Carbon risk, cost of debt financing and the moderation effect of media attention: Evidence from Chinese companies operating in high‐carbon industries

Zhifang Zhou · Tao Zhang · Kang Wen · Huixiang Zeng

133 citations0/0 files storedBusiness Strategy and the Environment

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Corporate Social Responsibility Reporting Corporate Finance and Governance Sustainable Finance and Green Bonds

Abstract

Abstract The effect of carbon risk on the debt capital market has become increasingly prominent under carbon constraints. We use a panel regression model to examine the relationship between carbon risk and the cost of debt financing and the moderating effect of positive media attention on this relationship. Using a sample of 191 Chinese A‐share listed firms operating in high‐carbon industries covering the period 2011–15, we conduct an empirical study and find that the relationship between carbon risk and the cost of debt financing in China is a U‐shaped one. Thus, carbon risk exerts an “interval effect" on the cost of debt financing, which mainly exists in private firms rather than state‐owned firms. This relationship can be mitigated by positive media attention. Compared with private firms that receive low positive media attention, private firms with high positive media attention are more sensitive and less tolerant to environmental regulations. Our findings provide firms with practical advice on carbon risk management, particularly on improving carbon transparency and mitigating the cost of debt financing.

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References

2010The impact of corporate social responsibility on the cost of bank loans 2009Media Coverage and the Cross‐section of Stock Returns 2014Environmental Externalities and Cost of Capital 2010The role of information and financial reporting in corporate governance and debt contracting 2008The Corporate Governance Role of the Media: Evidence from Russia 2012Does it pay to be really good? addressing the shape of the relationship between social and financial performance 2009The Role of the Business Press as an Information Intermediary 2004Auditor choice and the cost of debt capital for newly public firms

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