Climate Risk and Capital Structure

44 Pages Posted: 12 Feb 2019

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Quentin Moreau

Université Paris-Dauphine, PSL Research University

Date Written: January 15, 2019

Abstract

We use new data measuring forward-looking physical climate risk at the firm level to examine the impact of climate risk on capital structure. We find that greater climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement. Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings and several fixed effects. Our evidence shows that the reduction in debt related to climate risk is shared between a demand effect (the firm’s optimal leverage decreases) and a supply effect (lenders, especially bankers, reduce their lending to companies with the greatest risk).

Keywords: Capital Structure, Leverage, Credit Rating, Climate Risk, Natural Disasters

JEL Classification: G18, G2, G32, Q54

Suggested Citation

Ginglinger, Edith and Moreau, Quentin, Climate Risk and Capital Structure (January 15, 2019). Université Paris-Dauphine Research Paper No. 3327185. Available at SSRN: https://ssrn.com/abstract=3327185 or http://dx.doi.org/10.2139/ssrn.3327185

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Quentin Moreau

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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