Does Weather-Related Disaster Affect the Financing Costs of Enterprises? Evidence from Chinese Listed Companies in the Mining Industry

Abstract

In this paper, we test the impact of weather-related disasters on the individual firm’s equity financing cost based on Chinese listed companies in the mining industry. We collect data from the China Meteorological Disaster Yearbook and CSMAR database. Using direct economic loss associated with extreme weather-related events to quantitate meteorological disasters and regression analysis, we find that weather-related disasters significantly increase a firm’s equity financing cost. This result is robust compared to alternative measurements of equity financing cost, such as the two-way fixed effect model, severe disaster dummy variable, and instrumental variable regression. Further research shows that cash holdings and managerial ability can mitigate the impact of meteorological disasters on the equity financing cost. Our study provides significant implications for firms and policymakers. Firms and policymakers should carefully evaluate the risk of weather-related disasters.