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Carbon Disclosure, Emission Levels, and the Cost of Debt

38 Pages Posted: 25 Jan 2016  

Stefanie Kleimeier

Maastricht University - Department of Finance

Michael Viehs

Oxford University Smith School of Enterprise and the Environment; European Centre for Corporate Engagement (ECCE)

Date Written: January 21, 2016

Abstract

In this paper, we investigate the effect of voluntary carbon emissions disclosure on the cost of debt of publicly listed firms. Using a unique and comprehensive database on carbon emissions from CDP (formerly "The Carbon Disclosure Project"), we study whether firms which choose to voluntarily disclose their carbon emissions enjoy more favorable lending conditions – in the form of lower spreads on their bank loans – than their non-disclosing counterparts. Our empirical results reveal a significant and negative relation between voluntarily disclosing carbon emission levels and the cost of bank loans for informationally opaque borrowers. Furthermore, we find that higher industry- and firm-size-adjusted carbon emissions have a positive and significant effect on loan spreads. These effects are common to all loans and not limited to loans which have been arranged by norms-constrained lenders suggesting that spread premia are driven by environmental risks rather than investor preferences.

Keywords: Carbon disclosure, carbon emissions, cost of debt, loan spreads

JEL Classification: A13, G21, Q51

Suggested Citation

Kleimeier, Stefanie and Viehs, Michael, Carbon Disclosure, Emission Levels, and the Cost of Debt (January 21, 2016). Available at SSRN: https://ssrn.com/abstract=2719665 or http://dx.doi.org/10.2139/ssrn.2719665

Stefanie Kleimeier

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Michael Viehs (Contact Author)

Oxford University Smith School of Enterprise and the Environment ( email )

South Parks Road
Oxford, OX1 3QY
United Kingdom
+44-1865-614938 (Phone)

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

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