The impact of China's carbon emissions trading policy on corporate investment expenditures: Evidence from carbon-intensive industries

The carbon emissions trading (CET) policy internalises the cost of carbon emission reductions borne by companies, which will affect the companies' investment and management decisions. From a micro perspective, this paper analyzes the impact on company investment expenditure and its transmission mechanism by implementing the CET policy. Based on panel data of China's A-share listed companies from eight carbon-intensive industries spanning 2010 to 2020, the time-varying difference-in-difference model and its extended model are used to evaluate the impact of the policy in the pilot areas. The results show that: first, based on the cost effect and legality theories, CET policy can reduce the investment expenditure of the companies by 71.95%. Second, CET policy reduces corporate investment expenditures by increasing corporate debt financing costs. When debt financing costs increase by 120.25%, the investment expenditures will reduce by 2.56% indirectly while the intermediary effect of equity financing costs is not significant. Finally, with the implementation of CET policy, the inhibitory effect on corporate investment expenditures has gradually increased. CET policy has a more significant inhibitory effect on investment expenditures of nonstate-owned companies and small-scale companies. The results have passed the robustness test and provide evidence for the policy-maker to balance microeconomic entity development and carbon reduction, and for companies to make optimization investment and financing decisions in response to policy shocks effectively.