Document Type

Article

Publication Date

2-2020

Abstract

We find that firms in location with higher exposure to climate risk pay significantly higher spreads on their bank loans. This result is robust to different measures of climate risk. Exploiting the economic link between a firm and its customers, we find that the exposure of a firm’s customers to climate risk adversely affects that firm’s cost of borrowing. In the cross-section, we find that the effect is mainly driven by long-term loans of poorly rated firms that are highly exposed to climate risk. Overall, our evidence suggests a slow increase in lenders’ attention to climate risk and that lenders have yet to fully understand and price all dimensions of this risk.

DOI

10.2139/ssrn.3717013

Included in

Finance Commons

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