Climate Change and Corporate Leverage Manipulation: Evidence from China

This study examines the effect of climate change on corporate leverage manipulation using data from Chinese listed firms. The results show that climate change has significantly increased the degree of corporate leverage manipulation. Mechanism analysis suggests that climate change affects the degree of corporate leverage manipulation through financing constraints. Additionally, under the influence of climate change, firms tend to engage in leverage manipulation through fake equity real debt (FERD) means. Heterogeneity analysis shows that the impact of climate change on leverage manipulation is more significant for firms with weaker regional regulation, lower regional marketization, less regional banking competition, non-state-owned firms, and lower analyst coverage. Economic consequences suggest that corporate leverage manipulation as impacted by climate change increases the likelihood of future financial distress and further reduces a firm’s future value.