The impact of extreme weather on corporate debt financing costs: evidence from China

This article selects listed companies from the Shanghai and Shenzhen A-shares between 2010 and 2022 as research samples and employs a panel data model with fixed effects to investigate the impact of extreme climate events on corporate debt financing costs. The findings reveal: First, extreme climate conditions significantly increase the cost of corporate debt financing. Second, a mechanism analysis indicates that extreme weather influences debt financing costs by increasing corporate default risk, deteriorating business operations, and heightening investor pessimism. Third, heterogeneity analysis shows that the negative impact of extreme climate on corporate debt financing costs is more pronounced in companies with high carbon footprints, non-state ownership, low geographic diversification, high managerial risk preference, poor government governance, and those in the mature or declining phases of their lifecycle. Fourth, further analysis suggests that companies can mitigate the adverse effects of extreme weather on debt financing by alleviating information asymmetry and enhancing internal control quality. Additionally, the implementation of the Paris Agreement also contributes to reducing the detrimental effects of extreme weather on corporate debt financing costs. This study provides valuable insights for real-sector enterprises to address climate risks and enhance the stability of debt financing through relevant policies and research.