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

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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 language	English
Article number	104565
Journal	Finance Research Letters
Volume	58
Issue number	Part C
Early online date	8 Oct 2023
DOIs	https://doi.org/10.1016/j.frl.2023.104565
Publication status	Published - Dec 2023

Keywords

Bankruptcy risk
Cash holdings
Climate change
Emission trading scheme
Financial constraints

ASJC Scopus subject areas

Finance

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title = "Emissions trading scheme participation and firms{\textquoteright} cash holdings",

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.",

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AU - Sakariyahu, Rilwan

AU - Lawal, Rodiat

AU - Kwansa, Nana Abena

AU - Ahmed, Ammar

AU - Adamolekun, Gbenga

PY - 2023/12

Y1 - 2023/12

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.

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KW - Financial constraints

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Emissions trading scheme participation and firms’ cash holdings

Abstract

Keywords

ASJC Scopus subject areas

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