Environmental Transaction Costs and Speed of Adjustment to Target Debt in European Carbon Emitters

This study analyzes how environmental transaction costs affect the speed of adjustment to the target financial debt. By applying GMM and panel data on European listed firms over the period 2005–2015, we find that the speed of adjustment is slower for carbon emitters. These results suggest that higher transaction costs (TCs) are associated with carbon emissions. However, the effect can be avoided in some cases, such as when larger firms benefit from economies of scale for a large portion of their TCs and when high-tech firms can optimally integrate TCs into their organization. By contrast, regulated firms suffer stronger negative effects of environmental TCs on their financial performance