Impact of carbon border adjustment mechanism on the stock market value of high-polluting firms in China: The role of supply chain risk management and internationalization capabilities

Abstract

As the world’s first “carbon tariff”, the implementation of European Union’s Carbon Border Adjustment Mechanism (CBAM) has drawn considerable attention within the field of operations management. This paper employs an event study methodology to examine the effect of the CBAM on the stock market value of Chinese A-share listed firms in high-polluting industries, the six CBAM target industries, and upstream industries that produce indirect emissions. We find that CBAM leads to negative abnormal returns for firms in both the six target industries of CBAM and indirect emission industries, increasing the risk of supply chain disruptions. Drawing on dynamic capabilities theory, we also explore the effect of supply chain risk management and internationalization capabilities on how well high-polluting firms adapt to CBAM. We find that these capabilities mitigate the negative effect of CBAM on firm market value. Based on these findings, we call for more concerted efforts to understand the role of carbon taxes in reducing carbon leakage. Moreover, we recommend that firms strategically leverage their dynamic capabilities to adapt to the risks posed by changing international environmental regulations. These findings provide valuable insights into the intersection between international policy and operations management.