Financial constraints under carbon emissions trading:a quasi-natural experiment approach

Diverse carbon finance policies have been implemented to reduce enterprise carbon emissions and enhance carbon finance performance. Among these policies, carbon emissions trading (CET) is designed to incentivize enterprises to raise funds through carbon credits, promoting the efficient allocation of carbon resources. While existing research underscores CET’s positive impact on corporate carbon financial performance, its effects on corporate financial constraints and the underlying mechanisms remain underexplored, particularly in emerging markets. Our research addresses this gap by examining the impact of CET on firms’ financial constraints using a quasi-natural experiment approach, analyzing 23,147 observations from listed enterprises in mainland China. The study reveals that CET policies significantly reduce firms’ financial constraints. Additionally, supply chain diversity and green innovation further enhance the effectiveness of CET policies in mitigating these constraints. These findings deepen understanding of the implementation of the CET policy, providing valuable insights for enterprises seeking to improve green innovation capabilities and diversify supply chains to comply with CET regulations. Moreover, this research provides managerial implications for emerging markets, supporting the development of customised policies to facilitate the transition toward a carbon-efficient economy.