Firms' Climate Risk-Taking Incentives

62 Pages Posted: 7 Jan 2025

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath - School of Management

Dimitrios Konstantios

ALBA Graduate Business School

Nikos Paltalidis

Durham Business School

Date Written: June 10, 2024

Abstract

We provide evidence on what incentivizes firms to increase their climate risk-taking exposure. A contractionary monetary policy rises the cost of capital and induces firms to decrease new investments resulting to higher levels of climate risk exposure. Both effects intensify for firms with high levels of climate risk. While monetary policy tightening increases risk premia and slows the firms' speed of adjustment towards an optimal level of investment, its contractionary effect is milder for firms with low climate risk. In contrast, when the central bank communicates a positive economic outlook induces firms to increase new investments and to lower climate risk exposure.

Keywords: Firm level climate risk, Monetary Policy, Corporate investment Jel Classification: G30, G32, G34

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Suggested Citation

Gounopoulos, Dimitrios and Konstantios, Dimitrios and Paltalidis, Nikos, Firms' Climate Risk-Taking Incentives (June 10, 2024). Available at SSRN: https://ssrn.com/abstract=5077448 or http://dx.doi.org/10.2139/ssrn.5077448

Dimitrios Gounopoulos

University of Bath - School of Management ( email )

Dimitrios Konstantios

ALBA Graduate Business School ( email )

6-8 Xenias Str, 115 28, Athens, GR
Athens
Greece

Nikos Paltalidis (Contact Author)

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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