The Impact of Climate Change Risk on Corporate Debt Financing Capacity: A Moderating Perspective Based on Carbon Emissions

Abstract

Climate change risk has significant impacts on corporate financial activities. Using firm-level data from A-share listed companies in China from 2010 to 2022, we examine how climate risk affects corporate debt financing capacity. We find that climate change risk significantly weakens firms’ ability to raise debt, leading to lower leverage and higher financing costs. These results remain robust across various checks for endogeneity and alternative specifications. We also show that reducing corporate carbon emission intensity can mitigate the negative impact of climate risk on debt financing, suggesting that supply-side credit policies are more effective than demand-side capital structure choices. Furthermore, we identify three channels through which climate risk impairs debt capacity: reduced competitiveness, increased default risk, and diminished resilience. Our heterogeneity analysis reveals that these adverse effects are more pronounced for non-state-owned firms, firms with weaker internal controls, and companies in highly financialized regions, and during periods of heightened environmental uncertainty. We also apply textual analysis and machine learning to the measurement of climate change risks, partially mitigating the geographic biases and single-dimensional shortcomings inherent in macro-level indicators, thus enriching the quantitative research on climate change risks. These findings provide valuable insights for policymakers and financial institutions in promoting corporate green transition, guiding capital allocation, and supporting sustainable development.

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