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Climate change is the biggest environmental challenge facing the world today, and corporate commitments to decarbonization are vital to combat this crisis. Our study investigates whether and how firms reduce their carbon footprints under financial resource constraints. Analyzing firms across 51 countries suggests that firms are less likely to decarbonize and implement carbon abatement strategies when facing financial constraints. However, environmental regulatory stringency, while not government policies that subsidize corporate green investment, can mitigate such adverse effects. Unlike domestic companies, multinational corporations, especially with limited financial resources, can avert strict environmental regulations by shifting their emission-intensive activity to foreign subsidiaries in countries with weaker environmental regulations. Finally, our results suggest that financially-constrained emitters have limited access to international equity and bond markets.

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