Climate Risk and Capital Structure

73 Pages Posted: 12 Feb 2019 Last revised: 30 May 2023

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University; European Corporate Governance Institute (ECGI)

Quentin Moreau

Hong Kong University of Science and Technology

Date Written: January 15, 2019


We use firm-level data that measure forward-looking physical climate risk to examine the impact of climate risk on capital structure. We find that greater physical climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement and the first step of standardization of disclosure of climate risk information. Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings. Our evidence shows that the reduction in leverage related to climate risk is shared between a demand effect (the firm’s optimal leverage decreases) and a supply effect (bankers and bondholders increase spreads when lending to firms with the greatest risk). Our results are consistent with the hypothesis that physical climate risk affects leverage via larger expected distress costs and higher operating costs.

Keywords: Physical climate risk, Climate change exposure, Paris Agreement, Capital structure, Leverage, Credit rating, ESG

JEL Classification: G18, G2, G32, Q54

Suggested Citation

Ginglinger, Edith and Moreau, Quentin, Climate Risk and Capital Structure (January 15, 2019). Forthcoming, Management Science, European Corporate Governance Institute – Finance Working Paper No. 737/2021, Université Paris-Dauphine Research Paper No. 3327185, Available at SSRN: or

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Quentin Moreau

Hong Kong University of Science and Technology

Hong Kong

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