{"title":"Agency conflicts and investment with carbon emission reduction","authors":"Ting Lu, Pengfei Luo, Wentao Guo","doi":"10.1111/irfi.70015","DOIUrl":null,"url":null,"abstract":"<p>We develop a dynamic investment model that incorporates agency conflicts, considering the impact of rare disaster and carbon emission reduction. This model elucidates the effects of carbon emission reduction on capital investment, asset pricing, and welfare. Our findings indicate that optimal carbon emission reduction level increases with disaster risk, volatility, and risk aversion. Furthermore, in comparison to the inaction scenario, carbon emission reduction leads to underinvestment, enhances Tobin's <span></span><math>\n <semantics>\n <mrow>\n <mi>q</mi>\n </mrow>\n <annotation>$$ q $$</annotation>\n </semantics></math>, increases risk-free rate, and decreases risk premium. This introduces a non-monotonic relationship among capital investment, risk-free rate, risk premium with disaster risk. Lastly, carbon emission reduction mitigates the cost for the outside shareholder to address agency conflicts.</p>","PeriodicalId":46664,"journal":{"name":"International Review of Finance","volume":"25 2","pages":""},"PeriodicalIF":1.8000,"publicationDate":"2025-04-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Finance","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/irfi.70015","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We develop a dynamic investment model that incorporates agency conflicts, considering the impact of rare disaster and carbon emission reduction. This model elucidates the effects of carbon emission reduction on capital investment, asset pricing, and welfare. Our findings indicate that optimal carbon emission reduction level increases with disaster risk, volatility, and risk aversion. Furthermore, in comparison to the inaction scenario, carbon emission reduction leads to underinvestment, enhances Tobin's , increases risk-free rate, and decreases risk premium. This introduces a non-monotonic relationship among capital investment, risk-free rate, risk premium with disaster risk. Lastly, carbon emission reduction mitigates the cost for the outside shareholder to address agency conflicts.
期刊介绍：
The International Review of Finance (IRF) publishes high-quality research on all aspects of financial economics, including traditional areas such as asset pricing, corporate finance, market microstructure, financial intermediation and regulation, financial econometrics, financial engineering and risk management, as well as new areas such as markets and institutions of emerging market economies, especially those in the Asia-Pacific region. In addition, the Letters Section in IRF is a premium outlet of letter-length research in all fields of finance. The length of the articles in the Letters Section is limited to a maximum of eight journal pages.
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