Work

Temperature fluctuations, climate uncertainty, and financing hindrance

Year: 2024

Type: article

Abstract: Undesirable temperature fluctuations pose significant financial risks for enterprises. By merging fine‐grained meteorological data with a panel of publicly listed firms, we delve into the relationship between temperature volatility and financing constraints. Our analysis reveals a positive correlation between temperature fluctuations and increasingly stringent financing limitations. State‐owned or large‐scale enterprises endowed with greater resources and risk diversification mechanisms are more likely to counteract the adverse effects of temperature volatility. Furthermore, we furnish evidence indicating that temperature fluctuations exert a substantial influence on corporate labor productivity. In response, companies tend to expand their workforce and elevate wages during the fiscal year. Faced with dwindling income and escalating operational costs, enterprises significantly amplify their insurance expenditures. The pronounced escalation in default risk and borrowing costs could undermine investors' sanguine profit expectations, subsequently prompting declines in firms' price‐to‐earnings and price‐to‐book ratios. Our study underscores the imperative for executive management teams to prudently account for climate change‐induced financing constraints when devising investment and production strategies.

Source: Journal of Regional Science

DOI: 10.1111/jors.12733

Authors: Qingyang Wu, Muhammad Shahbaz, Ioannis Kyriakou

Institutions: University of California, Los Angeles, Beijing Institute of Technology, Gulf University for Science & Technology, University of Cambridge, City St George's, University of London

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDGs: Decent work and economic growth, Climate action

Open Access status: hybrid

Estimated APC paid: $3,660