Environmental impact-adjusted firm value and debt: a multi-country analysis

The study finds a non-linear, inverted U-shaped relationship between leverage and environmental impact-adjusted firm value (EIAFV), confirming the Trade-off theory. Firm value increases with leverage up to an optimal point, approximately 58–61% of total assets, after which higher leverage leads to value erosion due to rising default risk and financial distress costs. Our results also reveal that higher leverage is associated with lower environmental impact. Quantile regression analysis highlights that the impact of leverage varies across the distribution of 𝐸𝐼𝐴𝐹𝑉, with stronger effects observed at higher quantiles. Contextual country-level variables, such as capital market development, positively influence 𝐸𝐼𝐴𝐹𝑉, while banking system inefficiencies, like higher net interest margins and banking crises, negatively affect it. Despite data limitations for country-specific variables, the findings remain robust, emphasizing the nuanced relationship between leverage and firm value in a multi-country context.