Pro-Climate Lobbying and Corporate Default Risk: Evidence from U.S. Firms

This study examines whether pro-climate lobbying intensity is associated with corporate default risk. Using a panel of 4176 firm-year observations from U.S.-listed firms, we measure financial stability using distance-to-default and pro-climate lobbying intensity as annual pro-climate lobbying expenditure scaled by total assets. Fixed-effects estimates show that pro-climate lobbying intensity is positively and significantly associated with distance-to-default, indicating lower default risk. Economically, a one-standard-deviation increase in lobbying intensity corresponds to an approximately 0.084-unit increase in distance-to-default, equivalent to 1.39% of its sample mean. The evidence is consistent with signaling theory, as costly climate engagement may signal transition preparedness, and with stakeholder theory, as alignment with climate-conscious stakeholders may lower regulatory, reputational, and financing risks. The relationship remains evident after entropy balancing, controlling for lagged distance-to-default in a dynamic specification, and replacing distance-to-default with the Altman Z-score. It is also qualitatively robust to replace the comprehensive lobbying measure with a narrower text-based proxy that identifies pro-climate lobbying through explicit climate-related keywords. Split-sample analyses show a stronger association among firms with at-or-above-median environmental and social performance and among firms with at-or-above-median cash-flow and earnings volatility, suggesting that climate-policy engagement is most informative under greater operating uncertainty; these patterns remain descriptive pending formal coefficient-comparison tests. Overall, the study contributes to the corporate political activity, climate-finance, and credit-risk bodies of literature by showing that pro-climate lobbying carries information relevant to financial resilience and that its relevance varies with firms’ sustainability performance and operating uncertainty.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-09-30
DOI
https://doi.org/10.3390/jrfm19100748
Primary Topic
Corporate Social Responsibility Reporting
Type
article
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article

Pro-Climate Lobbying and Corporate Default Risk: Evidence from U.S. Firms

Iftear Ahmed Chowdhury, Mohammad Sarwar Rekabder, FJ Mohaimen, Jobaida Tasnim Chowdhury et al.
Journal of risk and financial management
Corporate Social Responsibility Reporting
article

Pro-Climate Lobbying and Corporate Default Risk: Evidence from U.S. Firms

Iftear Ahmed Chowdhury, Mohammad Sarwar Rekabder, FJ Mohaimen, Jobaida Tasnim Chowdhury, Hasan Al Mamun
article en

Abstract

This study examines whether pro-climate lobbying intensity is associated with corporate default risk. Using a panel of 4176 firm-year observations from U.S.-listed firms, we measure financial stability using distance-to-default and pro-climate lobbying intensity as annual pro-climate lobbying expenditure scaled by total assets. Fixed-effects estimates show that pro-climate lobbying intensity is positively and significantly associated with distance-to-default, indicating lower default risk. Economically, a one-standard-deviation increase in lobbying intensity corresponds to an approximately 0.084-unit increase in distance-to-default, equivalent to 1.39% of its sample mean. The evidence is consistent with signaling theory, as costly climate engagement may signal transition preparedness, and with stakeholder theory, as alignment with climate-conscious stakeholders may lower regulatory, reputational, and financing risks. The relationship remains evident after entropy balancing, controlling for lagged distance-to-default in a dynamic specification, and replacing distance-to-default with the Altman Z-score. It is also qualitatively robust to replace the comprehensive lobbying measure with a narrower text-based proxy that identifies pro-climate lobbying through explicit climate-related keywords. Split-sample analyses show a stronger association among firms with at-or-above-median environmental and social performance and among firms with at-or-above-median cash-flow and earnings volatility, suggesting that climate-policy engagement is most informative under greater operating uncertainty; these patterns remain descriptive pending formal coefficient-comparison tests. Overall, the study contributes to the corporate political activity, climate-finance, and credit-risk bodies of literature by showing that pro-climate lobbying carries information relevant to financial resilience and that its relevance varies with firms’ sustainability performance and operating uncertainty.

Journal of risk and financial managementVol. 19(10)
North South University (BD)
Climate action
Openalex Percentile: Top 8%
Corporate Social Responsibility Reporting
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