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Carbon intensity, default risk, and investors’ attention to environment: Evidence from South Korea

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  • Park, Dojoon
  • Kang, Yong Joo
  • Lee, Jiyoon

Abstract

We investigate the relationship between carbon intensity and default risk for South Korean firms and examine the role of investor attentiveness to environmental issues on this relationship. Using carbon emissions and Merton's distance-to-default, we find that carbon intensity is significantly negatively associated with the distance-to-default and that the negative association strengthens when foreign ownership is high. Furthermore, we find that default risk for firms subject to the South Korean emissions trading system increased after its adoption. Our results are robust to different default risk proxies and highlights the negative impact carbon intensity has on default risk for South Korean firms.

Suggested Citation

  • Park, Dojoon & Kang, Yong Joo & Lee, Jiyoon, 2023. "Carbon intensity, default risk, and investors’ attention to environment: Evidence from South Korea," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1104-1121.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1104-1121
    DOI: 10.1016/j.iref.2023.07.023
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    References listed on IDEAS

    as
    1. Darwin Choi & Zhenyu Gao & Wenxi Jiang, 2020. "Attention to Global Warming," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1112-1145.
    2. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    3. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    4. Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
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    Cited by:

    1. Zhang, Yunhan & Li, Yan & Zhao, Wanli & Ji, Qiang, 2024. "Climate risk performance and returns integration of Chinese listed energy companies," Energy Economics, Elsevier, vol. 129(C).

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    More about this item

    Keywords

    Carbon intensity; Carbon emissions; Default risk; Distance to default; Investor attention;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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