IDEAS home Printed from https://ideas.repec.org/a/wly/jforec/v44y2025i8p2315-2330.html

Climate Change Risk and Financial Market Response: An International Evidence From Performance Forecasts by Financial Analysts

Author

Listed:
  • Cyrine Khiari
  • Imen Khanchel
  • Hatem Rjiba
  • Josephat Daniel Lotto
  • Nazim Hussain

Abstract

This study examines the effect of climate change exposure on analysts' forecasted stock performance operationalized by their actual recommendations. Our results indicate that firms with higher exposure to climate change receive less favorable recommendations from analysts. This effect is particularly pronounced in carbon‐intensive industries and in companies with poor environmental performance. Our results underscore the importance of considering climate change exposure when making investment decisions. By shedding light on the financial consequences of climate exposure, our study contributes to the growing literature on climate finance and offers valuable insights for investors, analysts, and policymakers seeking to assess and mitigate climate‐related financial risks.

Suggested Citation

  • Cyrine Khiari & Imen Khanchel & Hatem Rjiba & Josephat Daniel Lotto & Nazim Hussain, 2025. "Climate Change Risk and Financial Market Response: An International Evidence From Performance Forecasts by Financial Analysts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(8), pages 2315-2330, December.
    • Handle: RePEc:wly:jforec:v:44:y:2025:i:8:p:2315-2330
    DOI: 10.1002/for.70003
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/for.70003
    Download Restriction: no
    File URL: https://libkey.io/10.1002/for.70003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Anwer S. Ahmed & Scott Duellman, 2013. "Managerial Overconfidence and Accounting Conservatism," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 51(1), pages 1-30, March.
    2. Xueming Luo & Heli Wang & Sascha Raithel & Qinqin Zheng, 2015. "Corporate social performance, analyst stock recommendations, and firm future returns," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 123-136, January.
    3. Andrea Liesen & Andreas G. Hoepner & Dennis M. Patten & Frank Figge, 2015. "Does stakeholder pressure influence corporate GHG emissions reporting? Empirical evidence from Europe," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 28(7), pages 1047-1074, September.
    4. Baker, Malcolm & Wurgler, Jeffrey, 2004. "Appearing and disappearing dividends: The link to catering incentives," Journal of Financial Economics, Elsevier, vol. 73(2), pages 271-288, August.
    5. Kim, Yongtae & Li, Haidan & Li, Siqi, 2014. "Corporate social responsibility and stock price crash risk," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 1-13.
    6. Noha Alessa & John Yaw Akparep & Inusah Sulemana & Andrew Osei Agyemang, 2024. "Does stakeholder pressure influence firms environmental, social and governance (ESG) disclosure? Evidence from Ghana," Cogent Business & Management, Taylor & Francis Journals, vol. 11(1), pages 2303790-230, December.
    7. Chen, Tao & Harford, Jarrad & Lin, Chen, 2015. "Do analysts matter for governance? Evidence from natural experiments," Journal of Financial Economics, Elsevier, vol. 115(2), pages 383-410.
    8. Andrea Liesen & Andreas G. Hoepner & Dennis M. Patten & Frank Figge, 2015. "Does stakeholder pressure influence corporate GHG emissions reporting? Empirical evidence from Europe," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 28(7), pages 1047-1074, September.
    9. Chintrakarn, Pandej & Chatjuthamard, Pattanaporn & Tong, Shenghui & Jiraporn, Pornsit, 2018. "How do powerful CEOs view dividends and stock repurchases? Evidence from the CEO pay slice (CPS)," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 49-64.
    10. Rafael La Porta & Florencio Lopez‐de‐Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, February.
    11. Ongsakul, Viput & Papangkorn, Suwongrat & Jiraporn, Pornsit, 2023. "Estimating the effect of climate change exposure on firm value using climate policy uncertainty: A text-based approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    12. Jiraporn, Pornsit & Chintrakarn, Pandej & Kim, Young S., 2012. "Analyst following, staggered boards, and managerial entrenchment," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3091-3100.
    13. Chung, Kee H. & Jo, Hoje, 1996. "The Impact of Security Analysts' Monitoring and Marketing Functions on the Market Value of Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(4), pages 493-512, December.
    14. Brennan, Michael J. & Subrahmanyam, Avanidhar, 1995. "Investment analysis and price formation in securities markets," Journal of Financial Economics, Elsevier, vol. 38(3), pages 361-381, July.
    15. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    16. repec:eme:aaaj00:aaaj-12-2013-1547 is not listed on IDEAS
