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Extreme weather and corporate fixed asset policies: leasing as alternative finance

Author

Listed:
  • Kiet Tuan Duong

    (School for Business and Society, University of York.)

  • Luu Duc Toan Huynh

    (School of Business and Management, Queen Mary University of London.)

Abstract

This paper investigates how weather-affected firms make decisions on fixed asset purchases and financing choices for fixed asset acquisition. Utilizing a unique dataset comprising over 26,000 firms across 40 countries, we find that weather-affected firms are more prone to purchase fixed assets, increasing investments in machinery, equipment, and real estate. These purchases are primarily financed through equity, bank loans, and government grants. Particularly, we find leasing is a vital fallback financing source for firms experiencing losses due to extreme weather. Firms that exclusively rely on leasing rather than other financial sources are more likely the ones that face significant external financing barriers, including complex loan procedures, high collateral requirements, and increased loan rejection rates. Interestingly, weather-affected firms who have successfully obtained non-leasing finance for fixed asset purchases, have a higher tendency to also engage in leasing, underscoring that such firms adopt flexible strategies for fixed asset acquisition.

Suggested Citation

  • Kiet Tuan Duong & Luu Duc Toan Huynh, 2024. "Extreme weather and corporate fixed asset policies: leasing as alternative finance," Working Papers 116, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    • Handle: RePEc:cgs:wpaper:116
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    File URL: http://cgr.sbm.qmul.ac.uk/CGRWP116.pdf
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    More about this item

    Keywords

    Extreme weather; Firm-level climate losses; Fixed assets; Financing decisions; leasing; Financial obstacles;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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