Can Firms Run Away from Climate-Change Risk? Evidence from the Pricing of Bank Loans

51 Pages Posted: 8 Nov 2019

See all articles by Feng Jiang

Feng Jiang

University at Buffalo - School of Management

C. Wei Li

University of Iowa

Yiming Qian

University of Connecticut

Date Written: April 15, 2019

Abstract

We examine whether climate-change risk affects firms’ cost of capital when firms can adapt to the risk. We show that firms’ cost of long-term loans increases with the sea level rise (SLR) risk. This effect is stronger when it is harder for firms to relocate or otherwise diversify SLR risk. Moreover, the spread-risk sensitivity is higher if the lead bank has more experience with the risk and in times of heightened media attention. This suggests banks have limited attention to this unconventional risk. Finally, affected firms respond to the pricing of the risk by using less long-term debt.

Keywords: Bank loans, Climate change risk, Sea level rise, Syndicated loans

JEL Classification: G14; G21; Q54

Suggested Citation

Jiang, Feng and Li, C. Wei and Qian, Yiming, Can Firms Run Away from Climate-Change Risk? Evidence from the Pricing of Bank Loans (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3477450 or http://dx.doi.org/10.2139/ssrn.3477450

Feng Jiang

University at Buffalo - School of Management ( email )

344 Jacobs Management Center
Buffalo, NY 14260
United States
716-645-3225 (Phone)

C. Wei Li

University of Iowa ( email )

Finance Department
Henry B. Tippie College of Business
Iowa City, IA 52242-1097
United States
319-335-0911 (Phone)
3193353690 (Fax)

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

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