“Haste Makes Waste” in the Green Transition: Corporate Transition Speed, Leverage Buildup, and Default Risk in Emerging Markets

ABSTRACT Corporate decarbonization combines real investment, governance change, and disclosure. Using Chinese A‐share firms (2008–2022), we examine whether faster green transition predicts higher financial fragility. We develop a dynamic model with convex adjustment costs and financing constraints embedded in a structural default‐risk framework. Transition speed is measured as the year‐on‐year speed of a composite green transition index constructed via entropy‐weighted TOPSIS (excluding financial‐performance proxies); the baseline uses Δln(1 + gt) and robustness uses absolute changes, growth rates, and physical proxies (CO 2 ‐ and pollution‐intensity reduction speed). Firm and year fixed‐effects estimates show that faster transition is associated with higher distress and default risk (lower Z‐scores and distance‐to‐default), with heterogeneous but not uniformly ranked effects across pollution, life‐cycle and regional subsamples. Evidence is strongest for leverage buildup and higher volatility; innovation outcomes and debt‐structure adjustments provide additional mechanism‐consistent but more mixed evidence. Green finance is associated with the financing environment around rapid transition, disclosure provides the clearest buffering evidence by lowering financing costs and attenuating selected risk measures, and regulation mainly adds compliance‐cost pressure rather than a robust offset in the core distress/default regressions. Overall, we provide evidence of an intertemporal trade‐off between rapid transition and short‐run financial stability.