Capital providers have placed increasing importance on risks associated with transitioning to a low-carbon economy. This study investigates the causal link between energy regulation and cost of debt financing by exploiting regional variations in stringency of the dual control system of total energy consumption and energy intensity (dual controls) to construct a continuous difference-in-difference model. We use a sample of A-share listed firms in 2010-2020 and find that tighter energy regulation leads to higher cost of debt financing. We find that the underlying mechanism is risk premium brought by compliance cost and uncertainties. Further analysis indicates that the impact of dual controls is mainly driven by non-state-owned firms. Lastly, capital providers did not differentiate the interest rates they charge companies based on their level of green transition.
Keywords: Cost of debt financing; Difference-in-differences; Dual controls; Green transition.
© 2023. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.