Increasingly adverse climatic conditions have created greater systematic risk for companies throughout the global economy. Few studies have directly examined the consequences of climate-related risk on financing choices by publicly-listed firms across the globe. We attempt to do so using the Global Climate Risk Index compiled and published by Germanwatch (Kreft & Eckstein, 2014), which captures at the country level the extent of losses from extreme weather events. As expected, we find the likelihood of loss from major storms, flooding, heat waves, etc. to be associated with lower and more volatile earnings and cash flows. Consistent with policies that attempt to moderate such effects, we show that firms located in countries characterized by more severe weather are likelier to hold more cash so as to build financial slack and thereby organizational resilience to climatic threats. Those firms also tend to have less short-term debt but more long-term debt, and to be less likely to distribute cash dividends. In addition, we find that certain industries are less vulnerable to extreme weather and so face less climate-related risk. Our results are robust to using an instrumental variable approach, a propensity-score-matched sample, and path analysis, and remain unchanged when we consider an alternative measure of climate risk. Finally, our conclusions are invariant to the timing of financial crises that can affect different countries at different times.

It has been suggested that the use of financial incentives by health maintenance organizations (HMOs) may change physicians' behavior toward individual patients. To test this hypothesis, we used a regression analysis of data from a survey of HMOs to examine the relation between the presence of financial incentives and two measures of the use of resources (the rate of hospitalization and the rate of visits for outpatient services) and one measure of the HMOs' financial viability (the achievement of break-even status). When we controlled for the effect of market-area variables, we found that some forms of compensation were significantly associated with these indicators of decision making by physicians. Among methods of paying physicians, the use of capitation or salaries was associated with a lower rate of hospitalization than the use of fee-for-service payment; physicians in for-profit HMOs and group-model HMOs also used the hospital less often. Placing physicians at financial risk as individuals and imposing penalties for deficits in the HMO's hospital fund beyond the loss of withheld funds were associated with fewer outpatient visits per enrollee, but a higher percentage of HMO patients in a physician's caseload was associated with more frequent visits. HMOs were more likely to break even if they were larger, older, had physicians who treated more HMO patients, and placed physicians at personal financial risk for the cost of outpatient tests; break-even status was also related to the type of HMO. We conclude that the use of some, but not all, financial incentives, as well as the type of HMO, does influence the behavior of physicians toward patients. It remains to be determined how these factors affect the quality of care.

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Focusing on the recent banking crisis, our article examines whether accounting-based proxies for the Federal Deposit Insurance Corporation’s proprietary CAMELS measurement system effectively predict the likelihood of failure for most regulated, depository institutions with U.S. operations (in and out of sample testing). This article also utilizes regulatory enforcement actions as both an explanatory and predicted variable. The CAMELS ratings from bank examinations are not released to the public because of regulatory concerns over potential bank runs. To the extent that such ratings provide timely information to banks, our lagged proxies are less likely to be effective predictors of bank failure. However, we find that proxies for each of the six categories of CAMELS—capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to interest rates—are significantly associated with the probability of bank failure when examined individually. Nearly all measures maintain their significance when examined collectively. These results should aid investors, customers of commercial banks, and also regulators to better assess the risk of bank distress in the future.

Research Summary We estimate firm‐level physical risk from climate change based on managerial evaluation and firms' exposure to climate hazard events and find that climate risk results in unfavorable corporate financing terms related to bank loans (higher interest paid, higher likelihood of being required to collateralize the loan, and greater number of covenant constraints). Firms that take measures aimed at managing climate risk, including corporate climate strategy, board‐level governance, specific or integrated process to cope with climate change, climate opportunities, and climate policy involvement, are able to mitigate the negative impact of climate risk on loan contracting. We further find that higher climate risk level is associated with inferior financial performance and higher default probability, which potentially lead to more stringent loan terms. Managerial Summary We examine how a firm's exposure to climate risk affects its financing terms from bank loans. Climate risk exposure is assessed by firm managers and also reflects the degree to which the firm is subject to climate‐induced natural disasters. The results show that if exposed to higher climate risk, which hurts financial performance and heightens default likelihood, firms face higher interest rates and more stringent collateral and covenant constraints when borrowing from banks. Nevertheless, firm managers could significantly mitigate this adverse climate impact on loan financing by integrating climate change into business strategy, having the board take direct responsibility for climate change issues, establishing a climate change‐focused risk management process, seeking business opportunities from climate change, and engaging in activities that influence climate policies.