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

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  • Aguilar-Gomez, Sandra
  • Gutierrez, Emilio
  • Heres, David
  • Jaume, David
  • Tobal, Martin

Abstract

The frequency and intensity of extreme temperature events are likely to increase with climate change. Using a detailed dataset containing information on the universe of loans extended by commercial banks to private firms in Mexico, we examine the relationship between extreme temperatures and credit performance. We find that unusually hot days increase delinquency rates, primarily affecting the agricultural sector, but also 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. Additionally, following a temperature shock, affected firms face increased challenges in accessing credit, pay higher interest rates, and provide more collateral, indicating a tightening of credit during financial distress.

Suggested Citation

  • Aguilar-Gomez, Sandra & Gutierrez, Emilio & Heres, David & Jaume, David & Tobal, Martin, 2024. "Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico," Journal of Development Economics, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:deveco:v:168:y:2024:i:c:s030438782300202x
    DOI: 10.1016/j.jdeveco.2023.103246
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    Cited by:

    1. Torres-Higuera, Paula, 2024. "Warm Days, Warmer Homes? Effects of Temperature Shocks on Time Allocation," Documentos CEDE 21133, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Christoph Albert & Paula Bustos & Jacopo Ponticelli, 2024. "The Effects of Climate Change on Labor and Capital Reallocation," Working Papers 1445, Barcelona School of Economics.
    3. Christoph Albert & Paula Bustos & Jacopo Ponticelli, 2024. "The effects of climate change on labor and capital reallocation," Economics Working Papers 1887, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Sáenz Pinzón, María Camila, 2024. "Instrumentos financieros y bienestar de los hogares rurales colombianos ante choques climáticos," Documentos CEDE 21191, Universidad de los Andes, Facultad de Economía, CEDE.

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    More about this item

    Keywords

    Extreme temperatures; Default; Firm credit; Agriculture;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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