CET policy and corporate performance: the role of ESG misalignment and TMT characteristics

This paper examines the mechanisms through which China's carbon emissions trading (CET) policy, implemented in 2013, affects corporate performance from the perspective of ESG misalignment and financial constraints. Recognizing the importance of top management team (TMT) characteristics, we further examine their moderating role in shaping policy outcomes. Employing the difference-in-differences (DID) method, this study analyzes China’s A-share listed firms from 2008 to 2023. Results indicate that the CET policy significantly improves corporate performance. The findings remain robust after accounting for propensity score matching, concurrent environmental regulations, and the COVID-19 shock. Mechanism tests reveal that the CET policy enhances corporate performance by easing financing constraints. However, the disparity between firms’ ESG disclosure and actual practice weakens this effect. Additional analyses find that TMT characteristics moderate the policy's effectiveness: longer CEO tenure, higher average education levels, and greater average age within TMTs reduce the positive effect of the CET policy. The effect is also more salient among smaller firms and those with higher carbon intensity. This study contributes to the micro-level understanding of China's CET policy and highlights the importance of aligning managerial attributes and ESG practices with carbon market objectives. The study provides policy implications for strengthening China's carbon trading system and enhancing corporate responses to climate initiatives.