Beyond Modigliani-Miller: Capability Constraints and Capital Structure under Climate Risk

This repository contains datasets and python script (code) used to integrate firm‐level capital structure, probabilistic climate risk exposure, and adaptive capability within a unified empirical framework that allows simultaneous identification of financial, environmental, and institutional transmission channels. Using harmonized microdata covering 75,024 firms across 41 developing countries, combined with CLIMADA-based estimates of expected climate-induced asset losses and independently constructed risk-class volatility measures, the analysis overcomes limitations of prior studies that examine financing, climate risk, or firm performance in isolation or at aggregated levels. The econometric design separates leverage level from financing composition, incorporates region-firm-size and time fixed effects to control for structural heterogeneity, and explicitly tests MM irrelevance conditions under climate risk through interaction and counterfactual simulations. By embedding financial access and capability indices directly into the estimation and dynamic policy simulations, the study moves beyond traditional capital structure models that treat firms as financially homogeneous and instead identifies adaptive capacity as a measurable mechanism linking financing decisions to climate resilience.