We use firm-level data that measure forward-looking physical climate risk to examine the impact of climate risk on capital structure. We find that greater physical climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement and the first step of standardization of disclosure of climate risk information.
Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings. Our evidence shows that the reduction in leverage related to climate risk is shared between a demand effect (the firm’s optimal leverage decreases) and a supply effect (bankers and bondholders increase spreads when lending to firms with the greatest risk). Our results are consistent with the hypothesis that physical climate risk affects leverage via larger expected distress costs and higher operating costs.
For decades and decades, Delaware has been the undisputed leader in the market for corporate law. And yet, it is now clear that Delaware’s superiority...
The EU Takeover Bids Directive was passed twenty years ago with the main objective of promoting a single European takeover market. The primary mechanism...