Do corporate carbon emissions affect risk and capital costs?

Journal article

Arian, Adam Gholami and Sands, John. (2024). Do corporate carbon emissions affect risk and capital costs? International Review of Economics and Finance. 93(Part A), pp. 1363-1377. https://doi.org/10.1016/j.iref.2024.04.018
AuthorsArian, Adam Gholami and Sands, John
Abstract

This study explores the impact of corporate carbon emissions on idiosyncratic risk and capital costs. Leveraging a dataset comprising 1016 company-year observations from Australian-listed companies over the period 2007 to 2020, our panel regression analysis reveals significant associations. We find that companies with higher carbon emissions experience elevated idiosyncratic risk, contributing to increased capital costs in both debt and equity markets. Our results remain robust after using alternative model specifications, accounting for the diverse nature of corporate carbon performance among industries, shaped by unique industrial factors. These results highlight the significance of carbon emissions pricing within financial markets and emphasize the importance of standardized corporate carbon disclosure in enhancing market efficiency, facilitating more accurate valuation, and guiding resource allocation in the broader economy.

KeywordsCorporate carbon emissions ; Corporate risk ; Emissions intensity; Cost of capital (COC); Market efficiency
Year01 Jan 2024
JournalInternational Review of Economics and Finance
Journal citation93 (Part A), pp. 1363-1377
PublisherElsevier Ltd. (UK)
ISSN1059-0560
Digital Object Identifier (DOI)https://doi.org/10.1016/j.iref.2024.04.018
Web address (URL)https://www.sciencedirect.com/science/article/pii/S1059056024002715?via%3Dihub
Open accessOpen access
Research or scholarlyResearch
Page range1363-1377
Publisher's version
License
File Access Level
Open
Output statusPublished
Publication dates
Online07 Apr 2024
Publication process dates
Accepted03 Apr 2024
Deposited30 Aug 2024
Additional information

© 2024 The Author(s). Published by Elsevier Inc.

This is an open access article under the CC BY license
(http://creativecommons.org/licenses/by/4.0/).

Place of publicationAustralia
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