Abstract
This paper investigates the effect of carbon risk on corporate investment using data from 41 countries for the period 2002–2017. There is strong evidence showing that the impact of carbon risk on corporate investment is negative and statistically significant. Carbon risk also reduces investment inefficiency. We find that carbon-intensive firms are affected more severely compared to carbon-non-intensive ones. Further, the effect depends on the level of a firm's financial constraints, where it is stronger in firms with financial constraints measured by firm size, age, KZ index, and dividend payout policy. Our findings remain consistent in several robustness tests.
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