Environmental Impact‐Adjusted Firm Value and Debt: A Multi‐Country Analysis

ABSTRACT The study finds a nonlinear, inverted U‐shaped relationship between leverage and environmental impact‐adjusted firm value (), confirming the trade‐off theory. The firm value increases with leverage up to an optimal point, approximately 58%–61% of total assets, after which higher leverage leads to value erosion due to rising default risk and financial distress costs. Our results also reveal that higher leverage is associated with lower environmental impact. Quantile regression analysis highlights that the impact of leverage varies across the distribution of , with stronger effects observed at higher quantiles. Contextual country‐level variables, such as capital market development, positively influence , while banking system inefficiencies, like higher net interest margins and banking crises, negatively affect it. Despite data limitations for country‐specific variables, the findings remain robust, emphasizing the nuanced relationship between leverage and firm value in a multi‐country context.