Carbon emissions and credit ratings

We examine the impact of firm-level carbon emissions on credit ratings, drawing on a sample of 3116 firm-year observations over the period 2004-2018 in the context of U.S. We find a negative, economically meaningful impact of carbon emissions on credit ratings. This finding remains robust when we employ the instrumental variable approach, difference-in-differences approach, and propensity score matching estimates to address potential endogeneity concerns. Our channel analysis reveals that firms that emit high carbon face higher cash flow uncertainty, which in turn, results in lower credit ratings. (C) 2021 Elsevier B.V. All rights reserved.