Does Climate Policy Uncertainty Affect Corporate Financing Decisions? Evidence from Debt Maturity Choices

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Abstract
This paper examines how climate policy uncertainty (CPU) relates to firms’ debt maturity choices. Using 6,665 U.S. firms from 1990 to 2017, we find that higher CPU is associated with a lower proportion of short-term debt, indicating that firms extend debt maturity in response to climate-related uncertainty. This evidence supports a commitment-based mechanism in which firms lock in long-term financing to mitigate future refinancing risk under persistent regulatory uncertainty Cross-sectional analyses show that the maturity-lengthening effect is weaker among firms with limited innovation capacity and tighter financial constraints, but stronger among rated firms, firms experiencing credit rating downgrades, and firms led by high-ability managers. Overall, the findings highlight that climate policy uncertainty has distinct and economically meaningful implications for corporate financing decisions.

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