Climate reputation and bank loan contracting

Posted: 7 Jan 2021 Last revised: 22 Jun 2023

See all articles by Deniz Anginer

Deniz Anginer

Simon Fraser University (SFU)

Karel Hrazdil

Simon Fraser University

Jiyuan Li

Simon Fraser University

Ray Zhang

Simon Fraser University - Beedie School of Business

Date Written: June 20, 2023

Abstract

We investigate how a borrower’s adverse climate-related incidents affect bank loan contracting. Using a sample of 2,622 publicly traded US firms over the period 2000–2016, we construct event-based measures of corporate climate performances based on firm-level adverse climate incidents such as oil spills, excess carbon emissions and deforestation projects. We show that loans initiated after the occurrence of firms’ first adverse climate-related incidents have significantly higher spreads, shorter maturities, more covenant restrictions, and higher likelihood of being secured with collateral. In cross-sectional tests, we find that the intensity and influence of adverse climate-related incidents exacerbate the pricing of bank loans. Our results support the notion that banks incorporate firm-specific climate performance into their lending contracts.

Keywords: Bank loan pricing; Climate finance; Climate risk; Adverse climate-related incidents; Environmental, social, and governance (ESG) incidents; Cost of capital

JEL Classification: G21, G22, K22, K42, Q54

Suggested Citation

Anginer, Deniz and Hrazdil, Karel and Li, Jiyuan and Zhang, Ray, Climate reputation and bank loan contracting (June 20, 2023). Available at SSRN: https://ssrn.com/abstract=3723771 or http://dx.doi.org/10.2139/ssrn.3723771

Deniz Anginer

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Karel Hrazdil (Contact Author)

Simon Fraser University ( email )

Faculty of Business Administration
8888 University Drive, Simon Fraser University
Burnaby, British Colombia V5A 1S6
Canada
778-782-6790 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfubusiness.ca

Jiyuan Li

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Ray Zhang

Simon Fraser University - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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