Impact of Climate Risk on Firms’ Use of Trade Credit: International Evidence

Abstract

ABSTRACT We examine the association between climate risk and trade credit. We predict that firms exposed to climate risk-driven liquidity shocks prefer to use less trade credit. Using the Global Climate Risk Index of 86 countries, we find that firms located in countries characterized by severe weather events prefer to use less trade credit. In additional analyses, we find that the negative association between trade credit and climate risk is more pronounced for firms with more volatile cash flow and less collateral. Our results are robust to the use of alternative climate risk measure, alternative econometric methods, and exclusion of outliers.