Inter-city difference in extreme heat exposure and inter-regional capital flows: Evidence from the cross-region investment of listed companies

Climate change poses an existential threat to the sustainable development of companies, challenging their operational viability. In this study, data from China's A-share listed companies for the period 2008–2021 are used to empirically analyze how difference in extreme heat exposure between cities affects cross-regional investment by companies. Empirical research suggests that companies tend to shift their investment portfolios from regions with higher extreme heat exposure to regions with lower extreme heat exposure. Mechanistic analysis reveals that reduced transaction costs and increased productivity efficiency are two channels through which difference in exposure to extreme heat reshapes companies' cross-regional investments. Heterogeneity analysis reveals that this trend is more pronounced among labor-intensive industries, high-tech industries, companies in coastal regions, privately owned companies, and companies with a high perception of climate risk. Furthermore, empirical evidence suggests that strategic relocation to locations with less extreme heat exposure significantly improves the efficiency of investment while reducing operational risk. These findings highlight the risk mitigation motivations underlying the cross-regional capital flows of companies, providing evidence on the microeconomic transmission mechanisms of climate change externalities.