Description:
This study investigates the relationships between natural disasters and the cost of capital, as well as the influence of government and corporate policies on these relationships. Applying a multi-levelling model to a sample of 183,792 firm-year observations for 28,064 unique firms operating in 40 countries from 2000 to 2021, we demonstrate the varying effects of natural disasters on a firm’s cost of capital. The magnitude of the effect is determined by the attributes of natural disasters (number, duration, proximity) and the measures of the cost of capital (cost of debt, cost of equity, and average cost of capital). We also observe the mitigating impact of government and firm policies on the association between natural disasters and the cost of capital for corporations. Our findings are consistent with the differing attitudes and expectations of shareholders and debtholders when natural disasters are viewed as potential investment risks