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Corporate leverage and leverage speed of adjustment: Does environmental policy stringency matter?

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  • Lee, Chien-Chiang
  • Wang, Chih-Wei
  • Thinh, Bui Tien
  • Purnama, Muhammad Yusuf Indra
  • Sharma, Susan Sunila

Abstract

This study examines the effects of environmental policy stringency on corporate leverage and speed of adjustment across 39 countries from 1994 to 2020. The primary empirical findings illustrate that environmental policy stringency is negatively related to leverage and leverage adjustment speed. Such effects are prominent for firms with financial constraints, in countries with significant climate-risk exposure and corruption, or in Asia. Based on our main findings, when policymakers implement environmental policies, corporate decisions regarding leverage and debt financing should be taken into account, as these policies can discourage firms from increasing leverage and slow down the speed of adjustment toward optimal leverage.

Suggested Citation

  • Lee, Chien-Chiang & Wang, Chih-Wei & Thinh, Bui Tien & Purnama, Muhammad Yusuf Indra & Sharma, Susan Sunila, 2024. "Corporate leverage and leverage speed of adjustment: Does environmental policy stringency matter?," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24000957
    DOI: 10.1016/j.pacfin.2024.102344
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    More about this item

    Keywords

    Leverage; Speed of adjustment; Environmental policy stringency;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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