ISSN: 2226-3624
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Whether carbon pricing erodes or strengthens corporate profitability remains contested, and the evidence for emerging economies is mixed. This study treats China’s pilot carbon emissions trading scheme (CET) as a quasi-natural experiment and estimates its effect on the financial performance of listed firms. Using 9,134 firm-year observations of A-share companies for 2009–2022 and a difference-in-differences design with firm fixed effects, year fixed effects and province-specific time trends, we find that CET raises return on assets by 1.83 percentage points and return on equity by 2.87 percentage points. The gain is not immediate. Yearly estimates are statistically insignificant in 2013–2015 and become significant only from 2016, which is consistent with the innovation-offset argument of the Porter hypothesis. The effect is concentrated in large firms and is absent in small firms. Mechanism tests indicate that eased financing constraints carry about one tenth of the total effect, whereas technological innovation carries less than two per cent. The results survive parallel-trend, placebo, alternative-outcome and propensity-score-matching checks. Pilot carbon markets therefore rewarded regulated firms with a delay, and small firms need transitional support to share in the gains.
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