Corporate Exposure to Weather and Bond Yield Spread

60 Pages Posted: 9 Mar 2020 Last revised: 22 Oct 2021

See all articles by Lei Zhang

Lei Zhang

City University of Hong Kong (CityU)

Min Zhu

University of Queensland

Date Written: October 3, 2021


We study the effect of corporate exposure to weather on costs of borrowing. We construct firm-level weather exposure measures and find that firms exposed to greater weather risk experience substantially higher yield spread on their bonds in the secondary and primary markets. Chanel tests reveal that the link between corporate weather exposure and yield spread arises via firm fundamentals rather than from frictions in the bond market. We find that weather variations significantly increase operating cash flow risk and equity volatility of the exposed firms, while bond illiquidity can hardly explain the effect of weather exposure.

Keywords: corporate weather exposure, abnormal cumulative precipitation, bond yield spread, cash flow risk, equity volatility, climate finance

JEL Classification: G12, G14, Q54

Suggested Citation

Zhang, Lei and Zhu, Min, Corporate Exposure to Weather and Bond Yield Spread (October 3, 2021). Available at SSRN: or

Lei Zhang (Contact Author)

City University of Hong Kong (CityU) ( email )

College of Business
83 Tat Chee Avenue
Hong Kong

Min Zhu

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072

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