Abstract/Summary

This thesis presents a comprehensive study on the capital structure and climate risk of European small and medium-sized enterprises (SMEs). The first empirical chapter investigates the correlation between SMEs’ leverage, ownership structure, and corporate risk, highlighting an inverted U-shaped relationship between ownership concentration and debt ratios, with significant disparities across different ownership structures. Family-owned enterprises and firms that operate in the same industry as their ultimate owner carry higher levels of financial debt, whereas government-controlled firms demonstrate low risk and low financial debt ratios. The second and third chapters focus on the impact of climate risks on small and micro firm performance and default probability. Using comprehensive financial data and gridded weather data, we demonstrate that rising temperatures and extreme weather events significantly affect firm performance and default probability. The average operating income of a firm decreases by 6.8% per 1°C increase in yearly mean temperature, with micro and financially constrained firms exhibiting increased vulnerability. Similarly, escalating temperature and intensive precipitation risk amplify a firm’s default probability by 86.5 and 32.4 basis points, respectively, per standard deviation increase. We observe heterogeneous climate risk impacts across different ownership structures and industries, noting that ultimate owners functioning as managers can potentially mitigate these adverse effects. This thesis, therefore, offers a multidimensional examination of SMEs, elucidating the complex interplay between financial leverage, ownership structure, and climate risk susceptibility. It contributes valuable insights to the economic climate literature and provides important implications for financial planning, risk management, and policy-making in the SME sector.