Do Carbon Trading Policies Affect Bond Financing Costs for High-Polluting Firms? Evidence from China

This study examines how China's carbon trading policies affect bond-financing costs for high-polluting firms. Utilizing a multi-period difference-in-differences (DID) model and bond data from listed companies in high-polluting industries between 2010 and 2021, this study finds that these policies significantly reduce financing costs. Three distinct mechanisms mediate this effect: increased green innovation, improved environmental performance, and enhanced corporate social responsibility. Heterogeneity analysis reveals that state-owned enterprises, smaller firms, and longer-term bonds benefit more and experience a greater reduction in financing costs. These findings provide valuable insights for policymakers aiming to promote the green transition and sustainable development of high-polluting enterprises.