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Firms’ borrowing costs and neighbors’ flood risk

Author

Listed:
  • Thomas Bassetti

    (University of Padua)

  • Lorenzo Dal Maso

    (University of Bologna)

  • Valentina Pieroni

    (IMT School for Advanced Studies Lucca)

Abstract

This study examines whether Italian firms exposed to physical climate risks incur additional borrowing costs due to spatial spillovers. Using a sample of 419,040 firm-year observations from 2016 to 2019, we find a positive relationship between a firm’s cost of debt and its neighborhood’s average exposure to climate risk. According to our findings, the costs associated with neighborhood climate risk are as relevant as those associated with a firm’s direct risk, with small businesses being the only ones affected by spillover effects. These results may be explained by small enterprises’ lack of financial diversification, poor bargaining power, and strong reliance on credit from financial intermediaries.

Suggested Citation

  • Thomas Bassetti & Lorenzo Dal Maso & Valentina Pieroni, 2025. "Firms’ borrowing costs and neighbors’ flood risk," Small Business Economics, Springer, vol. 64(3), pages 917-933, March.
    • Handle: RePEc:kap:sbusec:v:64:y:2025:i:3:d:10.1007_s11187-024-00932-0
    DOI: 10.1007/s11187-024-00932-0
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    More about this item

    Keywords

    Flood risk; Cost of debt; Italy; Hydrogeological risk; Resilience;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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