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Climate risk exposure and geographical allocation of business activities: Evidence from Chinese listed companies

Author

Listed:
  • Sun, Yuan
  • Sun, Xiaowei
  • Wang, Zehao

Abstract

This study investigates the effect of climate risk on firms’ geographical allocation of business activities. The result shows that climate risk exposure has a positive effect on firms’ allocation of subsidiaries across different regions, and the result holds after robustness tests. We further find that the positive relationship between firms’ climate risk exposure and cross-regional investment is more pronounced for firms with more cash holdings, with greater geographical proximity between the parent and existing subsidiaries and for non-state-owned enterprises. The economic consequence test suggests that cross-regional investment significantly improves investment efficiency when firms are exposed to higher degree of climate risk. Overall, our paper indicates that firms can change investment strategies in response to climate risk.

Suggested Citation

  • Sun, Yuan & Sun, Xiaowei & Wang, Zehao, 2024. "Climate risk exposure and geographical allocation of business activities: Evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010693
    DOI: 10.1016/j.frl.2023.104697
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    Keywords

    Climate risk; Allocation of business activities; Risk diversification; China;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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