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Decoupling from nature: Climate risk perception, cost of capital, and firm value

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  • Liao, Meirong
  • He, Shouchao
  • Gao, Min

Abstract

Climate risk is fundamentally reshaping corporate resource allocation, cost of capital, and firm valuation. Using Chinese A-share listed firms over the period 2010–2023, we examine how managerial climate risk perception affects firm-level nature dependence. We find that greater managerial perception of climate risk significantly reduces nature dependence. This effect operates through two channels: the adoption of a green strategic orientation and the pursuit of business diversification. The effect is more pronounced among non-heavily-polluting industries, firms in eastern China, and state-owned enterprises. We further show that lower nature dependence reduces both debt and equity financing costs and increases firm value. These findings offer new evidence on how managerial cognition drives the reduction of nature dependence, with implications for managing nature-related risk in capital markets.

Suggested Citation

  • Liao, Meirong & He, Shouchao & Gao, Min, 2026. "Decoupling from nature: Climate risk perception, cost of capital, and firm value," Finance Research Letters, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:finlet:v:98:y:2026:i:c:s1544612326003995
    DOI: 10.1016/j.frl.2026.109869
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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