“It can’t rain all the time.” The effects of heavy rains on European firms financing

Elisa Giaretta and Francesco Zen

Review of Accounting and Finance, 2026, vol. 25, issue 3, 401-433

Abstract: PurposeThis paper aims to investigate how recurrent heavy rain events affect the financial conditions and productivity of European small and medium-sized enterprises (SMEs). It also examines whether nati onal green policy environments can enhance SMEs’ financial resilience.Design/methodology/approachThe authors combine meteorological data from the European Severe Weather Database with firm-level financial data for the 2016–2022 period. The analysis focuses on 40,000 unlisted, independent SMEs (186,156 firm-year observations). The authors estimate baseline ordinary least squares regressions and conduct extensive robustness checks using alternative econometric approaches, estimators and subsamples.FindingsThe results show that heavy rainfall significantly reduces SMEs’ cash flow and productivity while increasing their leverage. The impact on liquidity is less clear, with coefficients varying across specifications. When rainfall events cause damage, injuries or fatalities, negative effects intensify. Green policy indicators play a mitigating role by improving SMEs’ financial conditions. However, green policies are associated with short-term productivity losses, suggesting transitional compliance costs.Practical implicationsThe major policy implication of the study is the need to improve green measures to mitigate adverse climate change effects.Originality/valueThe paper contributes to climate finance research by shifting the focus from temperature anomalies and catastrophic events to recurrent heavy rainfall, and from large firms to unlisted European SMEs. It also provides novel evidence of institutional environments, showing how green policies shape financial resilience but may entail short-term efficiency trade-offs.

Keywords: Corporate governance; Capital structure; Corporate finance; Environmental social and governance (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-05-2025-0184

DOI: 10.1108/RAF-05-2025-0184

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