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Firm-level climate change exposure and trade credit

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  • Nguyen, Dat Thanh
  • Tran, Vuong Thao
  • Le, Anh
  • Phan, Dinh Hoang Bach

Abstract

This study examines how climate change exposure influences firms' use of trade credit using 57,837 observations from 2001 to 2023 of U.S firms. Firms with higher climate risk obtain significantly higher trade credit, with the effect intensifying after the Paris Agreement and high environmental litigation risk. The association is stronger among financially constrained firms and varies by risk type: physical and opportunity-related risks increase trade credit, while regulatory risk dampens it. Trade credit is also higher among firms with more positive climate sentiment, indicating that suppliers respond favourably to optimistic transition narratives. Firms with greater climate risk issue more equity and face higher debt costs—consistent with demand-side deleveraging and supply-side credit tightening—underscoring trade credit's role as an alternative liquidity source when traditional debt becomes less accessible. This study also provides policy implications based on the findings.

Suggested Citation

  • Nguyen, Dat Thanh & Tran, Vuong Thao & Le, Anh & Phan, Dinh Hoang Bach, 2025. "Firm-level climate change exposure and trade credit," Innovation and Green Development, Elsevier, vol. 4(5).
    • Handle: RePEc:eee:ingrde:v:4:y:2025:i:5:s2949753125000992
    DOI: 10.1016/j.igd.2025.100302
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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