Do costs of corporate loans rise with sea level?

57 Pages Posted: 8 Nov 2019 Last revised: 22 Oct 2020

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 find firms’ cost of long-term loans increases with sea level rise
(SLR) risk, but this effect mainly holds among firms with high adjustment costs to the
risk, i.e., firms for whom it is hard to relocate or otherwise diversify SLR risk. Moreover,
the spread-risk sensitivity is higher if the bank has more experience with the risk and in
times of heightened media attention. This suggests banks have limited attention to this
unconventional risk.

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, Do costs of corporate loans rise with sea level? (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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