Climate Change Exposure and Bankruptcy Risk

Speaker：Han Liyan (Professor, Beihang University)

Host：Zeng Yan , Professor, Lingnan College

Time and Date：15:00, Jun. 15, 2023

Venue:Wong Ping Lay Conference Room, Lingnan Hall (203)

Language: Chinese

Abstract:

This study documents that a firm’s bankruptcy risk increases with its climate change exposure. This relation is stronger for firms with larger cash flow shortfall or tighter financial constraints, supporting the theoretical mechanisms behind the hypothesis. Furthermore, the evidence suggests that improving the protection of creditor rights could mitigate the adverse impact of climate change, which is consistent with the agency theory of debt. This study exploits two distinct sets of quasi-natural experiments to establish causality. Importantly, the positive effect of climate change exposure on bankruptcy risk is weaker after the 2015 Paris Agreement and stronger for firms headquartered in countries that are more severely affected by natural disasters. Cross-sectional analyses reveal that the main effect is more pronounced among firms with higher asset tangibility, loss firms, or firms with higher cash flow volatility, higher profit volatility, or worse solvency performance. Overall, the evidence suggests that climate change has real consequences on firm financial conditions.

Profile of the speaker:

Dr. Han Liyan is a Research fellow at Beijing Yanqi Lake Institute of Mathematical Sciences and Applications, Lab of Digital Economy. He once worked as a chief professor of economics in Beihang University for 20 years. He was awarded as Beijing Renowned Teacher, and Distinguished Fellow in Chinese Quantitative Economics. His doctorate research focused on fuzzy information and knowledge engineering in 1990s, and now his research interests focus on fintech, foreign exchange rate combined with monetary policy, and green finance as well.