Firms under green transition pressure: The link between carbon emissions and bankruptcy risk
Main Article Content
Abstract
Climate change has been reshaping the way firms approach financial strategies and risk management. This study explores the relationship between carbon emissions and corporate bankruptcy risk, using Ohlson’s O-score as a proxy for financial deterioration. Drawing on a panel dataset comprising 15,146 firm-year observations from publicly listed companies in Vietnam during the period 2012–2023, the study employs linear regression with multi-dimensional fixed effects to examine the impact of two carbon emission indicators—CarbonSales and CarbonAssets—on firms’ probability of bankruptcy. The regression results indicate a positive and statistically significant relationship between carbon emissions and Ohlson’s O-score, implying that higher emissions are associated with an increased risk of bankruptcy. This finding remains robust after controlling for financial variables such as firm size, profitability, leverage, and cash flow. The results suggest that climate-related risks are quantifiable financial factors that should be integrated into corporate risk management frameworks and macro-financial policy design. This study contributes to the academic literature by extending traditional bankruptcy prediction models to include climate-related variables and provides important empirical evidence from the context of an emerging market—Vietnam. Accordingly, it offers relevant policy implications for green credit management, systemic risk assessment, and the design of early warning mechanisms in the era of green economic development.
Keywords
Carbon emissions; Climate risk; Corporate bankruptcy risk; Ohlson’s O-score
Article Details
Field of Economic (JEL Codes)
G22 - Insurance • Insurance Companies • Actuarial Studies - G24 - Investment Banking • Venture Capital • Brokerage • Ratings and Ratings Agencies - G28 - Government Policy and Regulation - Financial Institutions and Services, G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill - G33 - Bankruptcy • Liquidation - Corporate Finance and Governance
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