Climate risk and corporate leverage manipulation: Evidence from China

Wenshuai Xu, Jianfei Peng, Yun-Lang Wu and Yahua Yin

Research in International Business and Finance, 2025, vol. 79, issue C

Abstract: Addressing corporate leverage manipulation is essential for mitigating hidden debt risks and ensuring financial stability. We investigate the impact of climate risk on corporate leverage manipulation. We find that greater climate risk leads to higher leverage manipulation. This positive effect is more pronounced in firms with limited climate risk diversification capacity, high climate sensitivity, and those located in regions with low bank competition and underdeveloped financial systems. Mechanism analyses show that climate risk exacerbates leverage manipulation by intensifying financing constraints and increasing deleveraging pressures. Additionally, our study suggests that the rise in leverage manipulation driven by climate risk may elevate firms' future default risk. Our findings contribute to the literature on the economic consequences of climate risk and provide policy insights to mitigate corporate leverage manipulation and reduce systemic financial risks.

Keywords: Climate risk; Financing constraints; Deleveraging pressures; Leverage manipulation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003344

DOI: 10.1016/j.ribaf.2025.103078

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