Abstract

This thesis investigates how shocks to real assets impact the financial performance of corporations.
The first study examines drought shocks and their effect on bank financial stability and loan performance. Unlike other climate shocks, droughts are slow and their effects are not immediate. By defining a two-year drought shock at the bank level and using a difference-in-differences methodology, it is found that drought shocks significantly worsen banks' Z-Score, return on assets, and stock volatility. Additionally, non-performing loans increase substantially in affected banks compared to unaffected ones. The economic impacts of droughts are comparable to a 1% decline in the unemployment rate. Affected banks tend to close branches in drought-impacted regions without increasing their capital ratios.
The second study investigates the impact of human mobility reductions during the COVID-19 pandemic on bank performance. Using geographic locations of bank branches to measure exposure to mobility declines, the study finds that U.S. banks' stability, profitability, and asset quality are negatively affected by reduced mobility. There is a significant rise in non-performing consumer loans, residential, and commercial mortgages, while commercial loans remain unaffected. Relationship banking provides a protective buffer against the adverse effects of mobility reductions on banks.
The third study assesses the role of unpledged collateral in Real Estate Investment Trusts (REITs) concerning liquidity constraints and asset sales. The findings indicate that REITs with higher ratios of encumbered assets tend to sell properties at lower prices and face increased loan spreads. Encumbrance restricts the pool of assets available for disposal, reducing profits from selling activities. However, the negative impact of encumbrance on selling activity and loan spreads is mitigated for financially healthy REITs. Overall, the study underscores the importance of unencumbered assets as a determinant of selling activity and borrowing costs.
Collectively, these studies provide valuable insights into how different types of shocks affect financial stability, loan performance, and asset sales, highlighting the critical role of asset management and strategic responses in mitigating adverse outcomes.