Sea Level Rise Risk and the Cost of Equity Capital
Prof. Yang ZHAO
Senior Lecturer in Financial Data Analysis (Finance and Accounting)
Department of Decision Analytics and Operations, University of Liverpool
Date: 15 April 2025 (Tuesday)
Time: 14:30 – 16:00
Venue: E22-G008
Host: Prof. Jason XIAO, Professor in Accounting
Abstract
Rising sea levels bring significant challenges and uncertainties to firms in low-lying coastal areas. Using a large panel of U.S. public firms, our study reveals that a firm’s sea level rise (SLR) risk is significantly and positively associated with its cost of equity after the Paris Agreement, but not before that. The cost of equity of firms with SLR risk is 1.3% higher than that of other firms after the Paris Agreement, confirming the economic impact of SLR risk. Our findings are robust to a battery of robustness tests, including alternative measures of SLR risk and the cost of equity, a propensity score matched sample analysis, a placebo test, and a difference-in-differences analysis. Cross-sectional analyses show that the positive association between SLR risk and the cost of equity is more pronounced among firms with limited ability to relocate and those held by institutional investors. Our findings suggest that the Paris Agreement increased public awareness of climate change and facilitated the pricing of climate change risks in the equity market.
Speaker
Prof. Zhao is a Senior Lecturer in Financial Data Analysis. He studies the impact of professional and social networks on issues in corporate finance and corporate governance, which includes executive compensation, mergers and acquisitions, executive turnover and insider trading. His research finds that director networks can create informational advantages, which improve companies’ operational efficiency when information asymmetry is present. On the other hand, directors can gain managerial power via director networks, which would give rise to entrenchment and excessive compensation. His research areas include Director Networks, Insider Trading, Corporate Innovation, Corporate Governance, Director Traits, Experience and Background, Academic Networks and Culture. His researches are published in prestigious journals such as Journal of Financial Stability; Journal of Corporate Finance; Journal of International Financial Markets, Institutions and Money; British Journal of Management and so on. His teaching includes Corporate Governance and Sustainability; Dissertation; Empirical Corporate Finance and Accounting; Research Project Independent Learning and etc.
All are welcome!
