Abstract
We examine the effects of environmental regulationson the profitability and value of Korean listed firms,exploiting the first phase of the Korean EmissionsTrading System (ETS) as an exogenous shock. Whileprevious studies have mainly focused on environmentalregulations in developed countries, often yieldinginconclusive results, emerging markets like SouthKorea remain less explored. Using data on Koreanlisted firms from 2011 to 2017, we explore the effects ofthe 2015 Korean ETS on environmental and financialperformance in treated firms. We find that treatedfirms did not reduce their carbon emissions, buttheir environmental ratings improved. Moreover, theETS slightly increased profitability but significantlydecreased firm value. Treated firms also exhibited ahigher systematic risk, indicating that investorsaccount for future carbon risks. In summary, theKorean ETS has not effectively incentivized firms toreduce emissions and has diminished their long‐termvalue.
NETL
NSTL
Wiley