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When climate risk hits corporate value: The moderating role of financial constraints, flexibility, and innovation

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  • Naseer, Mirza Muhammad
  • Guo, Yongsheng
  • Zhu, Xiaoxian

Abstract

This study examines the relationship between firms’ exposure to climate risk and their market value using global data from 2002 to 2022. A significant negative relationship between climate risk and firm value is identified, with geographic variation in impact severity. Asia faces the highest risk, followed by Europe, North America, and others. Policy events like the Stern Review and the Paris Agreement influence this relationship. Financial constraints exacerbate the negative effects of climate risk, while financial flexibility and R&D mitigate them. Firms in environmentally sensitive sectors and outside the United States are more vulnerable, and non-G20/non-OECD countries face greater climate challenges.

Suggested Citation

  • Naseer, Mirza Muhammad & Guo, Yongsheng & Zhu, Xiaoxian, 2025. "When climate risk hits corporate value: The moderating role of financial constraints, flexibility, and innovation," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612325000455
    DOI: 10.1016/j.frl.2025.106780
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    4. Mohammed Ahmed Yousef Al-qadhi & Shen Zunhuan & Umar Farooq & Mosab I. Tabash & Abdelhafid Belarbi & Zokir Mamadiyarov, 2026. "Assessing the Moderating Effect of ESG Investment on Climate Variability Risk and Firm Value Nexus," Advances in Decision Sciences, Asia University, Taiwan, vol. 30(1), pages 40-71, March.
    5. Naseer, Mirza Muhammad & Guo, Yongsheng & Zhu, Xiaoxian, 2025. "The dynamics of corporate climate risk and market volatility: International evidence," The North American Journal of Economics and Finance, Elsevier, vol. 78(C).
    6. Silvia Bressan, 2025. "Banks’ greenhouse gas emissions and equity value," SN Business & Economics, Springer, vol. 5(11), pages 1-25, November.

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