Does Climate Change Exposure Matter to Stakeholders? Evidence from the Costs of High Leverage

This work adds to climate finance research by studying stakeholder reactions to climate change exposure in the context of capital structure and product market interactions. We use a sample of 2,547 U.S. firms from 2004 to 2020, and find that climate change exposure intensifies stakeholder-driven costs of high leverage. The impact is stronger for firms headquartered in Democratic-leaning states, during the post–Paris Agreement period, and for industries with more physical exposure, and for firms with more sensitive stakeholder responses. Overall, our results suggest that highly leveraged firms are vulnerable to climate change shocks, and subject to stricter scrutiny from their stakeholders. Our study has several implications for climate finance research.

JEL Classification: Q54; G32; G33

Suggested Citation: Suggested Citation

El Ghoul, Sadok and Guedhami, Omrane and Kuang, Huan and Zheng, Ying, Does Climate Change Exposure Matter to Stakeholders? Evidence from the Costs of High Leverage (June 30, 2023). Review of Corporate Finance: Vol. 4: No. 1–2, pp 47-87. http://dx.doi.org/10.1561/114.00000060, Available at SSRN: https://ssrn.com/abstract=4541036 or http://dx.doi.org/10.2139/ssrn.4541036