Does carbon emission trading mitigate the level of enterprise investment risk? Evidence from China

Establishing a carbon emission trading market is a significant measure to control greenhouse gas emissions through market mechanisms. It helps reduce the overall costs of emission reductions and promotes a green, low-carbon economic transformation and upgrade. Existing literature mainly analyzes the impact on corporate operational risks from a policy perspective, but there is a lack of discussion on how market-based carbon reduction policy tools affect corporate investment risks from both theoretical and practical angles. Therefore, this paper uses China's carbon emission trading pilot policy implemented in 2011 as a quasi-natural experiment to empirically test the impact of carbon emission trading on corporate investment risk. The study finds that the carbon emission trading pilot policy significantly alleviates the investment risk levels of listed companies in the pilot regions. Subsequent robustness tests, including placebo tests, consistently support the main regression results. Further dynamic effect analysis reveals that the effects of the carbon emission trading policy exhibit a lag and show an "inverted U-shaped" trend. Additionally, the impact of the carbon emission trading pilot policy on corporate investment risks varies significantly heterogeneous depending on the nature of corporate ownership, industrial concentration and the intensity of policy implementation. Moreover, the policy influences investment risk levels through mechanisms of technological improvement and resource allocation optimization. The findings of this paper provide new policy insights for promoting high-quality economic development and deepening corporate reforms under the dual-carbon context.