Ownership structure and carbon emissions reduction*

This study investigates the relationship between ownership structure and reductions in carbon emissions. The Taiwan government passed the Greenhouse Gas Reduction and Management Act in July 2015, requiring carbon-intensive firms to disclose their annual direct and indirect carbon emissions. To mitigate endogeneity concerns, we use Taiwan's inheritance and estate tax reform in 2017 as an exogenous shock to a firm's ownership structure to conduct two-stage least squares analyses. We find that the higher the controlling shareholder's cash flow rights, the more a firm's direct carbon emissions will be reduced, consistent with the positive incentive effect, long-term decision-making, and socio-emotional wealth argument. Furthermore, we also find that when the controlling shareholder's board seat ratio highly deviates from their cash flow rights, the controlling shareholder is less concerned about carbon risk and even increases direct carbon emissions, consistent with the negative entrenchment effect.