Decarbonization policy and high-carbon enterprise default risk: Evidence from China

Studying the impact of decarbonization policy on high-carbon enterprise default risk is of great importance to improve climate risk governance. However, the relationship between decarbonization policy and default risk has not been examined to date. Adopting data from Chinese A-share listed enterprises from 2000 to 2020, this paper examines the issue by using a difference-in-differences model. The results indicate that decarbonization policy significantly increases high-carbon enterprise default risk, which is more pronounced among small-sized enterprises and those in the growth period. The results of mechanism analysis show that the decarbonization policy increases the default risk of high-carbon enterprises by increasing debt cost and decreasing profitability. Furthermore, these effects are negatively moderated by low-carbon technology innovation and digital transformation. These findings can help governments, high-carbon enterprises, and investors to address default risk triggered by decarbonization policy.