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Do capital markets reward corporate climate change actions? Evidence from the cost of debt


Ali, K and Nadeem, M and Pandey, R, Do capital markets reward corporate climate change actions? Evidence from the cost of debt, Business Strategy and the Environment pp. 1-15. ISSN 0964-4733 (2022) [Refereed Article]

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DOI: doi:10.1002/bse.3308


As a result of recurring natural disasters caused by climate change, firms are under enormous pressure to reconsider their environmental footprints. However, whether or not investors reward firms' climate change actions remains a topic of considerable debate. Using a sample of S&P 500 companies over the period 20052020, we hypothesise and find a significant negative relationship between climate change actions and the cost of debt, indicating that investors indeed reward corporate climate efforts in the form of lower cost funds. This relationship exists in both environmentally sensitive and non-sensitive industries and remains negative and statistically significant even after controlling for the impact of the ongoing pandemic (COVID-19). The findings are robust to the use of alternative measures for our variables, alternative estimation methods and after controlling for endogeneity issues. We interpret our findings within the decision-usefulness and stakeholder-agency theories that suggest that non-financial information on firms' environmental performance is becoming increasingly important when borrowers' creditworthiness is assessed. Our study offers important regulatory and academic policy implications.

Item Details

Item Type:Refereed Article
Keywords:capital markets, climate change, cost of debt, global warming, voluntary environmental disclosure
Research Division:Commerce, Management, Tourism and Services
Research Group:Accounting, auditing and accountability
Research Field:Sustainability accounting and reporting
Objective Division:Expanding Knowledge
Objective Group:Expanding knowledge
Objective Field:Expanding knowledge in commerce, management, tourism and services
UTAS Author:Pandey, R (Associate Professor Rakesh Pandey)
ID Code:155365
Year Published:2022
Web of Science® Times Cited:2
Deposited By:TSBE
Deposited On:2023-02-16
Last Modified:2023-02-16

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