Three Essays in Climate Finance

  • Tiancheng Yu

Student thesis: Phd

Abstract

This thesis consists of three essays on climate finance. In the first essay, I find that manufacturing firms adopt more conservative capital structures in response to the Nitrogen Oxides (NOx) Budget Trading Program (NBP) of 2004, a regional cap-and-trade program aimed at mitigating the NOx emissions of power plants in 11 midwestern and southeastern states in the United States. Further analysis demonstrates that, because the NBP induces an electricity price shock, it affects manufacturers' financial decisions by raising their operating leverage and distress risk. I also find that firms respond to the NBP's adoption heterogeneously: they adjust their financial leverage more dramatically when facing greater electricity intensity, financial distress threats, or competitive pressure. In addition, firms adapt not only capital structure but also other financial policies in response to the regulation. Overall, this study shows that climate policy risk constitutes an essential consideration in firm financial decisions. It also highlights potential unintended consequences of policy responses to climate change for the corporate sector. The second essay examines how climate regulation impacts corporate debt maturity by exploiting the implementation of the 2004 NBP in 11 midwestern and southeastern states in the United States. I find that manufacturers shorten their debt maturity to adapt to this regulation, with the effect being more pronounced for firms with higher degrees of electricity intensity, financial constraints, or information frictions. These results support the argument that the NBP undermines manufacturing firms' access to long-term credit via increasing their operating inflexibility. The findings highlight the unintended consequences of climate policy risk for the maturity structure of corporate debt. In the third essay, using U.S. plant-level data, I find that pollutant emissions reduce significantly when labor mobility increases due to weakened enforcement of covenants not to compete (CNCs) in the states of residency. The effect is more pronounced for firms relying more on highly skilled labor and intangible capital, having lower degrees of financial constraints, or facing greater product market competition. I further document that, as labor mobility restrictions relax, treated firms increase their green innovation and green investment. The results suggest that greater labor mobility improves corporate environmental performance through boosting emission abatement activities, highlighting an environmental benefit of labor mobility.
Date of Award1 Aug 2023
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorNing Gao (Supervisor) & Viet Dang (Supervisor)

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