A study from Queensland University of Technology (QUT) has found that firms with a higher number of green innovation patents tend to have lower borrowing costs and improved credit ratings. The study, which analyzed the U.S. credit default swap (CDS) market between 2002 and 2020, focused on how the credit market responds to firms’ green patents, particularly those related to energy conservation, pollution prevention, recycling, and environmental management.
According to Dr. Sohanur Rahman from QUT’s School of Accountancy, credit investors consider green patents as an important factor in determining CDS premiums, which represent the cost of insuring against credit risk. Firms with green patents were seen as less risky, leading to lower premiums on CDSs and improved credit ratings.
The study also explored the impact of the United States Patent and Trademark Office’s (USPTO) green technology pilot program, which accelerated green patent applications. The results indicated that firms benefiting from the pilot program experienced significantly lower CDS premiums than those without green innovation.
In terms of disclosure, the study found that firm-provided environmental disclosures had a positive effect on the association between green innovation and CDS spreads, while external disclosures, such as those from the media, had a negative effect.
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