The impact of climate change on the cost of bank loans

Siamak Javadi and Abdullah Al Masum ()

Journal of Corporate Finance, 2021, vol. 69, issue C

Abstract: We find robust empirical evidence that firms in locations with higher exposure to climate change pay significantly higher spreads on their bank loans. To alleviate the concerns related to using firms' headquarters in determining climate risk exposure, we exploit the economic link between a firm and its customers and find that the exposure of a firm's customers to climate risk also adversely affects that firm's cost of borrowing. In the cross-section, we find that the long-term loans of poorly rated firms drive the effect. Overall, our evidence suggests that lenders increasingly view climate change as a relevant risk factor.

Keywords: Climate change; Drought; Bank loans; Loan spreads (search for similar items in EconPapers)
JEL-codes: G21 G32 Q54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (93)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119921001401
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001401

DOI: 10.1016/j.jcorpfin.2021.102019

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().