We study whether climate transition risk is reflected in the credit default swap (CDS) spreads of European firms. Using information on the vulnerability of a firm's value to the transition to a low-carbon economy, we construct a climate transition risk (CTR) factor, and report how this factor shifts the term structure of the CDS spreads of more but not of less vulnerable firms. Considering the CTR factor, we find that different climate transition policies have asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on less vulnerable firms.
Ugolini, A., Reboredo, J., Ojea-Ferreiro, J. (2024). Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps. RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE, 70(Part B ( June 2024)) [10.1016/j.ribaf.2024.102372].
Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps
Ugolini, AndreaPrimo
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2024
Abstract
We study whether climate transition risk is reflected in the credit default swap (CDS) spreads of European firms. Using information on the vulnerability of a firm's value to the transition to a low-carbon economy, we construct a climate transition risk (CTR) factor, and report how this factor shifts the term structure of the CDS spreads of more but not of less vulnerable firms. Considering the CTR factor, we find that different climate transition policies have asymmetric and significant economic impacts on the credit risk of more vulnerable firms, and negligible effects on less vulnerable firms.File | Dimensione | Formato | |
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Ugolini-2024-Research in International Business and Finance-VoR.pdf
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