Adverse Climate Incidents and Bank Loan Contracting

45 Pages Posted: 7 Jan 2021

See all articles by Deniz Anginer

Deniz Anginer

Simon Fraser University (SFU)

Karel Hrazdil

Simon Fraser University

Jiyuan Li

Simon Fraser University

Ray Zhang

Simon Fraser University (SFU)

Date Written: October 30, 2020

Abstract

We investigate how a borrower’s adverse climate-related incidents affect bank loan contracting. Using a sample of 2,622 publicly traded US firms over the period 2000–2016, we construct event-based measures of corporate climate performances based on firm-level adverse climate incidents such as oil spills, excess carbon emissions and deforestation projects. We show that loans initiated after the occurrence of firms’ first adverse climate-related incidents have significantly higher spreads, shorter maturities, more covenant restrictions, and higher likelihood of being secured with collateral. In cross-sectional tests, we find that the intensity and influence of adverse climate-related incidents exacerbate the pricing of bank loans. Our results support the notion that banks incorporate firm-specific climate performance into their lending contracts.

Keywords: Bank loan pricing; Climate finance; Climate risk; Adverse climate-related incidents; Environmental, social, and governance (ESG) incidents; Cost of capital

JEL Classification: G21, G22, K22, K42, Q54

Suggested Citation

Anginer, Deniz and Hrazdil, Karel and Li, Jiyuan and Zhang, Ray, Adverse Climate Incidents and Bank Loan Contracting (October 30, 2020). Available at SSRN: https://ssrn.com/abstract=3723771 or http://dx.doi.org/10.2139/ssrn.3723771

Deniz Anginer

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Karel Hrazdil (Contact Author)

Simon Fraser University ( email )

Faculty of Business Administration
8888 University Drive, Simon Fraser University
Burnaby, British Colombia V5A 1S6
Canada
778-782-6790 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfubusiness.ca

Jiyuan Li

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Ray Zhang

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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