Climate risk and firms

: evidence from drought

Abstract

This dissertation investigates the impact of physical climate risk, measured through drought exposure, on firm outcomes and bank lending decisions. Using NOAA drought indices, firm-level financial statement data from Compustat, and syndicated loan data from DealScan covering 1986-2023, my findings highlight the important role of climate risk in negatively affecting firm operations and tightening lending conditions, with heterogeneous effects across firms with different characteristics. At the firm level, drought exposure reduces employment and profitability. Furthermore, greater drought exposure is associated with higher loan spreads and fees and short loan maturity, with heterogeneous effects across industries, firm size, profitability, and creditworthiness. Overall, the findings highlight the practice of integrating climate risk into credit risk assessment and corporate financial policies, suggesting that climate risk emerges as a systemic driver of financial and real outcomes.

Date of Award	13 Oct 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Sujiao Zhao (Supervisor)