Extreme weather and corporate fixed asset policies: leasing as alternative finance

Kiet Tuan Duong () and Luu Duc Toan Huynh
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Kiet Tuan Duong: School for Business and Society, University of York.

No 116, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

Abstract: This paper investigates how weather-affected firms make decisions on fixed asset purchases and financing choices for fixed asset acquisition. Utilizing a unique dataset comprising over 26,000 firms across 40 countries, we find that weather-affected firms are more prone to purchase fixed assets, increasing investments in machinery, equipment, and real estate. These purchases are primarily financed through equity, bank loans, and government grants. Particularly, we find leasing is a vital fallback financing source for firms experiencing losses due to extreme weather. Firms that exclusively rely on leasing rather than other financial sources are more likely the ones that face significant external financing barriers, including complex loan procedures, high collateral requirements, and increased loan rejection rates. Interestingly, weather-affected firms who have successfully obtained non-leasing finance for fixed asset purchases, have a higher tendency to also engage in leasing, underscoring that such firms adopt flexible strategies for fixed asset acquisition.

Keywords: Extreme weather; Firm-level climate losses; Fixed assets; Financing decisions; leasing; Financial obstacles (search for similar items in EconPapers)
JEL-codes: E44 F33 G15 L72 Q31 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2024-03
New Economics Papers: this item is included in nep-cfn, nep-env and nep-inv
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Persistent link: https://EconPapers.repec.org/RePEc:cgs:wpaper:116

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