Carbon Finance and Dynamic Capital Structure Adjustment

Dynamic adjustment of capital structure is crucial for corporate financial stability and long-term resource allocation, and it is also an important foundation for sustainable economic development. In the context of global climate change, carbon finance is playing a key role in incentivizing emissions reductions and promoting the transition to a low-carbon economy. While the existing literature has explored the macroeconomic effects of carbon finance, its impact at the firm or micro—level, particularly on capital structure decisions, remains largely unexamined. This study aims to investigate the effect of carbon finance on the speed of dynamic capital structure adjustment and the degree of deviation of enterprises. Data were collected from China's A-share-listed companies between 2014 and 2024 to construct the provincial carbon finance development index, and a partial adjustment model was applied to measure the speed of capital structure adjustment. The findings indicate that carbon finance has a significantly positive effect on the speed of adjusting the capital structure and that carbon finance is consistent in keeping firms in line with their target leverage ratio, according to a number of robustness tests. Notably, cross-sectional analyses show that this effect is more pronounced among firms with higher green innovation outputs and greater indebtedness. Further research indicates that the underlying mechanism driving this relationship lies in alleviating financing constraints and reducing financing costs. By bridging the gap between market-oriented environmental regulations and corporate financial policies, our study provides policymakers with evidence to improve carbon finance mechanisms and gives managers a basis for using green finance tools to create sustainable value.