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How does climate risk affect corporate financialization?

Author

Listed:
  • Cheng, Teng Yuan
  • Dong, Liang
  • Dong, Yuxuan
  • Lam, Keith S.K.

Abstract

Using a sample of Chinese A-share listed firms from 2010 to 2020 and a local climate risk measure synthetizing meteorological observations, this paper examines the impact of climate risk on corporate financialization. We document the following new findings. First, climate risk has a significant inhibitory effect on corporate financialization. Second, climate risk negatively affects firms’ financialization by exacerbating cash flow shortages and liquidity uncertainty. The reduction in financialization is larger among firms with excessive financialization, private ownership, weak external financing ability, and small size. Lastly, the reduction in financialization caused by climate risk has an inverse-U shape effect on corporate value, dampening firm value in the short term due to increased real and R&D investments but enhancing firm value in the longer term. This study highlights the need for firms to integrate climate risk into their financial investment strategies.

Suggested Citation

  • Cheng, Teng Yuan & Dong, Liang & Dong, Yuxuan & Lam, Keith S.K., 2025. "How does climate risk affect corporate financialization?," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002107
    DOI: 10.1016/j.ribaf.2025.102954
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    1. Ran Yi & Yunfan Zhang & An Chen, 2026. "Does corporate climate risk promote climate response actions? Empirical evidence from China," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 31(3), pages 1-33, March.

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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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