Climate Risk and Capital Structure

64 Pages Posted: 12 Feb 2019 Last revised: 9 Mar 2021

See all articles by Edith Ginglinger

Edith Ginglinger

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

Quentin Moreau

Université Paris-Dauphine, PSL Research University

Date Written: January 15, 2019

Abstract

We use new data that measure 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. 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 (lenders increase the spreads when lending to firms with the greatest risk).

Keywords: Climate change, Paris Agreement, capital structure, leverage, natural disasters, credit rating, cost of debt, CSR

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, European Corporate Governance Institute – Finance Working Paper No. 737/2021, 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

European Corporate Governance Institute (ECGI) ( email )

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

Quentin Moreau

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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