Impact of the corporate response to climate risk on financial leverage and systematic risk

This study examines how firms' responses to climate risk affect the financial leverage through an impact on the asset beta. Considering the 2015 Paris Agreement about greenhouse gas reduction as a natural experiment on Japanese manufacturing firms, we observe that the asset beta increased and f...

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Bibliographic Details
Published in:	Applied economics letters Vol. 31; no. 8; pp. 728 - 731
Main Authors:	Ito, Akitoshi, Nagasawa, Kenichi
Format:	Journal Article
Language:	English
Published:	London Routledge 03-05-2024 Taylor & Francis LLC
Subjects:	Assets Climate risk Companies Economic analysis financial leverage Greenhouse gases Japan Leverage systematic risk
Online Access:	Get full text
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Summary:	This study examines how firms' responses to climate risk affect the financial leverage through an impact on the asset beta. Considering the 2015 Paris Agreement about greenhouse gas reduction as a natural experiment on Japanese manufacturing firms, we observe that the asset beta increased and financial leverage decreased for high emission firms after the agreement was signed. Further, a significant decline was observed for the leverage of high emission firms experiencing a sharp rise in the asset beta.
ISSN:	1350-4851 1466-4291
DOI:	10.1080/13504851.2022.2146643