Essays on climate change and transportation finance

Climate change is a current and pressing issue that presents various forms of risks that can affect the firm performance of the global transportation sector. However, the existing literature on transportation and finance journals have yet to measure the economic relationship of different climate risks and the performance of transportation companies. I establish this literature gap in Chapter 1 of this dissertation. I write two essays on how carbon emissions and extreme sea levels affect the global transportation industry to address this gap. In Chapter 2, I investigate the effect of carbon emissions on the firm performance of global transportation companies. In the broad finance literature, carbon emissions represent the firm’s transition climate risk, so it has a negative relationship with firm performance. However, I find that firms with higher carbon emissions have better profitability and higher expected cash flow. This evidence suggests that reducing carbon emissions not necessarily translate to better firm performance. In the case of the global transportation sector, the costs that companies need to reduce their carbon emissions exceed the benefits they stand to gain. Therefore, they would opt not to pursue these initiatives to focus on preserving company earnings. The negative effect on the firm’s long-term value suggests that the market reacts negatively to the firm’s carbon emissions, in view of climate policies and environmental consciousness among consumers. In Chapter 3, I analyze the impact of extreme sea levels in the global maritime transportation sector. This chapter examines a physical climate risk that threatens not only the global transportation industry but also the global economy. I find a negative effect of extreme sea level on the firm’s Tobin’s q, ROA, and stock return. The findings suggest that firms incur costs from extreme sea levels and have weaker firm performance. I also find that high extreme sea level and low extreme sea level have asymmetric effects on firm performance. A possible explanation is that high extreme sea level is chronic (or long-term), while low extreme sea level is acute (or event driven). I summarize my findings in Chapter 4. I also offer key insights on the practical contribution of my dissertation.