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How do banks price carbon risk? Evidence from India

Neeru Chaudhry and Damini Kumari

Pacific-Basin Finance Journal, 2024, vol. 84, issue C

Abstract: Do banks assign more weight to borrower characteristics such as growth prospects and information quality than to carbon risk exposure? For a sample of Indian firms, we find that the cost of debt decreases with increasing energy-consumption. This relationship is stronger for young firms, which have more growth opportunities and are dependent on external sources for their financing needs. Banks protect themselves by offering cheaper rates to financially-unconstrained firms and firms with high information quality. For a given energy-consumption level, the cost of debt increases with controlling shareholder and institutional ownership, when government is a minority shareholder, or when the lender is a public-sector bank.

Keywords: Bank loans; Energy consumption; Carbon risk; Climate risk; Emerging economy; India (search for similar items in EconPapers)
JEL-codes: G12 G30 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:84:y:2024:i:c:s0927538x24000556

DOI: 10.1016/j.pacfin.2024.102304

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