How Does a Firm's Life Cycle Influence the Relationship Between Carbon Performance and Financial Debt?

Posted: 15 Mar 2021

See all articles by Maria T. Tascón

Maria T. Tascón

Universidad de León

Paula Castro

Universidad de León

Adrián Ferreras

Universidad de León

Date Written: January 20, 2021

Abstract

In a progressively more stringent regulatory context concerning greenhouse gas emissions derived from a growing awareness of how economic activity affects our environment, this study analyzes how the firm's life cycle affects the relationship between carbon performance and financial debt. Using panel data on a sample of European listed firms during the 2005–2018 period, we find evidence suggesting that firms with better carbon performance have greater access to external financing during their growth stages and lesser access during maturity, although it has no effect during the shake‐out stage. Furthermore, carbon performance has a strong positive effect during growth, maturity, and shake‐out when firms need to finance additional tangible investments. We also find that the negative relationship between liquidity and debt is reversed during innovative stages for firms with better carbon performance. Our results are robust to the use of alternative measures of life cycle stages and to the consideration of industrial, legal, and cultural contexts.

Keywords: capital investment, carbon performance, financial debt, firm's life cycle, liquidity

Suggested Citation

Tascon, Maria Teresa and Castro, Paula and Ferreras, Adrián, How Does a Firm's Life Cycle Influence the Relationship Between Carbon Performance and Financial Debt? (January 20, 2021). Available at SSRN: https://ssrn.com/abstract=3775513

Maria Teresa Tascon

Universidad de León ( email )

Leon, 24071
Spain

Paula Castro (Contact Author)

Universidad de León ( email )

Leon, 24071
Spain

Adrián Ferreras

Universidad de León ( email )

Spain

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