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Climate change risk, investor sentiment, and the performance of new entrant firms

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  • Shima Amini

    (Leeds University Business School, Accounting and Finance Division)

  • Sofia Johan

    (Florida Atlantic University, College of Business
    University of Vaasa, InnoLab)

  • Eilnaz Kashefi-Pour

    (The Department of Finance, Birmingham Business School)

  • Abdulkadir Mohamed

    (Leeds University Business School, Accounting and Finance Division)

Abstract

We explore how climate change risk affects the performance of new entrant firms seeking external capital by using a sample of Initial Public Offerings (IPO) from 2000 to 2020. We find climate change risk negatively affects underpricing and the long-term performance of the IPO firms. We further investigate the moderating effect of investor sentiment on the relationship between climate change risk and IPO long-term performance. We find that the negative effect of climate change risk on IPO performance is stronger for firms going public when investors are pessimistic. Exploring the channels through which climate change risk affects IPO performance, the results show that the effect of climate change risk on IPO underpricing is channeled through the IPO volume, while long-term underperformance is channeled through growth opportunities. Overall, our results are robust to various model specifications, firm-level measures of climate change risk, CEO traits, endogeneity concerns, and exogenous shocks.

Suggested Citation

  • Shima Amini & Sofia Johan & Eilnaz Kashefi-Pour & Abdulkadir Mohamed, 2025. "Climate change risk, investor sentiment, and the performance of new entrant firms," Small Business Economics, Springer, vol. 65(4), pages 2539-2566, December.
    • Handle: RePEc:kap:sbusec:v:65:y:2025:i:4:d:10.1007_s11187-025-01067-6
    DOI: 10.1007/s11187-025-01067-6
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