The price of realized extreme climate events in the implied cost of equity capital: International evidence

Weidong Xu, Danyu Zhu, Xin Gao, Lu Xing and Donghui Li

Journal of Banking & Finance, 2025, vol. 180, issue C

Abstract: Using an international sample of 38 countries, we find that firms located in countries experiencing greater socioeconomic damage from extreme climate events have higher implied costs of equity capital. This finding is attributed to heightened operational uncertainty, greater information asymmetry, and intensified agency conflicts that arise in the wake of extreme climate events. The relation is stronger for firms that derive substantial revenue from domestic markets, operate in climate-vulnerable industries, or are closely held by domestic institutional investors. The effect also varies across countries and is concentrated in markets characterized by low transparency or limited integration into the global financial market. While extreme climate events negatively influence firm performance and valuation, they raise corporate awareness of climate risk.

Keywords: Realization of extreme climate events; Implied costs of equity capital; Expected stock returns (search for similar items in EconPapers)
JEL-codes: G12 G32 Q54 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426625001451
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:180:y:2025:i:c:s0378426625001451

DOI: 10.1016/j.jbankfin.2025.107525

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().