Climate Risks and Debt Specialization

Abstract

This paper examines the debt structure of a sample of U.S. firms exposed to climate risks. Climate risks, categorized as physical, regulatory, and transition risks are associated with greater debt specialization for the affected firms. We find physical and regulatory risks, propagating through the channels of expected bankruptcy cost and access to finance, increase debt specialization, while transition risk shows limited impact. We also find that asset redeployability and Corporate Social Responsibility moderate the impact of climate risk on firm’s debt structure with decreased debt specialization.

Keywords: Corporate Debt; Climate Change; Corporate Social Responsibility

JEL Classification: D22 G32 Q54