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Circular Economy And Default Risk

Author

Listed:
  • CLAUDIO ZARA

    (Department of Finance and GREEN Centre for Research on Geography, Resources, Environment, Energy & Networks, Università Bocconi, Via Röntgen 1, 20136 Milano, Italy)

  • SHYAAM RAMKUMAR

    (��Department of Social and Political Sciences, Università degli Studi di Milano, Via Conservatorio 7, 20122 Milano, Italy)

Abstract

By decoupling economic growth from the exploitation of virgin raw materials and environmental degradation, as well as by developing practices more resilient to the economic cycle, Circular Economy (CE) offers effective hedging of linear risks and shields from the risk of stranded values. We tested this hypothesis focusing on default risk of a sample of 222 European circular issuers focused on manufacturing, construction, energy, metal and oil and gas industries. The time period considered is 2013–2018. The main explanatory variable is the Circularity Score, a brand-new indicator based on material variables pertinent to CE. Default risk is measured on PD values, corresponding to external rating classes, provided by Bloomberg. We found that issuers with a higher level of circularity confirm de-risking hypothesis at both short and long terms. Moreover, the contribution offered by circularity on de-risking is more relevant in the long-term analysis, ranking as third in relation to fourth in the short-term model.

Suggested Citation

  • Claudio Zara & Shyaam Ramkumar, 2022. "Circular Economy And Default Risk," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-24, June.
    • Handle: RePEc:wsi:jfmmix:v:10:y:2022:i:01:n:s2282717x22500013
    DOI: 10.1142/S2282717X22500013
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    Cited by:

    1. Katelin Opferkuch & Anna M. Walker & Erik Roos Lindgreen & Sandra Caeiro & Roberta Salomone & Tomás B. Ramos, 2023. "Towards a framework for corporate disclosure of circular economy: Company perspectives and recommendations," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2457-2474, September.
    2. Sabhi Rajae & Abdelbaki Jamal Eddine & Taouab Omar & Eddaoudi Faissal & Abdelbaki Noureddine, 2024. "Managing emotions and algorithms: the delicate equilibrium between artificial intelligence and behavioral finance [Gérer les émotions et les algorithmes : l'équilibre délicat entre l'intelligence a," Post-Print hal-04644322, HAL.

    More about this item

    Keywords

    Credit risk; de-risking effect; circular finance; sustainable finance; circular metrics;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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