Easing financial constraints through carbon trading

• Published in: Empirical economics Vol. 67; no. 2; pp. 655 - 691
• Main Authors: Wu, Qingyang, Ren, Siyu, Hou, Yao, Yang, Zaoli, Zhao, Congyu, Yao, Xusheng
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.08.2024
• Subjects: Econometrics; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Finance; Insurance; Management; Statistics for Business; Carbon allowance transaction volume; Climate change; Listed companies; Financing constraints; Emissions trading scheme
• ISSN: 0377-7332; 1435-8921
• DOI: 10.1007/s00181-024-02565-4

The augmentation of transactional volume within carbon emissions trading systems (ETS) is widely acknowledged as an efficacious mechanism for ensuring the efficient distribution of resources and financial support to corporations, significantly influencing their financing limitations. Despite its relevance, this subject has garnered scant attention in scholarly discourse. This research utilizes a panel dataset comprising Chinese listed firms from 2009 to 2019, applying the difference-in-differences approach to examine the correlation between the magnitude of carbon emissions trading in regional ETS pilots and the evolution of financial constraints. Our analysis reveals that a 1% escalation in carbon transaction volume correlates with a 0.1885% reduction in the financial constraints encountered by companies. This phenomenon is particularly salient among smaller enterprises in the eastern provinces and second-tier urban centers, and those engaged in the primary and secondary sectors. Moreover, our principal results demonstrate resilience across various sensitivity analyses, encompassing common trend scrutiny and alternative methodologies like propensity score matching estimation. The research further delves into the underlying mechanisms by which carbon trading can mitigate a firm’s fiscal pressures. Our examination identifies investment in intangible assets, improved carbon performance, and liquidity enhancement as key conduits. These findings carry substantial policy implications, advocating for governmental initiatives to bolster corporate engagement in ETS, thereby easing financial burdens while concurrently advancing environmental regulation and low-carbon transformation objectives.