Too-Big-to-Strand? Bond versus Bank Financing in the Transition to a Low-Carbon Economy
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Series
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Speaker(s)Steven Ongena (University of Zurich, Switzerland)
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FieldFinance, Accounting and Finance
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LocationTinbergen Institute Amsterdam, room 1.01
Amsterdam -
Date and time
May 25, 2022
12:45 - 14:00
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. Joint with Winta Beyene, Kathrin De Greiff, and Manthos Delis.