An Empirical Study on the Impact of the European Carbon BorderAdjustment Mechanism on Korean Listed Firms

[Purpose]This study examines the impact of the European Union’s Carbon Border Adjustment Mechanism (EU CBAM) on Korean listed firms within the context of global environmental regulations and market dynamics. [Methodology]This study evaluates the impact of the December 13, 2022, announcement of the final EU CBAM proposal on firm value using the event study methodology. To measure the stock price reactions of listed firms to the EU CBAM, Cumulative Abnormal Returns (CARs) and Buy－and－Hold Abnormal Returns (BHARs) were utilized. Furthermore, regression analysis was conducted to investigate the effect of carbon risk on stock price reactions. [Findings]This study finds that firms with higher carbon risks－characterized by substantial greenhouse gas emissions, significant energy consumption, and large certified emissions－experience a more pronounced negative impact. Notably, cross－border environmental regimes have a significant effect on the Korean stock market in the medium to long term rather than the short term. [Policy Implications]The findings of this study suggest that cross border environmental policies have a significant medium－ to long－term impact on the value of domestic firms. These results are expected to provide valuable insights for policymakers in preparing support measures for domestic manufacturing firms in anticipation of stricter cross border environmental policies and in establishing strategic responses at the level of the domestic financial market.