Low-carbon transformation and risk Transferring: Evidence from subsidiaries of listed firms in China

The issue of global warming is pressing and demands effective actions worldwide, especially for emerging markets. Employing the adoption of the Paris Agreement in China as an exogenous shock to low-carbon transformation, we document a new stylized fact that the number of subsidiaries of high carbon-emission firms established in different areas significantly increases following the implementation of the agreement. This finding is mainly driven by the risk transferring motive of high carbon-emission firms, rather than the motives of facilitating green innovation investments or withdrawal from high carbon-emission industries to the other sectors. In addition, faced with the pressure of low-carbon transformation, high carbon-emission firms with strong risk transferring tendencies hesitate in research and development (R&D) investments, and have higher stock price crash risk subsequently. Overall, our paper highlights the risk transferring role of establishing subsidiaries in the process of low-carbon transformation.