Emissions trading scheme participation and firms’ cash holdings

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

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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 languageEnglish
Article number104565
JournalFinance Research Letters
Volume58
Issue numberPart C
Early online date8 Oct 2023
DOIs
Publication statusPublished - Dec 2023

Keywords

  • Bankruptcy risk
  • Cash holdings
  • Climate change
  • Emission trading scheme
  • Financial constraints

ASJC Scopus subject areas

  • Finance

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