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Riskier climate, closer ties? How climate risk drives firms towards bank debt financing

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  • Al-Ayyoub, Naser
  • Phan, Hieu V.

Abstract

We examine how firm-level climate risk affects the choice between bank loans and public debt. Using a large sample of U.S. public firms from 2002 to 2021, we find that climate-exposed firms rely more on bank loans relative to public debt. This effect intensifies after the Paris Agreement and a tax policy change that eases debt renegotiation, highlighting banks' value in flexibility and monitoring. The relationship is weaker among firms with lower default risk and stronger governance. Our findings underscore debt structure as an important channel through which firms adapt to climate-related uncertainty.

Suggested Citation

  • Al-Ayyoub, Naser & Phan, Hieu V., 2026. "Riskier climate, closer ties? How climate risk drives firms towards bank debt financing," Journal of Corporate Finance, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:corfin:v:96:y:2026:i:c:s0929119925001634
    DOI: 10.1016/j.jcorpfin.2025.102895
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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