Discussion Paper Details
Please find the details for DP16692 in an easy to copy and paste format below:
Title: Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy.
Author(s): Winta Beyene, Kathrin De Greiff, Manthos Delis and Steven Ongena
Publication Date: November 2021
Keyword(s): Climate policy risk, Credit misallocation, Financial Intermediation and Stranded assets
Programme Area(s): Financial Economics
Abstract: What is the role market- and bank-based debt play in the climate transition process? We present evidence that bond markets price the risk that assets held by fossil fuel firms strand, while banks in the syndicated loan market seemingly do not price this risk much. Consequently, to fulfill their financing needs fossil fuel firms increasingly rely less on bonds and more on loans. We can interpret the within-firm bond-to-loan substitution along stranding risk as a contraction in the supply of bond versus bank funding. Within the banking sector especially the big banks are willing to provide cheaper and more financing to fossil fuel firms.
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Beyene, W, De Greiff, K, Delis, M and Ongena, S. 2021. 'Too-big-to-strand? Bond versus bank financing in the transition to a low-carbon economy.'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16692