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Price of climate risk: Evidence from the value of cash holdings

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  • Yuan, Jiezhen
  • Wang, Yaqi
  • Han, Wenqi

Abstract

By integrating satellite data with textual analysis of annual reports from listed Chinese firms, we find a significant positive relationship between climate risk and corporate cash holdings. Climate risk raises debt financing costs through short-term market volatility, prompting firms to build cash reserves. This effect is stronger among firms facing greater market competition, firms led by more highly educated executives, and those with less internationally experienced leadership. Additionally, higher climate risk diminishes the market value of cash holdings. These results deepen understanding of how firms adjust financial policies in response to climate-related challenges and offer insights for corporate financial management.

Suggested Citation

  • Yuan, Jiezhen & Wang, Yaqi & Han, Wenqi, 2025. "Price of climate risk: Evidence from the value of cash holdings," Finance Research Letters, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finlet:v:83:y:2025:i:c:s154461232500916x
    DOI: 10.1016/j.frl.2025.107657
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    2. Zhang, Jing & Lin, Xiaole & An, Qiguang, 2026. "Dynamic response of the natural interest rate to extreme climate," Research in International Business and Finance, Elsevier, vol. 81(C).

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