The Impact of Climate Change Transition Innovations on the Default Risk

Abstract

In the context of climate change mitigation and adaptation, climate risks stemming from climate transition innovations have garnered significant attention due to concerns about the inadequate climate finance. To shed light on the climate transition risk posed by innovations, this study constructed low-carbon innovation indicators of listed firms in China spanning 2015 to 2021. This study investigated the impact of climate transition innovations on the default risk, considering the mediation effect of investor attention, total factor productivity, and technology spillovers. The findings suggest that low-carbon innovations can mitigate the default risk of listed firms, as evidenced by three low-carbon innovation indicators. Additionally, the research reveals that the climate innovation effect on default risks was moderated when considering climate policy through heterogenous analysis. Furthermore, instrumental variable regressions using the time costs of innovation support the findings. Lastly, default risk was mitigated through lower levels of investor attention, greater total factor productivity, and technology spillovers.