Thermal stress and financial distress: Extreme temperatures and firms’ loan defaults in Mexico

Sandra Aguilar-Gomez, Emilio Gutierrez, David Heres, David Jaume and Martin Tobal

Journal of Development Economics, 2024, vol. 168, issue C

Abstract: The frequency and intensity of extreme temperature events are likely to increase with climate change. Using a detailed dataset containing information on the universe of loans extended by commercial banks to private firms in Mexico, we examine the relationship between extreme temperatures and credit performance. We find that unusually hot days increase delinquency rates, primarily affecting the agricultural sector, but also non-agricultural industries that rely heavily on local demand. Our results are consistent with general equilibrium effects originated in agriculture that expand to other sectors in agricultural regions. Additionally, following a temperature shock, affected firms face increased challenges in accessing credit, pay higher interest rates, and provide more collateral, indicating a tightening of credit during financial distress.

Keywords: Extreme temperatures; Default; Firm credit; Agriculture (search for similar items in EconPapers)
JEL-codes: D25 Q14 Q54 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (3)

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Working Paper: Thermal Stress and Financial Distress: Extreme Temperatures and Firms’ Loan Defaults in Mexico (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:168:y:2024:i:c:s030438782300202x

DOI: 10.1016/j.jdeveco.2023.103246

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