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Does climate policy uncertainty influence the corporate cost of debt?

Pengju Zheng,Jun Cui,Bona Xiao

Published 2024 in Journal of Infrastructure Policy and Development

ABSTRACT

This paper employs a sample of Chinese A-share listed companies spanning from 2011 to 2022 to empirically investigate the influence of climate policy uncertainty on the corporate cost of debt, based on the theory of financial friction. We find that climate policy uncertainty significantly increases the corporate cost of debt, and the result is supported by robustness tests. To avoid biases arisen from endogeneity, this paper introduces an instrumental variable approach and propensity score matching method for verification. The endogeneity test results support the baseline regression results as well. Finally, this paper also discovers that financing constraints are the potential mechanism behind the impact of climate policy uncertainty on the corporate cost of debt.

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