CIRCULAR ECONOMY AND DEFAULT RISK

Claudio Zara and Shyaam Ramkumar
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Claudio Zara: Department of Finance and GREEN Centre for Research on Geography, Resources, Environment, Energy & Networks, Università Bocconi, Via Röntgen 1, 20136 Milano, Italy
Shyaam Ramkumar: ��Department of Social and Political Sciences, Università degli Studi di Milano, Via Conservatorio 7, 20122 Milano, Italy

Journal of Financial Management, Markets and Institutions (JFMMI), 2022, vol. 10, issue 01, 1-24

Abstract: By decoupling economic growth from the exploitation of virgin raw materials and environmental degradation, as well as by developing practices more resilient to the economic cycle, Circular Economy (CE) offers effective hedging of linear risks and shields from the risk of stranded values. We tested this hypothesis focusing on default risk of a sample of 222 European circular issuers focused on manufacturing, construction, energy, metal and oil and gas industries. The time period considered is 2013–2018. The main explanatory variable is the Circularity Score, a brand-new indicator based on material variables pertinent to CE. Default risk is measured on PD values, corresponding to external rating classes, provided by Bloomberg. We found that issuers with a higher level of circularity confirm de-risking hypothesis at both short and long terms. Moreover, the contribution offered by circularity on de-risking is more relevant in the long-term analysis, ranking as third in relation to fourth in the short-term model.

Keywords: Credit risk; de-risking effect; circular finance; sustainable finance; circular metrics (search for similar items in EconPapers)
JEL-codes: G10 G21 G32 G39 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S2282717X22500013

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