider, 2008), making debt financing more difficult and costly (Caragnano et al, 2020;Pizzutilo et al, 2020;Ding et al, 2021). In the Chinese capital market, bank loans are the main source of external finance for corporations, due to the immature stock and bond market (Cull and Xu, 2000;Shen et al, 2015).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…The environment is ever-changing, uncertain, and unpredictable (Sharma et al, 2021a). Stringent environment regulation induces heightened environmental uncertainty (Lanoie et al, 2008) by enhancing the heavypolluting firms' environmental risks (Falk and Wee, 2015;Liu X. et al, 2021), making debt financing more difficult and costly (Caragnano et al, 2020;Pizzutilo et al, 2020;Ding et al, 2021). In addition, to achieve the social goal of sustainable development, non-heavy-polluting industries such as new energy industries, typically receive more subsidies (Qiao and Fei, 2022).…”

Section: Introductionmentioning

confidence: 99%

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Environmental Regulation and Corporate Cash Holdings: Evidence From China’s New Environmental Protection Law

Zhang

Cheng

2022

Front. Environ. Sci.

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Exploiting the 2014 Environmental Protection Law (EPL) in China as quasi-natural experiments, we adopt a difference-in-differences approach to examine the impact of environmental regulation on corporate cash holdings. We document that heavy-polluting firms increase their cash holdings 15% more than non-heavy-polluting firms due to stringent environmental regulation. Further tests show that the heightened environmental uncertainty, the limited access to bank loans, and the decline in obtaining government subsidies for heavy-polluting firms are three plausible channels that allow environmental regulation to increase corporate cash holdings. The effects of environmental regulation on cash holdings are stronger for firms without political backgrounds and those in regions with less dependent on the secondary sector. Overall, our results offer original evidence showing how environmental regulation in emerging economies affects firms’ liquidity management decisions and support the precautionary effect of cash holdings.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Environmental Regulation and Corporate Cash Holdings: Evidence From China’s New Environmental Protection Law

Zhang

Cheng

2022

Front. Environ. Sci.

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“…We also control for firm debt, DEPT, calculated by total debt to total assets ratio (Rubino and Napoli 2020). Finally, we control for market to book ratio, MTB, measured by dividing market capitalization on the net book value (Pizzutilo et al 2020). Based on the prior studies concerning ESG, it is indicated that ESG is industry specific (Mănescu 2011).…”

Section: Research Modelsmentioning

confidence: 99%

The Impact of Environmental Sustainability Disclosure on Stock Return of Saudi Listed Firms: The Moderating Role of Financial Constraints

Alsahlawi

Chebbi

Ammer

2021

IJFS

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Environmental sustainability represents nowadays a significant factor for business sector. Firms carry out many initiatives to develop environmental practices. Investors increasingly consider environmental discloser by firms and integrate this disclosure into the investment decision-making process. Using a database of Saudi listed firms, this study adds to the literature by examining the relationship between the environmental sustainability disclosure and stock return and whether this relationship is moderated by the financial constraints. We find that the environmental sustainability disclosure has significant and negative impact on stock return, indicating that investors do not consider environmental disclosure when valuing the stocks. Furthermore, our results propose that the negative impact of environmental disclosure on stock return is more evident in firms with financial constraints. This study provides managerial implications for regulatory authorities, firms and investors. The environmental practices can be value relevant. However, these practices need to be efficiently integrated into stock valuation.

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“…Scholars have also demonstrated that lenders pay particular attention to the exposure to environmental risk in evaluating the overall firms' risk profile (Herbohn et al, 2019; Jung et al, 2018; Raimo et al, 2021). Other studies stressed that costs arising from environmentally irresponsible behaviours not compliant with the required standards and regulations can negatively affect the ability to repay debts and the probability of default (Li et al, 2014; Pizzutilo et al, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital

Mariani

Pizzutilo

Caragnano

et al. 2021

Corp Soc Responsibility Env

Self Cite

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This research aims at investigating the effect of firms' environmental policies on the weighted average cost of capital (WACC) in order to catch capital markets' reaction towards corporate environmental commitment and effectiveness in reducing carbon emissions. We refer to the European market and analysed a sample of companies listed on the Stoxx Europe 600 Index during the timeframe 2014–2018. Our results show that capital markets have become particularly sensitive to environmental issues and therefore reward environmentally virtuous firms with a lower after tax WACC. We also argue that this effect is prominent for both high emitting and low emitting industries.

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Dealing with Carbon Risk and the Cost of Debt: Evidence from the European Market

Cited by 24 publications

References 34 publications

Environmental Regulation and Corporate Cash Holdings: Evidence From China’s New Environmental Protection Law

Environmental Regulation and Corporate Cash Holdings: Evidence From China’s New Environmental Protection Law

The Impact of Environmental Sustainability Disclosure on Stock Return of Saudi Listed Firms: The Moderating Role of Financial Constraints

Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital

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