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Carbon risk, cost of debt financing and the moderation effect of media attention: Evidence from Chinese companies operating in high‐carbon industries
Author(s) -
Zhou Zhifang,
Zhang Tao,
Wen Kang,
Zeng Huixiang,
Chen Xiaohong
Publication year - 2018
Publication title -
business strategy and the environment
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.123
H-Index - 105
eISSN - 1099-0836
pISSN - 0964-4733
DOI - 10.1002/bse.2056
Subject(s) - debt , business , cost of capital , finance , risk financing , panel data , debt ratio , moderation , transparency (behavior) , monetary economics , economics , risk management , financial risk management , profit (economics) , social psychology , psychology , econometrics , microeconomics , political science , law
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.