a) total assets

Based on Alogoskoufis et al. (2021), total assets follow an auto-regressive pattern and their growth correlates with GDP growth and inflation. For corporate companies, the equation for total assets reads:

where i and t are indices for a specific company and year (time), respectively. GDP and inflation are taken at the country level and, thus, do not have an i index. The regression analysis supports this equation.

This equation misses a significant property of project companies – the devaluation of assets. Indeed, at the investment end, projects get decommissioned, and so does the value of their total assets. To account for this, a term is added to the equation. This term, coined “Percent Lifetime” (PLT), captures the expected decrease in total assets for project companies, and its regression coefficient is negative. Without this term, the other coefficients would capture the decrease in total assets wrongly and, thus, be biased, and their interpretation would be flawed.

We perform a log transformation of these variables to estimate elasticities better and add them by 1 to avoid too frequent occurrences of negative numbers. We omit the log transformation in the equations above to facilitate readability while keeping the general structure.

_{Alogoskoufis, S., Dunz, N., Emambakhsh, T., Hennig, T., Kaijser, M., Kouratzoglou, C., … Salleo, C. (2021). ECB economy-wide climate stress test. Methodology and results. Occasional Paper Series. European Central Bank, 281. https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op281~05a7735b1c.en.pdf}