Climate Change Regulatory Exposure and Corporate Investment: International Evidence
Abstract/Description
We studied the influence of Climate Change Regulatory Exposure (CCRE) on corporate investment decisions. We explored potential asymmetries due to financial constraints, carbon intensity, Environmental Policy Stringency (EPS), and international regulatory factors. Analyzing an extensive dataset covering over six thousand firms across thirty-four countries from 2001 to 2021, we document that climate change-related regulatory risk hurts corporate investments. This effect is particularly prominent for firms with substantial financial constraints, higher carbon intensity, and those operating in countries with stringent environmental policies. These results are based on the view that firms facing significant regulatory pressure due to their slow progress in achieving sustainability objectives are penalized with higher capital costs and increased regulatory expenses. This can hurt their investment activities.
The results remain consistent when using different investment measures, addressing potential endogeneity issues, and conducting sub-sample analyses considering significant global crisis periods. Our study offers crucial insights into managerial strategies and policy frameworks, highlighting the necessity for proactive risk mitigation in corporate planning and informed regulatory approaches to foster sustainability and achieve developmental objectives.
Track
Finance
Session Number/Theme
3A: Finance
Session Chair
Dr. Mohsin Zahid Khawaja ; Dr. Falik Shear
Start Date/Time
30-5-2024 5:00 PM
End Date/Time
30-5-2024 6:00 PM
Location
MCS – 3 AMAN CED Building
Recommended Citation
Ali, S. (2024). Climate Change Regulatory Exposure and Corporate Investment: International Evidence. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2024/program/31
COinS
Climate Change Regulatory Exposure and Corporate Investment: International Evidence
MCS – 3 AMAN CED Building
We studied the influence of Climate Change Regulatory Exposure (CCRE) on corporate investment decisions. We explored potential asymmetries due to financial constraints, carbon intensity, Environmental Policy Stringency (EPS), and international regulatory factors. Analyzing an extensive dataset covering over six thousand firms across thirty-four countries from 2001 to 2021, we document that climate change-related regulatory risk hurts corporate investments. This effect is particularly prominent for firms with substantial financial constraints, higher carbon intensity, and those operating in countries with stringent environmental policies. These results are based on the view that firms facing significant regulatory pressure due to their slow progress in achieving sustainability objectives are penalized with higher capital costs and increased regulatory expenses. This can hurt their investment activities.
The results remain consistent when using different investment measures, addressing potential endogeneity issues, and conducting sub-sample analyses considering significant global crisis periods. Our study offers crucial insights into managerial strategies and policy frameworks, highlighting the necessity for proactive risk mitigation in corporate planning and informed regulatory approaches to foster sustainability and achieve developmental objectives.
Comments
This paper is related to climate finance