Emissions trading scheme participation and firms’ cash holdings

Rilwan Sakariyahu · Rodiat Lawal · Nana Abena Kwansa · Ammar Ahmed · Gbenga Adamolekun

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Corporate Finance and Governance Corporate Social Responsibility Reporting Corporate Taxation and Avoidance

Abstract

This study investigates the effect of participating in an emissions trading scheme (ETS) on firms' future cash holdings. Using global firm-level data from different continents, our findings show that, notwithstanding the benefits of ETS, its membership has a significant impact on firms' cash holding. Additionally, we document that bankruptcy risk, firm growth potential, corporation tax, and financial constraints mitigate the impact of ETS on corporate cash holdings. Furthermore, we find that the country of operations, continent, and legal origin of the domiciled firm influence the association between ETS and firm cash holdings level. The results are robust to difference in differences (DiD) estimation and a variety of econometric specifications.

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References

1995Toward a New Conception of the Environment-Competitiveness Relationship 1999The determinants and implications of corporate cash holdings 2009Why Do U.S. Firms Hold So Much More Cash than They Used To?2009Financial Constraints, Investment, and the Value of Cash Holdings 2010Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings 2020The Impact of Climate Change on the Cost of Bank Loans 2021Does carbon pricing reduce emissions? A review of ex-post analyses 2015Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme

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