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 irresponsibility (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
In this study, we use environmental fines as a proxy for corporate environmental irresponsibility and demonstrate that a simple machine learning approach can predict environmental irresponsibility with notable accuracy. Our parsimonious model generally outperforms both bootstrapped and financial statement-based benchmarks. Consistent with the view that firms may engage in corporate social responsibility (CSR) activities for legitimacy purposes, we find that most of the significant predictors of environmental irresponsibility are the firm’s CSR actions, and that more CSR actions are associated with an increased likelihood of future environmental irresponsibility. We illustrate how our machine learning approach can be useful for lenders and investors. Overall, our results suggest that 1) having CSR actions should not be conflated with achieving good environmental outcomes; 2) the prediction of environmental irresponsibility, especially at the extensive margin, should not rely solely on financial statement variables; and 3) machine learning predictions of environmental irresponsibility can help mitigate downside risk.
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 negative shocks is crucial for corporate sustainability governance. This study explores the strategic trade-offs that firms make between shareholder interests 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 losses. Notably, while there is a trade-off between shareholder payouts and value creation for other stakeholders, responsible firms facing high CSR pressure tend to reduce dividends during losses to maintain higher CSR engagement. This research highlights the contingency of stakeholder prioritization on firms' financial performance and external pressures.
Climate sensitivity, environmental disclosure, and equity financing (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 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 environmental disclosure quality is stronger when firms face higher levels of stakeholder scrutiny or when their managers are risk-averse. We further show that high climate sensitivity firms issue less equity and face a heightened cost of equity when they have a higher environmental disclosure quality. These results align with the theoretical predictions of Bond and Zeng (2022) regarding the disclosure choices of firms’ managers when stakeholders’ interpretation of ESG information is ex-ante uncertain. Overall, our findings highlight the usefulness of mandatory environmental reporting to ensure the quality of environmental disclosure, particularly for firms with high degrees of climate sensitivity.
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; 2025 European Economic Association; Shanghai Jiao Tong University (Antai College of Economics and Management)
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.