The impact of climate change on the cost of bank loans |
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| Affiliation: | 1. Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506, USA;2. Richard A. Chaifetz School of Business, Saint Louis University, St. Louis, MO 63108, USA;1. CEFGroup & Department of Accountancy & Finance, University of Otago, New Zealand;2. University of Edinburgh Business School, University of Edinburgh, Scotland, United Kingdom;3. University of Queensland Business School, University of Queensland, Australia |
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| Abstract: | We find robust empirical evidence that firms in locations with higher exposure to climate change pay significantly higher spreads on their bank loans. To alleviate the concerns related to using firms' headquarters in determining climate risk exposure, we exploit the economic link between a firm and its customers and find that the exposure of a firm's customers to climate risk also adversely affects that firm's cost of borrowing. In the cross-section, we find that the long-term loans of poorly rated firms drive the effect. Overall, our evidence suggests that lenders increasingly view climate change as a relevant risk factor. |
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