Publication
Climate risk and capital structure (with Edith Ginglinger)
Management Science, 2023
We use new data that measure forward-looking physical climate risk at the firm level to examine the impact of climate risk on capital structure. We find that greater climate risk leads to lower leverage in the post-2015 period, i.e., after the Paris Agreement. Our results hold after controlling for firm characteristics known to determine leverage, including credit ratings. Our evidence shows that the reduction in leverage related to climate risk is shared between a demand effect (the firm’s optimal leverage decreases) and a supply effect (lenders increase the spreads when lending to firms with the greatest risk).
Working papers
Systemic climate risk (with Tristan Jourde)
2023 Ieke van den Burg Prize for research on systemic risk (European Systemic Risk Board)
Honorable mention, E-axes Forum Research Prize
Best paper award, 2023 Global Finance Conference
Recent and upcoming presentations: HEC-HKUST Sustainable Finance Webinar, 2024 OFR Rising Scholars, 2024 WFA Conference, 2025 AFA Annual Meeting
This paper introduces a market-based framework to study the effects of tail climate risks in the financial sector. In addition to identifying the financial institutions most vulnerable to physical and transition climate risks, our framework explores the potential for these risks to induce contagion effects in the financial sector. Based on the securities of large European financial institutions spanning from 2005 to 2022, we show that, unlike physical risk, transition risk significantly and increasingly influences systemic risk in the financial sector. We also examine the potential levers available to financial institutions and regulators to address climate-related financial risks.
Predicting corporate environmental performance (with Hadi Movaghari)
Recent and upcoming presentations: 2024 Green Finance Research Advances, 2025 Contemporary Issues in Financial Markets and Banking Conference, 2025 British Accounting and Finance Association Conference
Measuring overall corporate environmental responsibility is riddled with methodological difficulties. In this context, we focus on one particular aspect of corporate environmental responsibility: environmental fines. Our paper shows that even a simple machine-learning approach can help predict environmental fines with reasonable accuracy and generally outperforms both bootstrapped benchmarks and financial statement-based benchmarks. Interestingly, most of the significant predictors are internal environmental processes, and positively predict future environmental fines. Overall, our results suggest that 1) machine learning techniques can help compensate for the limitations of ESG ratings, 2) having internal environmental processes should not be conflated with having good environmental performance, and 3) the prediction of environmental performance should not solely rely on financial statement variables.
Stakeholder prioritization under financial stress: the contingent nature of corporate social responsibility (with Keith Chan and Xiaoqing Wang)
Best paper award (in the Corporate Governance/Social Responsibility category), 2024 Financial Markets and Corporate Governance Conference
Recent and upcoming presentations: 2024 Contemporary Issues in Financial Markets and Banking Conference, 2024 Financial Market and Corporate Governance Conference, 2024 Asia-Pacific FMA Conference
Understanding how firms prioritize different stakeholders during economic downturns is crucial for corporate sustainability governance. This study explores the strategic trade-offs firms make between shareholder and broader stakeholder interests when faced with adverse shocks. Using dividend payouts and CSR engagement as proxies for shareholder and broader stakeholder interests, respectively, we develop a theoretical model that highlights the influence of profit probability and social responsibility pressure on firm decisions. Consistent with the theoretical propositions, our empirical findings reveal that firms with strong financial prospects tend to reduce both dividends and CSR engagement more aggressively during financial stress. Notably, while there exists a trade-off between shareholder payouts and value creation for other stakeholders, responsible firms facing high CSR pressure tend to reduce dividends during downturns to maintain higher CSR engagement. This research underscores the contingency of stakeholder prioritization on firms' financial performance and external pressures.
Climate sensitivity and environmental disclosure (with Xiangding Hou)
Recent and upcoming presentations: Brunel University Conference on Social and Sustainable Finance - Bridging Methods, Policy and Practice
Using a sample covering the RUSSELL 3000 constituents, we show that overall environmental disclosure quality is lower for firms with high stock price sensitivity to climate news. Our findings indicate that the negative association between climate sensitivity and overall environmental disclosure is stronger when climate-sensitive firms face greater scrutiny by financial market participants, as well as when they have regulatory incentives and a better ability to manage environmental risks. Furthermore, climate-sensitive firms shift towards climate-related disclosure in 10-K reports, especially when facing high levels of financial market scrutiny. Overall, our findings highlight the complex relationship between climate sensitivity and environmental disclosure and point to the usefulness of mandatory environmental reporting for environmental information completeness.
Does ESG reporting impact the cost of debt? Evidence from mandatory disclosures around the world (with Georgios Sermpinis, Serafeim Tsoukas, and Chen Yang)
Recent and upcoming presentations: Brunel University Conference on Social and Sustainable Finance - Bridging Methods, Policy and Practice
The integration of environmental, social, and governance (ESG) information in investment decisions is becoming increasingly important. In this paper, we use the staggered implementation of mandatory ESG reporting around the world to examine how ESG reporting affects the cost of bond financing. We find that mandatory ESG disclosures decrease bond yield spreads by reducing information asymmetry and catering to institutional investors’ preferences for ESG disclosure. In addition, we uncover a pivotal role for bank relationships in helping firms enjoy more favorable terms. Thus, our results suggest that mandatory ESG reporting helps firms obtain cheaper financing.