How Does Climate Policy Uncertainty Affect Excessive Corporate Debt? The Case of China

Abstract

This paper explores the direct and indirect relationship between climate policy uncertainty and excessive corporate debt, and focuses on the moderating effect of financing constraints. We use the climate policy uncertainty index to represent climate policy uncertainty, and use the Kaplan and Zingales (KZ) index to represent financing constraints. Our study employs data from Chinese non-financial listed companies for the period 2007–2020. The results show that climate policy uncertainty not only directly curbs excessive debt, but also indirectly reduces excessive debt by increasing financing constraints. This direct weakening effect is more pronounced in non-state-owned enterprises, high-tech enterprises, and high-carbon enterprises. Moreover, the financing constraints channel is more effective in state-owned enterprises, high-tech enterprises, and high-carbon enterprises. Furthermore, due to the actual situation in China, the direct weakening effect of climate policy uncertainty is very obvious in the central region, while the indirect effect through the financing constraints channel is most obvious in the western region. These empirical findings will help policymakers, managers, and financial institutions to reconsider financing risk under climate policy uncertainty.

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