Natural Disaster Risk and Corporate Leverage

Authors

Ahmed Elnahas, The University of Texas Rio Grande Valley
Dongnyoung kim
Incheol Kim, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

10-2018

Abstract

Firms located in more disaster-prone counties adopt more conservative leverage policies than those in less disaster-prone counties. Compared to peers in the least disastrous areas, firms in the most disastrous areas are less levered by 3.6 percentage points, equivalent of foregoing $13.47 million. We argue that this systematic difference in leverage is attributed to elevated operating disruption, increased cost of capital, and tightened financial flexibility. Our findings indicate that firms incorporate natural disaster risk in financing decision, which is consistent with the trade-off theory of capital structure.

Recommended Citation

Elnahas, Ahmed and Kim, Dongnyoung and Kim, Incheol, Natural Disaster Risk and Corporate Leverage (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=3123468 or http://dx.doi.org/10.2139/ssrn.3123468

DOI

10.2139/ssrn.3123468