Climate Change in the Theory of Finance

Finance scholars are only recently attempting to bridge the gap in climate finance. This paper is essentially a literature review of the interaction of climate change and finance through the lens of financial theory. The demand for financing climate-resilient infrastructures such as clean energy projects, energy-efficient buildings, low-carbon transportation, water, waste management systems, and the supply side of financing these infrastructures was reviewed. Financial theories and frameworks such as the Modigliani and Miller theorem, capital asset pricing model (CAPM), option pricing, efficient market hypothesis, and agency theory were also amenable to analyzing climate change and finance problems. Specifically, the factors to consider when financing and funding climate-resilient infrastructure include the financing profile of the investment; potential for cost recovery from users; the extent to which quality is contractible; the level of uncertainty and complexity of the project and policy frameworks; financial market conditions; and optimal allocation of risks. As data collection improves, climate finance research can continue on a great ride with enormous benefits to the global community. Keywords: Climate risk, Modigliani and Miller theorem, Asset pricing, Efficient capital markets, Option pricing. DOI: 10.7176/JESD/11-18-04 Publication date:September 30th 202

On the stability of capital structure of Nigerian quoted firms

One of the central debates in the empirical capital structure literature is the issue of capital structure stability. The purpose of this study is to examine the debate in the Nigerian context where it is largely an underexplored issue. This study employed the traditional leverage adjustment framework to examine the stability or adjustment of capital structure of a panel of Nigerian quoted firms in the presence of financing frictions. The population of this study comprised a panel of Nigerian quoted firms for the period 1999-2019 out of which 50 non-financial firms that met the data criteria were utilized as sample. Utilizing panel data generalized methods of moments (GMM) estimation techniques, the results revealed that capital structure variation overwhelms stability. The leverage measures exhibited strong sensitivities to firm-level variables, confirming trade-off, pecking order and market timing predictions. The target leverage was pro-cyclical in the sense of its sensitivity to macroeconomic variables. The study implications can be generalized to markets with similar characteristics, most notably that institutional rigidities exacerbate adjustment costs and, by extension, the gravitation of firms' debt dynamics towards slow adjustment