Climate Policy Uncertainty and Corporate Capital Structure: International Evidence

Abstract

This article examines how climate policy uncertainty (CPU) affects corporate capital structure using firm-level data from 10 countries that ratified the Kyoto Protocol. Employing a news-based measure of CPU and fixed effects models, I find that higher CPU is associated with significantly lower corporate debt financing, even after controlling for firm-, industry-, and country-level characteristics. Difference-in-differences analyses around the Kyoto Protocol’s first commitment period show that heavy-emitting firms reduce leverage more strongly than light emitters following heightened CPU. The results are robust across multiple specifications and alternative financing measures. Moreover, the negative financing response to CPU is weaker in countries with more stringent environmental regulations, highlighting the role of credible policy commitment. Overall, the findings suggest that CPU induces firms to adopt more cautious financing strategies and underscore the importance of stable and credible climate policies in shaping corporate