Investor and policymaker concerns about corporate climate and environmental risks suggest that these risks should affect risk assessment and pricing of firm securities, particularly for firms located in areas with stricter regulatory enforcement. We test this hypothesis using corporate bonds and find support for the hypothesis.
Employing a shock to expected climate regulations, we provide evidence that climate regulatory risks causally affect credit ratings and yield spreads. A structural credit model indicates that the increased credit spreads of high carbon firms, especially in stricter regulatory environments, are driven by a surge in firms’ asset volatilities rather than their asset values.
Dr Laura T Starks is the Pembroke Visiting Professor of International Finance at the University of Cambridge and the George Kozmetsky Centennial Distinguished University Chair and Professor of Finance at the McCombs School of Business, University of Texas at Austin. Her current and recent research focuses on financial economic issues such as environmental, social and governance effects, molecular genetics and equity market participation, retirement investment, institutional investors (such as mutual funds and hedge funds), and shareholder activism. She has received a large number of research and teaching awards. Most recently, she received the Swedish Skandia Research Award on Long-Term Savings for contributions to the field of banking, insurance and financial services and the Moskowitz Prize for Outstanding Research in Sustainable Finance.
Professor Starks has served as President and on the Board of Directors of 4 international academic finance organisations (AFA, FMA, SFS and WFA). She is presently a Fellow of the American Finance Association and the Financial Management Association, Research Associate of the NBER (National Bureau of Economic Research), Research Member for the ECGI (European Corporate Governance Institute) and Senior Fellow for ABFER (Asian Bureau Finance and Economics Research). She was previously Editor of the Review of Financial Studies. She received her PhD from the University of Texas at Austin. Prior to joining UT-Austin’s faculty, she was on the faculty of Washington University in St Louis.
If you would like to register, or know more about this event, please email Luke Slater.