4.2.3. Other Robustness Tests

Next, we conduct a series of robustness tests to enhance the reliability of the benchmark results.



**Table 5.** Regression results of the other robustness check.

Note: Standard errors are in parentheses, and they are clustered at firm level. \*, \*\*, \*\*\* indicate statistical significance at the 10%, 5%, and 1% levels, respectively. Column (1) shows the regression results for time-lag analysis of companies' market value. Column (2) shows the regression results by moving the treatment year to 2014. Column (3) shows the regression results by restricting the sample period from 2009 to 2019.

## **5. Mechanism Analysis**

#### *5.1. Carbon Price*

Implementing the CET policy has created a carbon trading market in which a carbon price is formed when the supply and demand of permits are balanced. As a signal of the carbon emission reduction cost, the carbon price may positively or negatively impact the market value of companies. Therefore, we empirically analyze the mechanism by which the CET policy affects companies' market value from the perspective of carbon prices. The empirical model used in the mechanism analysis is as follows:

$$m\\_price\_{it} = \beta\_0 + \beta\_1 treated\_i \times time\_l + \beta\_2 \times X\_{it} + \mu\_i + \gamma\_t + \varepsilon\_{it} \tag{3}$$

$$Ln(MV)\_{it} = \beta\_0 + \beta\_1 treated\_i \times time\_t + \beta\_2 \times X\_{it} + \delta \times m\\_price\_{it} + \mu\_i + \gamma\_t + \varepsilon\_{it} \tag{4}$$

where *m\_price* is obtained by aggregating daily carbon prices to yearly averages for pilot regions, and the data are collected from China Carbon Information Technology Research Institute.

The regression results of the mediation mechanism analysis are presented in Table 6. The regression results in columns (1) and (2) of Table 6 indicate that the carbon price has a negative mediation effect in the CET policy process, affecting the market value of listed companies. This is mainly because the CET policy will likely lead to additional

compliance costs for regulated companies. To achieve carbon mitigation targets, regulated companies must arrange some part of their cash flows to purchase the CET permits or invest in emission abatement equipment and measures, reducing companies' output. This does not only affect companies' cash flows but also their cost structure and decision-making behaviors of production and R&D investment. A rising carbon price for CET permits lowers investors' expectations of profits, which results in a decrease in companies' market value. These results are consistent with those of previous studies, such as those of Oberndorfer (2009), Veith et al. (2009), Keppler and Cruciani (2010), Mo et al. (2012), and Chan et al. (2013), who found that carbon price variations are negatively correlated with companies' stock market value, returns, or revenue [1,2,35,63,64].


**Table 6.** Regression results of mediation mechanism analysis based on carbon price.

Note: Standard errors are in parentheses, and they are clustered at firm level. \*, \*\*, \*\*\* indicate statistical significance at the 10%, 5%, and 1% levels, respectively. Columns (1) and (2) show the results of the mediation mechanism analysis based on the carbon price. Column (3) shows the regression results for the high-carbon industries. Column (4) shows the regression results for the low-carbon industries.

Companies in regulated high-carbon industries are more affected by CET policies than those in low-carbon industries. To this end, we compare the impact of the CET policy on the market value of companies in high-carbon and low-carbon industries. We regard the eight industries, including the petrochemical sector (C25), chemical industry (C26), construction materials (C30), steel (C31), non-ferrous metals (C32), papermaking (C22), electricity (D44, D45), and aviation (G56) as high-carbon industries; the rest are regarded as low-carbon industries according to Chen et al. (2021) [14]. Columns (3) and (4) of Table 6 show the regression results for the high-carbon and low-carbon industries, respectively. It can be observed that the coefficient of "did" for high-carbon industries is negative

and insignificant, while that for low-carbon industries is significantly positive. This is because companies in high-carbon industries face stronger carbon constraints and bear more compliance costs under the CET policy, compared with the low-carbon industries. Accordingly, the CET policy has a negative impact on the market value of companies in high-carbon industries, while it has a positive effect on the market value of companies in low-carbon industries. These results are in accordance with those of previous studies, such as those of Veith et al. (2009), da Silva et al. (2016), and Wen et al. (2020), which revealed that the effect of carbon price change on the stock market returns in the power industry was asymmetric [2,9,27].
