Extreme weather events and enterprise cross-regional expansion strategy

The frequent occurrence of extreme weather events has created disparities in regional endowments, posing significant challenges to the development strategies of enterprises across different regions. In this study, we construct a theoretical model and conduct an empirical analysis using location data from subsidiaries of listed companies in China. Our findings reveal that extreme weather events have a negative impact on companies’ motivation to establish new subsidiaries in affected areas. These events hinder the cross-regional expansion of enterprises by disrupting key regional endowments, including transportation infrastructure, labor supply, credit availability, and innovation capacity. The effects are particularly pronounced for state-owned enterprises, labor-intensive industries, and firms with existing subsidiaries located in relatively flat regions. Additionally, we examine the impact of various types of extreme weather events and find that floods, storms, and extreme temperatures significantly impede enterprise expansion across regions. Overall, our research highlights the unintended climate risk factor in the corporate location strategy.