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Climate vulnerability and capital structure: Moderating effect of financial development, financial constraints, and 2015 Paris Agreement

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  • Tran, Ly Thi Hai
  • Ho, Tuan
  • Ho, Hoai Thu
  • Phung, Nam Duc

Abstract

Previous studies show that climate vulnerability affects capital structure. This research goes beyond by extending to cross-sessional analysis emphasizing the impact of climate vulnerability on capital structure conditional on firm-level financial constraints, country-level financial development, and the Paris Agreement. Using a sample of 15,612 firms across 13 Asian countries over the period from 2010 to 2020, we find that the effect of the vulnerability is more pronounced among firms with higher financial constraints and in countries with higher levels of financial development. We also find that the impact of climate vulnerability on corporate financial leverage is stronger after the Paris Agreement. Our findings are consistent with the argument that climate vulnerability incentivizes firms to lower their reliance on debt, and the heightened climate transition risk after the Paris Agreement intensifies this effect. This study provides insights into firms' capital structure choice behaviour when faced with climate change risks.

Suggested Citation

  • Tran, Ly Thi Hai & Ho, Tuan & Ho, Hoai Thu & Phung, Nam Duc, 2024. "Climate vulnerability and capital structure: Moderating effect of financial development, financial constraints, and 2015 Paris Agreement," International Review of Economics & Finance, Elsevier, vol. 96(PC).
    • Handle: RePEc:eee:reveco:v:96:y:2024:i:pc:s1059056024007032
    DOI: 10.1016/j.iref.2024.103711
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    More about this item

    Keywords

    Financial leverage; Capital structure; Climate vulnerability; Financial constraints; Financial development;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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