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Strategy choices in strategic risk-taking: Does climate risk matter?

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  • Li, Wanli
  • Luo, Dan
  • Cheng, Teng-Yuan

Abstract

This study examines how climate risks influence strategic risk-taking and corporate decision-making. Using listed manufacturing companies between 2008 and 2021 in China and combining resource-based theory and significance theory, we find that climate risk exposure significantly diminishes firms' overall strategic risk-taking by depleting financial resources. We also discover strategic adaptations in firms' investment behaviors that while physical climate risks significantly reduce capital expenditures, they do not have a similar impact on R&D expenditures. It reveals a marked increase in innovations related to climate risk alongside a decline in investments in other innovation areas. The heterogeneity analysis indicates that firms' internal risk diversification capacity and slack resources can affect the impact of climate risk on strategic risk-taking. Furthermore, climate risk will undermine long-term value by dampening strategic risk-taking. These findings indicate that it is important to integrate climate risk management into corporate strategic planning to ensure the sustainable growth of business value in the long term.

Suggested Citation

  • Li, Wanli & Luo, Dan & Cheng, Teng-Yuan, 2025. "Strategy choices in strategic risk-taking: Does climate risk matter?," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007932
    DOI: 10.1016/j.irfa.2024.103861
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