Emissions trading scheme participation and firms’ cash holdings

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

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.

Citation

Sakariyahu, R., Lawal, R., Kwansa, N. A., Ahmed, A., & Adamolekun, G. (2023). Emissions trading scheme participation and firms’ cash holdings. Finance Research Letters, 58(Part C), Article 104565. https://doi.org/10.1016/j.frl.2023.104565

• Journal Article Type: Article
• Acceptance Date: Oct 7, 2023
• Online Publication Date: Oct 8, 2023
• Publication Date: 2023-12
• Deposit Date: Oct 30, 2023
• Publicly Available Date: Oct 30, 2023
• Print ISSN: 1544-6123
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 58
• Issue: Part C
• Article Number: 104565
• DOI: https://doi.org/10.1016/j.frl.2023.104565
• Keywords: Climate change, Emission trading scheme, Cash holdings, Bankruptcy risk, Financial constraints