Abstract
This chapter aims to examine the effect of environmental performance (EP) on the capital structure of firms. Non-financial firms of 12 Asian countries over the period of 2007–2018 are used as the study sample. The results indicate that EP generally has a positive effect on the leverage of firms. When country-level variables such as financial system and legal system are considered, the results are more significant. Specifically, EP positively (negatively) affects leverage in civil (common) law countries. EP also positively (negatively) affects leverage in countries with bank-based (market-based) financial systems. A more in-depth analysis further reveals that the financial system plays a more important role than the legal system in determining the effect of EP on leverage.