Impact of climate transition risk on capital income share: evidence from China

Leveraging China’s signing of the Paris Agreement as a quasi-natural experiment, this paper examines how climate transition risk shapes the capital share of income at the firm level. Using a panel of Chinese A-share listed firms over the period 2007–2023, we document that exposure to climate transition risk leads to a statistically significant increase in firms’ capital income share. This finding remains robust to a battery of endogeneity and sensitivity checks. Mechanism analyses indicate that climate transition risk operates through multiple channels: it reduces operating costs, induces capital deepening, accelerates technological progress, and reshapes labour–capital relations, jointly contributing to a higher capital share of income. Heterogeneity tests further show that the effect is more pronounced in regions with lower energy consumption and higher levels of public environmental awareness. Overall, the results offer a novel perspective from the lens of green transition for understanding shifts in the functional distribution of income.