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Lookup NU author(s): Dr Vu TrinhORCiD
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
Utilising climate-related narratives in conference call transcripts to measure firm-level exposure to climate risks, we examine the association between such exposure and the corporate cost of debt financing. Using a sample of 21 European countries from 2001 to 2020, we find that firms exposed to greater climate change experience higher debt costs. The impact is even more extreme when using climate-related opportunity and regulatory exposure measures. We further find critical economic channels through which the higher debt costs occur: financial development and credit supplies. Specifically, our findings hold only for firms in weakly developed financial markets and institutions as measured by the new broad-based multi-dimensional financial development indices. We also find some other conditioning factors. (1) The higher the carbon intensity level, the greater the debt cost a firm with more climate change exposure must pay. (2) Debtholders appear to punish firms with high environmental and social disclosure that are exposed to more climate change. (3) The findings are more pronounced in financially constrained firms.
Author(s): Trinh VQ, Trinh HH, Li T, Vo XV
Publication type: Article
Publication status: Published
Journal: Journal of Financial Stability
Year: 2024
Volume: 74
Print publication date: 01/10/2024
Online publication date: 03/08/2024
Acceptance date: 29/07/2024
Date deposited: 30/07/2024
ISSN (print): 1572-3089
ISSN (electronic): 1878-0962
Publisher: Elsevier
URL: https://doi.org/10.1016/j.jfs.2024.101315
DOI: 10.1016/j.jfs.2024.101315
Data Access Statement: Data will be made available on reasonable request.
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