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Climate change exposure and short-termism: Evidence from net trade credit

Author

Listed:
  • Adhikari, Hari P.
  • More, Deepak G.
  • Sah, Nilesh B.

Abstract

We study the impact of climate change exposure on corporate short-term policies. We find that firms increase their use of accounts payable, receivable, and net trade credit due to high climate change exposure. We argue that affected firms increasingly use accounts receivable to boost sales and mitigate buyer reluctance, which can alleviate the downfall in sales, cash-flows, and profitability caused by climate risk. Moreover, such firms are oftentimes faced with credit constraints and increasingly use supplier-provided payables to ease financing woes. The cumulative impact of the receivable and payable policy is an increase in net trade credit, funded by forgoing research and development, which indicates a myopic and conservative strategy. Our results are robust and withstand multiple tests for endogeneity. Furthermore, our results are stronger for firms in industries and states exposed to climate change threats. Overall, climate change exposure encourages corporate short-termism and intertemporal substitution between short-term and long-term activities.

Suggested Citation

  • Adhikari, Hari P. & More, Deepak G. & Sah, Nilesh B., 2025. "Climate change exposure and short-termism: Evidence from net trade credit," International Review of Financial Analysis, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002807
    DOI: 10.1016/j.irfa.2025.104193
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    Keywords

    Climate change exposure; Short-termism; Accounts receivable; Accounts payable; Net trade credit;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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