Working Paper: CEPR ID: DP18661
Authors: Laura Alvarez-Roman; Sergio Mayordomo; Xavier Vives
Abstract: We study a model of the impact of climate risk on credit supply and test its predictions using data on all wildfires and corporate loans in Spain. Our findings reveal a significant decrease in credit following climate-driven events. This result is driven by outsider banks (large and diversified), which reduce lending significantly to firms in affected areas. In contrast, local banks (geographically concentrated), due to their access to soft information, reduce their loans to opaque affected firms to a lesser extent without increasing their risk. We also find that employment decreases in affected areas where local banks are not present.
Keywords: wildfire; asymmetric information; bank heterogeneity; firm lending
JEL Codes: Q54; G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local banks' access to soft information (G21) | mitigates impact of climate shocks on credit supply (F65) |
| climate-driven events (wildfires) (Q54) | decrease in credit supply to affected firms (E44) |
| wildfires (Q54) | significant reduction in lending by outsider banks to affected firms (F65) |
| wildfires (Q54) | lesser reduction in loans by local banks to opaque affected firms (F65) |
| wildfires (Q54) | decrease in employment in affected areas (J68) |