Do corporate carbon emissions affect risk and capital costs?

Article

Arian, Adam G. 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
Article Title

Do corporate carbon emissions affect risk and capital costs?

ERA Journal ID18553
Article CategoryArticle
AuthorsArian, Adam G. and Sands, John
Journal TitleInternational Review of Economics and Finance
Journal Citation93 (Part A), pp. 1363-1377
Number of Pages15
Year2024
PublisherElsevier
Place of PublicationNetherlands
ISSN1059-0560
1873-8036
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
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; Emissions intensity ; Corporate risk ; Cost of capital (COC) ; Market efficiency
Contains Sensitive ContentDoes not contain sensitive content
ANZSRC Field of Research 20203599. Other commerce, management, tourism and services
Byline AffiliationsAustralian Catholic University
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