Risk of rising temperature and newly issued debt maturity: size, industry and regional perspective

I examine the impact of rising temperature risks on the maturity of newly issued corporate debt, emphasizing the long-term financial implications of gradual temperature trends. Firms exposed to higher temperature risks tend to prefer shorter-term debt, particularly those facing financial constraints, while increasing their allocations to short-term investments. A Difference-in-Differences test on Florida firms during hurricane-prone quarters, combined with a temperature variability analysis, distinguishes short-term shocks from persistent temperature trends, confirming that long-term exposure has a more pronounced effect on the maturity of newly issued debt. A time trend analysis further captures shifts in corporate debt structures over 2002Q1–2022Q4. Firms in stricter regulatory environments issue shorter-term debt, while those in lenient regions adjust less. Although both vulnerable and non-vulnerable firms reduce debt maturity, vulnerable firms, facing higher interest expense ratios, adjust less aggressively, suggesting that product-demand elasticity influences financial policies. Larger firms shorten debt maturities for flexibility, while smaller firms, constrained by market access, do not. Credit ratings also shape responses, with higher-rated firms maintaining longer maturities. Findings are robust to the nearest-neighbor matching, propensity score matching, and placebo tests addressing endogeneity concerns.