Work

The effects of decarbonization on corporate cash holdings

Year: 2025

Type: article

Abstract: This study documents that high‑carbon emitters increase cash holdings by approximately 2.6% (7.9%) on average compared with low-carbon emitters after the implementation of the Paris Agreement (or the initiation of regional emission trading scheme pilots). High-carbon emitters with stronger external financial constraints and more volatile cash flows tends to hold more cash for precautionary motives. Further, cash flow is more valuable for high-carbon emitters after the implementation of decarbonization policies and increased net investing cash flow provides cash for high-carbon emitters in response to decarbonization. Additionally, high-carbon emitters conduct a green transition to reduce carbon emissions. • Corporate cash holdings increase after the implementation of decarbonization policies. • High-carbon emitters' cash holdings increases about 2.6% on average. • Stronger external financial constraint enhances the effects on cash holdings. • Cash flows volatility strengthens the effects on cash holdings. • High-carbon emitters tend to commit to green transition.

Source: Emerging Markets Review

DOI: 10.1016/j.ememar.2025.101356

Authors: Zhenshu Wu, Yi-Cheng Shih, Yao Wang, Rui Zhong

Institutions: Shanghai Dianji University, National Taipei University, Central University of Finance and Economics, The University of Western Australia

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $3,060