A Cross‐Country Study of Carbon Risk and Financial Constraints: The Role of Carbon Disclosure Quality

ABSTRACT We examine whether firm‐level carbon risk affects financial constraints and whether the quality of carbon disclosure moderates this relationship. Using 16,274 firm‐year observations from 50 countries from 2007 to 2023, we find that higher carbon risk is associated with greater financial constraints. The result is robust to entropy balancing, Heckman correction, instrumental variables and a quasi‐natural experiment based on the 2013 UK carbon disclosure regulation. High‐quality disclosure weakens this association, suggesting that transparency reduces financing frictions by lowering information asymmetry. Additional analyses show that governance, monitoring and institutional context shape the financing consequences of carbon risk.