Essays on Climate Change Economics: How do Chinese Firms Finance for Climatic Risk?

Abstract

Climate change imposes a severe challenge to sustainable development worldwide. Since firms are significant contributors to both carbon emission and economic growth, they should bear the primary responsibility for green transition. However, achieving transition requires large funds and thus places higher demands on corporate financing ability. This thesis applies an econometric approach to investigate how corporate financing addresses climatic risks and contributes to microclimate governance.

From the perspective of internal finance, Chapter 2 highlights that tax avoidance has been employed to hedge climate change risks for climate-sensitive firms. The results also show that firms with myopic, risk-averse, stronger financial background executives adopt more opportunistic tax strategies, which deepens the understanding of how a manager’s characteristics shape climate risk management.

Then, the study moves to external debt finance. Chapter 3 documents the positive effect of green bond issuance on green innovation, motivated by increasing R&D investment and financial constraint alleviation. This upsurge in green innovation enhances not only financial performance but also environmental benefits, which underscore the significance of green finance in fostering sustainable corporate innovation and advancing climate governance rather than merely engaging in greenwashing practices.

Regarding external equity finance, Chapter 4 shows that institutional investors want to earn excess returns from active involvement in the green transition of carbon-intensive firms. This is illustrated in their monitoring and information role in improving firms’ ESG performance and carbon information disclosure when combating carbon risks. This chapter also argues that social climate awareness, industrial climate policy, and market climate expectations could motivate institutional investors to participate in firms’ carbon risk management and green transition. 

Date of Award	30 May 2024
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Lin ZHANG (Supervisor) & Minggao Xue (External Supervisor)