Work

Do corporate carbon emissions affect risk and capital costs?

Year: 2024

Type: article

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 spanning 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 underscore the pricing of carbon emissions by 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.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2024.04.018

Authors: Adam G. Arian, John Sands

Institution: University of Southern Queensland

Language: English

Topic: Corporate Social Responsibility Reporting

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $2,790