Does climate risk speed up dynamic capital structure adjustment? —Evidence from China

With rising climate risks, how firms respond through financial decisions has drawn increasing attention. Using Chinese A-share listed firms from 2007 to 2022, this study examines the effect of climate risk on firms’ dynamic capital structure adjustment. The results show that climate risk significantly accelerates adjustment toward target leverage. Mechanism analyses indicate that digital and green innovation strengthen this effect by facilitating firms’ proactive adaptation to climate challenges. Subsample tests reveal that climate transition risk, manifested through environmental regulation, carbon-reduction targets, and technological standards, is the primary driver of capital structure adjustment, while serious and chronic physical risks are insignificant. These results highlight the pathway of“climate risk—innovation response—capital structure adjustment,”enriching the literature on the economic consequences of climate risk and capital structure dynamics.The study also provides theoretical insights and practical implications for firms seeking to optimize capital structure under climate challenges.