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April 8, 2026SustainabilityOpen Access

Emissions Trading, Green Innovation, and Sustainable Finance: Evidence from China’s SO2 Pilot on Firms’ Cost of Equity

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Authors

XLXiaofei LiDongbei University of Finance and EconomicsJWJinrui WeiDongbei University of Finance and EconomicsJWJianzhou WangMacau University of Science and Technology

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Implication

Examines how emissions trading reduces firms’ cost of equity in China, suggesting benefits for finance and innovation.

Key Points

  • The goal is to investigate how emissions trading affects firms' cost of equity capital and their engagement in green innovation.
  • Used a quasi-natural experiment based on China's 2007 SO2 emissions trading policy.
  • Analyzed A-share listed firms from 2003 to 2023 using a two-way fixed-effects difference-in-differences model.
  • Conducted heterogeneity analysis considering various firm characteristics and regional regulations.
  • Found that the SO2 emissions trading policy significantly reduces firms' cost of equity capital over time.
  • The reduction effect is stronger in firms with better green innovation, ESG performance, and higher institutional ownership.
  • Non-state-owned firms and those facing financing constraints exhibit more pronounced benefits from the policy.

Cite This Study

Li et al. (2026) studied this question.

synapsesocial.com/papers/69d5f10974eaea4b11a7a840https://doi.org/10.3390/su18073561
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