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Climate risk and corporate leverage manipulation: Evidence from China

Author

Listed:
  • Xu, Wenshuai
  • Peng, Jianfei
  • Wu, Yun-Lang
  • Yin, Yahua

Abstract

Addressing corporate leverage manipulation is essential for mitigating hidden debt risks and ensuring financial stability. We investigate the impact of climate risk on corporate leverage manipulation. We find that greater climate risk leads to higher leverage manipulation. This positive effect is more pronounced in firms with limited climate risk diversification capacity, high climate sensitivity, and those located in regions with low bank competition and underdeveloped financial systems. Mechanism analyses show that climate risk exacerbates leverage manipulation by intensifying financing constraints and increasing deleveraging pressures. Additionally, our study suggests that the rise in leverage manipulation driven by climate risk may elevate firms' future default risk. Our findings contribute to the literature on the economic consequences of climate risk and provide policy insights to mitigate corporate leverage manipulation and reduce systemic financial risks.

Suggested Citation

  • Xu, Wenshuai & Peng, Jianfei & Wu, Yun-Lang & Yin, Yahua, 2025. "Climate risk and corporate leverage manipulation: Evidence from China," Research in International Business and Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003344
    DOI: 10.1016/j.ribaf.2025.103078
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