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Does political risk exacerbate climate risk? Firm-level evidence

Author

Listed:
  • Basha, Shabeen Afsar
  • Benkraiem, Ramzi
  • Ben-Nasr, Hamdi
  • Masum, Abdullah-Al

Abstract

Using machine-learning-based measures for political and climate risks derived from corporate conference calls, we discover a link between the two in a large sample of US firms from 2002 to 2021. Our findings suggest that firms facing higher political risk are more susceptible to climate risk. Additionally, we find that a firm's emitter category industry classification and exposure to environmental litigation can exacerbate this situation, while managerial ability helps reduce the impact. Furthermore, political lobbying and donations effectively check corporate climate risk, but only under non-partisan conditions. Importantly, our findings are robust to concerns of reverse causality, sample selection bias, and measurement errors.

Suggested Citation

  • Basha, Shabeen Afsar & Benkraiem, Ramzi & Ben-Nasr, Hamdi & Masum, Abdullah-Al, 2025. "Does political risk exacerbate climate risk? Firm-level evidence," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    • Handle: RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003692
    DOI: 10.1016/j.irfa.2025.104282
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    More about this item

    Keywords

    Political risk; Corporate decision-making; Climate risk;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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