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Does climate policy uncertainty matter for bank value?

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Abstract

We examine whether and how climate policy uncertainty (CPU) affects bank value. Based on a sample of Chinese listed banks, we find that CPU is negatively associated with bank value, irrespective of bank type and bank size. Moreover, the increased CPU exacerbates the negative effects on bank value of the ratio of non-performing loans to total loans (NPL), operational efficiency (OE), and leverage ratio (LEV), suggesting that NPL, OE, and LEV are possible channels through which CPU harms bank value. The policy implication is that bank equity investors need to take the impact of CPU into account when deciding their investment portfolios while bankers and regulators need to improve some key financial indicators to reduce the negative impact of CPU.

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Notes

  1. For instance, Ren et al. (2022) find that CPU significantly reduces total factor productivity at the firm level, so worsening the economic situation in China.

  2. https://www.ndrc.gov.cn/xxgk/zcfb/tz/202202/t20220210_1314511.html: China**’s National Development and Reform Commission (NDRC) issued “Opinions of the National Energy Administration on Improving Institutional Mechanisms and Policy Measures for Green and Low Carbon Energy Transition”.

  3. According to the Hausman test result, we select the individual fixed-effect model. We report the results in brevity. Details are available upon request.

  4. Tobin’s Q is the ratio of a company’s market value to the replacement cost of its assets. In theory, Tobin’s Q represents an investor’s judgment of a company’s value, and it is an indicator of a company’s future, risk-adjusted earnings, which is more reliable than managerially manipulated accounting indicators (Montgomery and Wernerfelt 1988).

  5. The specific data source can be found at http://www.policyuncertainty.com/climate_uncertainty.html.

  6. Regional economic variables are used to control for the level of economic development in the bank’s main areas of operational activity and include the regional economic growth rate (G_gdp). As listed commercial banks operate on a national basis, we use the overall national GDP growth.

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Authors and Affiliations

  1. School of Management, Guangdong University of Technology, Guangzhou, China

    Mengting Fan, Zan Mo, Huijian Fu & Yue He

  2. College of Management, Fu Jen Catholic University, New Taipei City, Taiwan

    Tsung-Hsien Wu

  3. School of Business Administration, South China University of Technology, Guangzhou, China

    Zili Chen

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  1. Mengting Fan
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Fan, M., Mo, Z., Fu, H. et al. Does climate policy uncertainty matter for bank value?. Econ Change Restruct 57, 56 (2024). https://doi.org/10.1007/s10644-024-09651-8

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