Climate risks and corporate leverage

Wenzhe Zhang and Dongmin Kong

International Review of Financial Analysis, 2025, vol. 106, issue C

Abstract: We conduct a textural analysis of firms' annual reports to measure firm-level climate risks exposure and examine the impact of climate risks on firms' leverage. We find that firms with greater climate risks tend to have lower leverage. Our evidence show that the plausible mechanisms involve increased operating risks as well as financing constrains arise from climate risks. Additionally, this negative impact exhibits heterogeneity, with a more pronounced effect observed among firms in industries with less competition, firms in in brown sectors and firms with less institutional investors.

Keywords: Climate risks; Corporate leverage; Textual analysis (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:106:y:2025:i:c:s1057521925006192

DOI: 10.1016/j.irfa.2025.104532

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