IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v153y2025ics0261560625000294.html
   My bibliography  Save this article

Carbon risk and debt financing: An international perspective

Author

Listed:
  • Ren, Xiaohang
  • Li, Wenqi
  • Duan, Kun
  • Urquhart, Andrew

Abstract

Threatening escalation of carbon emissions has elicited increasing attention to the significance of carbon risk in shaping a firm’s debt financing decision. Despite the policy significance, the relationship between carbon risk and debt financing remains to be resolved. This paper provides a firm-level investigation to seek insights into the impact of carbon risk on debt financing. Employing an international dataset covering 24 economies, our results suggest that rising carbon risk leads to debt expansion, validating the liquidity shortage view that carbon risk enlarges firm’s liquidity concerns to resort to debt financing. The debt expansion effect of carbon risk is found to be more pronounced in countries with high uncertainty and low socio-economic development, industries with high competition, firms with non-high-tech attributes, low financial constraints, limited growth opportunities, and leverage ratios below the optimal level. Further analysis supports the Porter hypothesis by showing that carbon risk and its resultant debt expansion can enhance corporate performance in a time-lagged pattern.

Suggested Citation

  • Ren, Xiaohang & Li, Wenqi & Duan, Kun & Urquhart, Andrew, 2025. "Carbon risk and debt financing: An international perspective," Journal of International Money and Finance, Elsevier, vol. 153(C).
  • Handle: RePEc:eee:jimfin:v:153:y:2025:i:c:s0261560625000294
    DOI: 10.1016/j.jimonfin.2025.103294
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560625000294
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jimonfin.2025.103294?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:153:y:2025:i:c:s0261560625000294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.