Climate-Related Transition Risk and Corporate Debt Financing: Evidence from Southeast Asia

Gemma Estrada (), Resi Ong Olivares (), Donghyun Park and Shu Tian
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Gemma Estrada: Economic Research and Development Impact Department (ERDI), Asian Development Bank, Manila, Philippines
Resi Ong Olivares: ERDI, Asian Development Bank, Manila, Philippines
Shu Tian: ERDI, Asian Development Bank, Manila, Philippines

Asian Development Review (ADR), 2023, vol. 40, issue 02, 87-110

Abstract: The Paris Agreement signals increased climate awareness and potential changes in the business environment as an economy decarbonizes. Ratification of the Paris Agreement could heighten climate-related transition risks, especially for companies in high-emitting industries. This research analyzes the impact of Paris Agreement ratification on the debt financing decisions of publicly listed companies in Southeast Asian economies. Our empirical evidence shows that, after announcement of Paris Agreement ratification, firms in high-emitting industries have leverage and financial leverage that are an average of 1.8% and 4.2% lower, respectively, than firms in low-emitting industries. Firms in the region also witnessed higher risks 2 years after ratification, and these risks do not differ significantly between high- and low-emitting industries. This finding implies that firms become riskier under heightened transition risks, and this influences their financial decisions. Governments might thus consider introducing policies that facilitate their response to a low-carbon transition.

Keywords: Association of Southeast Asian Nations; climate-related risks; cost of debt; debt finance; leverage; Paris Agreement; transition risks (search for similar items in EconPapers)
JEL-codes: G12 G14 G30 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:adrxxx:v:40:y:2023:i:02:n:s0116110523400036

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DOI: 10.1142/S0116110523400036

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