Climate Policy Risk and Corporate Financial Decisions: Evidence from the NOx Budget Trading Program

• 成果类型: Article
• 署名作者: Dang, Viet Anh; Gao, Ning; Yu, Tiancheng
• 署名单位: University of Manchester; Alliance Manchester Business School; University of Exeter
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4617
• 发表日期: 2023
• 页码: 7517-7539
• 关键词: Policy risk; climate change; emission mitigation; abatement; cap-and-trade programs; capital structure; Leverage ratio; financial decisions; input costs; Financial distress; Operating leverage

摘要

We find that manufacturing firms adopt more conservative capital structures in response to the Nitrogen Oxides (NOx) Budget Trading Program (NBP) of 2004, a regional cap-and-trade program aimed at mitigating the NOx emissions of power plants in 11 mid western and southeastern states in the United States. Our further analysis demonstrates that, because the NBP induces an electricity price shock, it affects manufacturers' financial decisions by raising their operating leverage and distress risk. We also find that firms respond to the NBP's adoption heterogeneously: they adjust their financial leverage more dramatically when facing greater electricity intensity, financial distress threats, or competitive pressure. In addition, firms adapt not only capital structure, but also other financial policies in response to the regulation. Overall, our study shows that climate policy risk constitutes an essential consideration in firm financial decisions. It also highlights potential unintended consequences of policy responses to climate change for the corporate sector.