Abstract
We study the effect of corporate exposure to weather on bond yield spread. We construct three firm-level weather exposure measures and find that firms exposed to greater weather risk experience substantially higher yield spread on their bonds in the secondary and primary markets. Chanel tests reveal that the link between corporate weather exposure and yield spread arises via firm fundamentals rather than from frictions in the bond market. We find that weather variations significantly increase operating cash flow risk and equity volatility of the exposed firms, while bond illiquidity can hardly explain the effect of weather exposure.
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