Voluntary carbon verification and corporate capital structure adjustment speed: a global investigation

Using an international sample of firms from 47 countries/regions over the years 2010–2020, we examine whether third-party verification of carbon emissions information affects the speed at which firms adjust their capital structure toward the trade-off theory’s optimal leverage target. Using alternative estimation techniques and robustness checks, we find that third-party carbon assurance significantly accelerates firms’ leverage adjustment speed. Firms that engage in independent carbon verification adjust more rapidly toward their target capital structure than non-assured firms. We extended our investigation and confirmed that this effect persists across both developed and developing markets. These results support the notion that carbon assurance is associated with lower information asymmetry between firms and lenders, thereby lowering the cost of external debt and facilitating faster capital structure rebalancing. We further investigate whether the relationship differs by assurance provider type by distinguishing between Big Four and non-Big Four assurance providers. The results remain robust when distinguishing between Big Four and non-Big Four assurance providers regardless of the assurer quality, confirming that assured firms adjust their capital structures faster than non-assured firms. The outcomes of this study demonstrate that firms’ sustainability reporting can shape the speed of capital structure adjustment.