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Climate risk and capital structure

Author

Listed:
  • Édith Ginglinger

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Quentin Moreau

    (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We use new data measuring forward-looking physical climate risk at the firm level to examine the impact of climate risk on capital structure. We find that greater climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement. Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings and several fixed effects. Our evidence shows that the reduction in debt related to climate risk is shared between a demand effect (the firm's optimal leverage decreases) and a supply effect (lenders, especially bankers, reduce their lending to companies with the greatest risk).

Suggested Citation

  • Édith Ginglinger & Quentin Moreau, 2019. "Climate risk and capital structure," Post-Print hal-02291383, HAL.
    • Handle: RePEc:hal:journl:hal-02291383
    as

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