In this paper the relationship between carbon risk and corporate capital structure is examined. Recent literature highlights that heavy carbon-emitting firms need to adjust their level of indebtedness to reach their optimal financial leverage. Specifically, the amount of debt raised by high carbon-emitting businesses is lower than that of their low carbon-emitting counterparts. This can be explained by using the trade-off theory, according to which heavy carbon-emitting firms undergo both increasing financial distress costs and decreasing tax benefits of debt, causing them to employ a lower level of financial leverage relative to light carbon-emitting firms.
Carbon Risk and Corporate Capital Structure: The State of the Art / Domenichelli, Oscar. - In: INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCE. - ISSN 1916-9728. - ELETTRONICO. - 15:8(2023), pp. 66-72. [10.5539/ijef.v15n8p66]