How do firms cope with losses from extreme weather events?

44 Pages Posted: 8 Aug 2022 Last revised: 4 Dec 2023

See all articles by Emanuela Benincasa

Emanuela Benincasa

Swiss Finance Institute; University of Zurich - Department of Finance

Frank Betz

European Union - European Investment Bank

Luca Gattini

European Union - European Investment Bank

Date Written: September 27, 2023

Abstract

We document the investment and financing decisions of firms that experience monetary losses due to extreme weather events. Our sample covers firms operating in 41 economies, mainly emerging and developing markets. Consistent with the need to either replenish damaged capital or adapt to climate change, firms hit by extreme weather are more likely to invest in long-term assets. In addition, they are more likely to integrate climate-friendly measures in their production processes. Although these firms have higher needs for bank credit, they are not more likely to be credit constrained than the average firm. Nonetheless, they face higher loan rejection rates and they are more leveraged than otherwise comparable firms. This suggests that climate change has the potential to erode the quality of firm balance sheets over time.

Keywords: Physical climate risk, Extreme weather, Access to credit, Corporate investment.

JEL Classification: D22, G21, G32, L20, Q54

Suggested Citation

Benincasa, Emanuela and Benincasa, Emanuela and Betz, Frank and Gattini, Luca, How do firms cope with losses from extreme weather events? (September 27, 2023). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4171196 or http://dx.doi.org/10.2139/ssrn.4171196

Emanuela Benincasa (Contact Author)

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Frank Betz

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

Luca Gattini

European Union - European Investment Bank ( email )

98-100 Boulevard Konrad Adenauer
L-2950
Luxembourg

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