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Climate transition and the speed of leverage adjustment

Author

Listed:
  • Dallocchio, Maurizio
  • D’Ercole, Francesco
  • Frascati, Domenico
  • Mariani, Massimo

Abstract

This study examines the entanglement between firms’ climate change exposure and corporate capital structure decisions. In a sample of publicly listed firms on the S&P 1200 Global from 2010 to 2022, the results indicate that companies at the forefront of the transition to a low-carbon economy experience a higher speed of leverage adjustment. Notably, the analysis reveals an asymmetric speed of leverage adjustment when comparing the effect of climate change exposure on over-leveraged and under-leveraged firms. The results underscore the significance of equity capital in fostering the transition to a low-carbon economy and the pivotal role of regulatory bodies in facilitating corporate access to finance climate-friendly investments.

Suggested Citation

  • Dallocchio, Maurizio & D’Ercole, Francesco & Frascati, Domenico & Mariani, Massimo, 2025. "Climate transition and the speed of leverage adjustment," International Review of Financial Analysis, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:finana:v:102:y:2025:i:c:s1057521925001139
    DOI: 10.1016/j.irfa.2025.104026
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    More about this item

    Keywords

    Speed of adjustment; Climate risk; Capital structure; Dynamic trade–off theory;
    All these keywords.

    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
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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