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Impact of mandatory environmental information disclosure on the capital cost: Evidence from listed companies in China

  • 0School of Economics and Management, Qingdao University of Science and Technology, Qingdao, 266061, China.
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January 3, 2025

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January 3, 2025

View abstract on PubMed

Summary

This summary is machine-generated.

Mandatory environmental information disclosure (EID) enforcement in China increases corporate debt costs by worsening financial performance. This contrasts with prior research, highlighting unique impacts on non-SOE, small, and recession firms.

Area Of Science

  • Environmental economics
  • Corporate finance
  • Regulatory compliance

Background

  • Formal environmental regulation drives mandatory environmental information disclosure (EID).
  • EID content aims to enhance public participation and oversight in environmental matters.
  • Existing research often suggests EID reduces corporate capital costs.

Purpose Of The Study

  • To investigate the impact of mandatory EID enforcement in China on corporate capital cost.
  • To analyze the mechanisms through which EID affects capital cost.
  • To identify firm characteristics that moderate the effect of EID on capital cost.

Main Methods

  • Utilizing a difference-in-difference model to assess the causal effect of EID enforcement.
  • Conducting mechanism tests to explore the pathways of EID's impact.
  • Segmenting the analysis based on firm ownership, size, and economic status.

Main Results

  • Mandatory EID significantly increases debt capital cost, contrary to some existing literature.
  • No significant impact of EID was found on equity capital cost.
  • Deterioration in financial performance was identified as a key mechanism linking EID to higher debt costs.
  • EID led to a reduction in total debt and a shift from long-term to short-term liabilities.
  • The effect was more pronounced for non-SOE, small-scale, and recessionary corporations.

Conclusions

  • Mandatory EID in China has a significant, albeit counterintuitive, effect on corporate debt capital cost.
  • The findings challenge conventional views and underscore the importance of considering firm-specific factors and regulatory context.
  • This research offers novel empirical evidence on the effectiveness of EID and suggests avenues for future research in environmental regulation and corporate finance.

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