Carbon Exposure and Corporate Cash Holdings: International Evidence from the Paris Agreement

We ask whether an increase in the salience of climate-transition risk changes corporate liquidity policy. Using the December 2015 Paris Agreement as a global shock, we estimate a difference-in-differences model using 1745 listed non-financial firms from 55 countries over 2010–2025. Firms in the top quartile of pre-treatment carbon intensity (CO2 emissions scaled by revenue in 2015) are classified as treated. In our preferred specification, which includes firm fixed effects and industry-by-year fixed effects with standard errors two-way clustered by firm and year, the cash-to-net-assets ratio of treated firms rises by 2.17 percentage points relative to less carbon-intensive peers after 2015. This effect is equivalent to approximately 14.9% of the full-sample mean and is statistically significant at the 10% level. In the event study, the five pre-treatment coefficients for 2010–2014 are small and individually insignificant, but their joint test rejects the null under two-way clustering, so the evidence on parallel pre-trends is sensitive to the inference procedure; the post-treatment coefficients turn positive around 2019 and remain positive through 2025. In a 500-replication randomisation-inference placebo test, the actual estimate lies toward the upper tail of the placebo distribution (empirical two-sided p = 0.0978). The coefficient remains positive under propensity-score matching, country-by-year fixed effects, alternative sample windows, an alternative scaling of the cash variable, a 50th-percentile treatment cut-off, and the exclusion of potential post-treatment controls, although several of these estimates are only marginally significant. The level of cash does not increase, so the result concerns the cash ratio rather than cash accumulation. Exploratory analysis using the Whited–Wu index is consistent with, but does not establish, a financing-constraints channel. Because the design cannot separate the Agreement itself from subsequent implementation and other post-2015 developments, we interpret the result as an association between the post-Paris transition-policy environment and a relative rise in the cash ratios of carbon-intensive firms, which we regard as suggestive rather than conclusive evidence of a precautionary response to climate-policy uncertainty.