Conference Agenda

In this paper we study the relationship between financial constraints and direct emissions at the firm level. We employ data on French manufacturing companies containing detailed information on carbon emissions, environmental policy exposure, and financial variables. We exploit the European Central Bank (ECB) hit of the zero lower bound to identify an exogenous shock to financial constraints. Our main finding is that, after relaxing financial constraints, the more constrained firms reduced their $CO_2$ emissions the most. We also investigate on heterogeneity and transmission channels of the main effect. Our findings reveal that the main result is driven by small and medium enterprises, with the emissions of larger corporations being less elastic to the credit ease. Our results highlight that small and medium enterprises reduced their emissions throughout investment in self-generation and co-generation of electricity, and improvements in both energy and economic efficiency. At last, we investigate on the interaction between the shock to financing constraints and the EU ETS environmental policy. We use a nearest neighbour matching algorithm to construct a subsample of firms containing ETS treated companies and a control of non-ETS matched firms. Our estimates suggest that the interactions between financing constraints and environmental policies are small. We argue that the large size of treated companies, allows them to escape from issues related to financing constraints.