Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico

38 Pages Posted: 5 Oct 2021 Last revised: 13 Oct 2022

See all articles by Sandra Aguilar-Gomez

Sandra Aguilar-Gomez

Universidad de los Andes, Colombia - Department of Economics

Emilio Gutierrez

Instituto Tecnológico Autónomo de México (ITAM)

David Heres

Banco de Mexico

David Jaume

Banco de México

Martín Tobal

Banco de Mexico

Date Written: April 7, 2022

Abstract

The frequency and intensity of extreme weather events are likely to increase with climate change. Although a growing body of literature shows that extreme weather harms economic outcomes, there is a lack of evidence about how it affects firms' credit performance and credit use. This question is relevant for low and middle-income economies, where institutions are less prepared to deal with informational asymmetries and credit markets are shallow. We fill this gap by exploiting an extraordinarily detailed data set with loan-level information for the universe of loans extended by commercial banks to private firms in Mexico. We find that anomalous days of extreme heat increase credit delinquency rates. The effect is concentrated in the agricultural sector, but there is also an impact on non-agricultural industries that rely heavily on local demand. Our results are consistent with general equilibrium effects originated in agriculture that expand to other sectors in agricultural regions.

Keywords: Extreme temperatures, Default, Firm credit, Agriculture.

JEL Classification: D25, Q54,Q14

Suggested Citation

Aguilar-Gomez, Sandra and Gutierrez, Emilio and Heres, David and Jaume, David and Tobal, Martín, Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico (April 7, 2022). Available at SSRN: https://ssrn.com/abstract=3934688 or http://dx.doi.org/10.2139/ssrn.3934688

Sandra Aguilar-Gomez (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Emilio Gutierrez

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, CDMX 10700
Mexico

David Heres

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

David Jaume

Banco de México ( email )

Av 5 de Mayo 2
Colonia Cuahtemoc
Ciudad de México, 06000
Mexico

Martín Tobal

Banco de Mexico ( email )

Ave Cinco de Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
259
Abstract Views
895
rank
172,827
PlumX Metrics