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Green Pressure, Lean Measures: Unveiling Corporate Downsizing Within the European Union Emissions Trading System

Published online by Cambridge University Press:  31 March 2025

Jana Boeckx ,
Kristof Struyfs  and
Wouter Torsin Open the ORCID record for Wouter Torsin [Opens in a new window]
Jana Boeckx
Affiliation:
IESEG School of Management j.boeckx@ieseg.fr
Kristof Struyfs
Affiliation:
Open Universiteit & KU Leuven kristof.struyfs@ou.nl
Wouter Torsin*
Affiliation:
University of Liège, HEC Management School
*
wtorsin@uliege.be (corresponding author)
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Abstract

In 2017, the European Union Emissions Trading System underwent a policy intervention that resulted in a surge in carbon prices. Using this setting as a quasi-natural experiment, we focus on employment, productivity, and emission outcomes among covered enterprises. Results show that emission-intensive private firms, particularly those with financial constraints, are more likely to downsize by divesting production assets, reducing both workforce and emissions. Smaller, cash-strapped listed firms are also prone to downsize by decreasing their operating leverage while maintaining emission output and asset levels. Positive productivity outcomes indicate that both private and listed firms become leaner postintervention.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 8 , December 2025 , pp. 4091 - 4130
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are grateful to Ran Duchin (the editor) and an anonymous reviewer for their constructive comments and feedback. We would also like to thank Jan Abrell, Frank Betz, Nico Dewaelheyns, Marie Dutordoir, Hans Degryse, Ashita Goyal, Stefanie Kleimeier, Xinyu Liu, Maurizio Montone, Frederiek Schoubben, Naciye Sekerci, and Gertjan Verdickt. We are also grateful to seminar participants at the 2023 Belgium Environmental Economics Day, the 2023 World Finance Conference, the 2023 World Finance and Banking Symposium, and the 2024 Finance and Accounting Research Symposium.

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