01Emission trading
schemes and cross-border mergers and acquisitionsYajie Chen, Dayong
Zhang, Kun Guo, Qiang JiAbstract：The Emission Trading
Scheme (ETS) provides a market mechanism to mitigate carbon emissions and has
been introduced in many countries. Its fundamental idea is to make carbon
emissions costly. Consequently, firms undertaking cross-border expansions may
have to consider this extra cost when entering markets with an ETS. They may
avoid these countries or relocate their investment to countries without an ETS.
Using a large sample of international firms between 2002 and 2019, we
investigate this issue via a difference-in-difference approach. Our results show
that ETS implementation leads to significantly less cross-border merger and
acquisition (M&A) deals in the host countries, indicating an avoidance
effect or potential carbon leakage. Further analysis reveals that ETS
implementation decreases firms’ financial performance and increases market
risks, both contributing
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