Corporate Environmental Liabilities and Capital Structure

47 Pages Posted: 17 Jul 2018 Last revised: 3 Mar 2021

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Kangkang Fu

Hong Kong Baptist University

Tao Li

Central University of Finance and Economics (CUFE) - School of Economics

Lewis Tam

Faculty of Business Administration, University of Macau

George Wong

The Hong Kong Polytechnic University

Date Written: February 28, 2021

Abstract

We investigate the capital structure implications of corporate environmental liabilities, which are measured using the amount of toxic production-related waste produced by firms. We document that firms with higher environmental liabilities maintain lower debt-to-assets ratios, suggesting that environmental liabilities work as a substitute for financial liabilities. The substitution effect is more pronounced for firms that are larger, followed by more financial analysts, more reliant on principal customers, or more subject to community concerns. Further analyses show that ceteris paribus, less environmentally responsible firms have a lower fraction of bank debt in total debt, consistent with the notion that banks are more environmentally sensitive than other lenders. Overall, our findings imply that being environmentally responsible can enhance a firm’s debt capacity and improve its access to bank credit.

Keywords: corporate social responsibility, corporate environmental responsibility, environmental liability, capital structure, debt structure

JEL Classification: G32, L11

Suggested Citation

Chang, Xin and Fu, Kangkang and Li, Tao and Tam, Lewis and Wong, George, Corporate Environmental Liabilities and Capital Structure (February 28, 2021). Available at SSRN: https://ssrn.com/abstract=3200991 or http://dx.doi.org/10.2139/ssrn.3200991

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

HOME PAGE: https://personal.ntu.edu.sg/changxin/

Kangkang Fu (Contact Author)

Hong Kong Baptist University ( email )

34 Renfrew Road
Wing Lung Bank Building for Business
Hong Kong
Hong Kong

Tao Li

Central University of Finance and Economics (CUFE) - School of Economics ( email )

Beijing
China

Lewis Tam

Faculty of Business Administration, University of Macau ( email )

Room E22-4055, University of Macau
Avenida da Universidade
Taipa
Macau

George Wong

The Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom, Kowloon, 0
Hong Kong
852 3400 3459 (Phone)
852 2330 9845 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
310
Abstract Views
2,159
rank
117,732
PlumX Metrics