Working Papers

Abstract: This paper examines how exposure to extreme weather events affects earnings forecasts of equity analysts, using a unique dataset that matches natural disasters with the location of analysts across the US over 2000-2020. I find that analysts’ earnings forecasts become more accurate after they experience an extreme weather event. This effect persists up to 1.5 years and is more pronounced for firms with high climate risks, greater asymmetric information, and for analysts who are more experienced. These results indicate that weather events prompt analysts to rationally acquire and incorporate more information into their forecasts. In aggregate, this information acquisition process does not spill over to analysts distant from the event and prices do not react to analysts revising their forecasts after the event. However, I observe that brokerage firms capitalize on this increased analyst accuracy by expanding coverage of stocks that are particularly sensitive to climate risks.

Abstract: This study explores the link between bankruptcy and climate risk. By creating a dataset of business bankruptcies from 2000 to 2023 tied to environmental indicators, we find that brown companies are more likely to experience distress and file for bankruptcy, they prefer reorganization over liquidation and face lower bankruptcy costs. To address potential endogeneity in bankruptcy choices, we use the random assignment of bankruptcy judges to examine whether reorganization or liquidation better supports environmental performance post-bankruptcy. Analysis of emissions post-bankruptcy reveals that facilities of reorganized firms have lower emissions than liquidated ones, indicating that reorganization can positively impact environmental performance.

Transitioning to green technologies can be daunting, especially for small and medium-sized enterprises (SMEs). SMEs face several barriers to reducing their energy consumption and carbon emissions: limited access to information and support; a lack of knowledge and expertise; complex regulations; and financial constraints. This project proposes to assess and quantify these individual deterrents and enablers of SMEs' energy efficiency, not in isolation but as part of an integrated framework. To do so, we will conduct a randomized field experiment on a representative sample of Portuguese SMEs. We will investigate whether better information provision, hands-on training, consultancy, and improved access to credit can improve energy efficiency and reduce carbon emissions.

Abstract: This paper studies the relationship between climate transition risk and credit risk, proxied by firms' emission levels and Moody's Expected Default Frequencies (EDFs), respectively. In regressing Moody's EDFs on firms' emission levels, we find a negative correlation between emissions and default risk. We rationalize this result by focusing separately on firms in the top and bottom quintile of emissions and find that large emitters are charged a higher risk premium within sectors but not across sectors. By breaking down Moody's EDFs into their main components, we identify the channels through which transition risk affects the EDF. First, we show that carbon emissions are relevant for the probability of default, especially through the asset volatility channel. Second, we provide evidence that the 2015 Paris Agreement marked a turning point that reverberated on firms’ credit risk. Our results suggest that after 2015 firms with high carbon footprints became riskier, thus mitigating the previous negative results. We document that this change is driven by a decrease (increase) in asset volatility of low (high) emitters. Our analysis highlights the channels through which climate risks affect credit risk and sheds light on a number of policy aspects to consider when including climate risk in credit risk-related analyses.

Abstract: This paper studies whether countries benefit from servicing their debts during times of widespread sovereign defaults. Colombia is typically regarded as the only large Latin American country that did not default in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts. We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. We show that the case of Colombia is more complex than what it is commonly assumed. Although Colombia had to re-profile its debts, high-level political support from the US allowed Colombia do to so outside the standard framework of an IMF program. Our counterfactual analysis shows that in the short to medium run, Colombia benefited from avoiding an explicit default. Specifically, we find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains.