 In search of climate distress riskQuyen Nguyen, Ivan Diaz-Rainey and Duminda Kuruppuarachchi International Review of Financial Analysis, 2023, vol. 85, issue C Abstract: Using the Merton distance to default model we investigate whether a firm's climate risk affects its default (distress) risk. S&P 500 non-financial firms during 2010–2019 are analysed and we employ both corporate carbon footprints and climate risk disclosures in annual filings to measure climate risk. Our results show that climate risk has a negative impact on firms' distance to default. This impact is limited to the disclosure of transition risk in annual filings. In contrast, disclosures of physical or non-specific risk do not affect firm-level default risk, while the impact of corporate carbon footprints is inconsistent but insignificant in most models. We also find that the negative effect of climate transition risk on firms' distance to default is stronger for firms headquartered in states with carbon pricing (California and states covered by the Regional Greenhouse Gas Initiative) and temporarily strengthens because of the Paris Agreement in 2015. However, this ‘Paris’ effect is short-lived and fades away in subsequent years. Keywords: Climate change; Climate finance; Merton distance to default; Carbon footprint; Climate risk disclosure (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:85:y:2023:i:c:s1057521922003945 DOI: 10.1016/j.irfa.2022.102444 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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