Emissions trading scheme participation and firms' cash holdings

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

doi:10.1016/j.frl.2023.104565

Emissions trading scheme participation and firms' cash holdings

Rilwan Sakariyahu, Rodiat Lawal^*, Nana Abena Kwansa, Ammar Ahmed, Gbenga Adamolekun

^*Corresponding author for this work

Finance (Business School)

Research output: Contribution to journal › Article › peer-review

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.

Original language	English
Article number	104565
Journal	Finance Research Letters
Volume	58
Issue number	C
Early online date	12 Oct 2023
DOIs	https://doi.org/10.1016/j.frl.2023.104565
Publication status	Published - 1 Dec 2023

Keywords

Climate change
Emission trading scheme
Cash holdings
Bankruptcy risk
Financial constraints

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Sakariyahu_2023_FinResLett_Emissions-trading-scheme-participation-firms'-cash-holdings_CCBY
Copyright © 2023 The Author(s). Published by Elsevier Inc. This is an open access article distributed under the terms of the Creative Commons CC-BY license (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Cite this

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title = "Emissions trading scheme participation and firms' cash holdings",

abstract = "This study investigates the effect of participating in an emissions trading scheme (ETS) on firms{\textquoteright} 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{\textquoteright} 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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AU - Lawal, Rodiat

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AU - Ahmed, Ammar

AU - Adamolekun, Gbenga

PY - 2023/12/1

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N2 - 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.

AB - 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.

KW - Climate change

KW - Emission trading scheme

KW - Cash holdings

KW - Bankruptcy risk

KW - Financial constraints

U2 - 10.1016/j.frl.2023.104565

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JO - Finance Research Letters

JF - Finance Research Letters

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Emissions trading scheme participation and firms' cash holdings

Abstract

Keywords

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