Journal article 4 views
Rain or shine, default risks align: exploring the climate-default nexus in small and micro firms
Lara Cathcart,
Zhenghong Ding 
,
Alfonso Dufour,
Ludovico Rossi,
Simone Varotto
,
Alfonso Dufour,
Ludovico Rossi,
Simone Varotto
The European Journal of Finance, Pages: 1 - 34
Swansea University Author:
Zhenghong Ding
Full text not available from this repository: check for access using links below.
DOI (Published version): 10.1080/1351847x.2026.2634814
Abstract
We investigate the impact of escalating temperatures and heavy rainfall on the default probability of small and micro enterprises (SMiEs) in six European countries between 2005 and 2014. Our findings reveal that a one standard deviation increase (2.56∘C) in the yearly mean temperature raises a firm...
| Published in: | The European Journal of Finance |
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| ISSN: | 1351-847X 1466-4364 |
| Published: |
Informa UK Limited
2026
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| Online Access: |
Check full text
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa71574 |
| Abstract: |
We investigate the impact of escalating temperatures and heavy rainfall on the default probability of small and micro enterprises (SMiEs) in six European countries between 2005 and 2014. Our findings reveal that a one standard deviation increase (2.56∘C) in the yearly mean temperature raises a firm's default probability by 86.5 basis points. Additionally, a one standard deviation increase (2.46 mm) in the Simple Precipitation Intensity Index increases the default probability by 32.4 basis points. We argue that one channel explaining the adverse impact of climate risk on default probability is labour productivity loss. In addition, micro and financially constrained firms exhibit increased vulnerability to these risks. However, when the ultimate owners also serve as the firms' managers, they can mitigate the adverse effects of rising temperatures and heavy rainfall. |
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| Keywords: |
Climate risk, physical risk, credit risk, SMiEs |
| College: |
Faculty of Humanities and Social Sciences |
| Funders: |
Ludovico Rossi acknowledges financial support from the Ministerio de Ciencia, Innovación y Universidades, Project PID2024-161782NB-I00. |
| Start Page: |
1 |
| End Page: |
34 |