    17. Anne-Kathrin Hinze & Franziska Sump, 2019. "Corporate social responsibility and financial analysts: a review of the literature," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 10(1), pages 183-207, February.
    18. Berkowitz, Daniel & Lin, Chen & Ma, Yue, 2015. "Do property rights matter? Evidence from a property law enactment," Journal of Financial Economics, Elsevier, vol. 116(3), pages 583-593.
    19. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    20. Ioannis Ioannou & George Serafeim, 2015. "The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics," Strategic Management Journal, Wiley Blackwell, vol. 36(7), pages 1053-1081, July.
    21. Valentinov, Vladislav, 2023. "Sustainability and stakeholder theory: A processual perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 52(13), pages 61-77.
    22. Darren T. Roulstone, 2003. "Analyst Following and Market Liquidity," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 552-578, September.
    23. Grimble, Robin & Wellard, Kate, 1997. "Stakeholder methodologies in natural resource management: a review of principles, contexts, experiences and opportunities," Agricultural Systems, Elsevier, vol. 55(2), pages 173-193, October.
    24. Adhikari, Binay K., 2016. "Causal effect of analyst following on corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 201-216.
    25. Welagedara, Venura & Deb, Saikat Sovan & Singh, Harminder, 2017. "Investor attention, analyst recommendation revisions, and stock prices," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 211-223.
    26. Anne-Kathrin Hinze & Franziska Sump, 2019. "Corporate social responsibility and financial analysts: a review of the literature," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 10(1), pages 183-207, February.
    27. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    28. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, vol. 100(1), pages 154-181, April.
    29. Farida Saleem & Yingying Zhang-Zhang & Muhammad Imran Malik & Alawiya Allui, 2020. "Revisiting Stakeholder Theory and Environmentalism: Evidence from an Emerging Economy," Sustainability, MDPI, vol. 12(20), pages 1-20, October.
    30. Mark H. Lang & Karl V. Lins & Darius P. Miller, 2004. "Concentrated Control, Analyst Following, and Valuation: Do Analysts Matter Most When Investors Are Protected Least?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 42(3), pages 589-623, June.
    31. Huynh, Thanh D. & Xia, Ying, 2021. "Climate Change News Risk and Corporate Bond Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(6), pages 1985-2009, September.
    32. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. McGuinness, Paul B. & Vieito, João Paulo & Wang, Mingzhu, 2024. "The impact of CSR-engagement, board gender, and stock price synchronicity on female analyst stock coverage decisions," Journal of Financial Stability, Elsevier, vol. 75(C).
    2. Bolognesi, Enrica & Burchi, Alberto, 2023. "The impact of the ESG disclosure on sell-side analysts’ target prices: The new era post Paris agreements," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Nico Lehmann, 2019. "Do Corporate Governance Analysts Matter? Evidence from the Expansion of Governance Analyst Coverage," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 57(3), pages 721-761, June.
    4. Cédric van Appelghem & Pascal Nguyen, 2020. "Do CEO-Board ties affect the firm's cost of equity? [La proximité entre le dirigeant et les administrateurs a-t-elle un impact sur le coût des fonds propres ?]," Working Papers hal-02880367, HAL.
    5. Galanti, Sébastien & Leroy, Aurélien & Vaubourg, Anne-Gaël, 2022. "Investment and access to external finance in Europe: Does analyst coverage matter?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    6. Yan Liu & Xiuhong Du, 2024. "How does analyst coverage influence corporate social responsibility (CSR)? The governance- and information-based perspectives," PLOS ONE, Public Library of Science, vol. 19(4), pages 1-24, April.
    7. Galanti, Sébastien & Leroy, Aurélien & Vaubourg, Anne-Gaël, 2022. "Investment and access to external finance in Europe: Does analyst coverage matter?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    8. Yuntian Xia & Junhao Hou & Hong Huang & Dongping Liu & Hongmei Ding, 2023. "Exploring the Impact of Firm Transparency on Green Innovation Legitimacy: Empirical Evidence from Listed Companies in China," Sustainability, MDPI, vol. 15(13), pages 1-18, June.
    9. Hans B. Christensen & Luzi Hail & Christian Leuz, 2021. "Mandatory CSR and sustainability reporting: economic analysis and literature review," Review of Accounting Studies, Springer, vol. 26(3), pages 1176-1248, September.
    10. Stephen J. Smulowitz & Didier Cossin & Hongze Lu, 2023. "Managerial Short-Termism and Corporate Social Performance: The Moderating Role of External Monitoring," Journal of Business Ethics, Springer, vol. 188(4), pages 759-778, December.
    11. Sadok El Ghoul & Omrane Guedhami & Hakkon Kim & Kwangwoo Park, 2018. "Corporate Environmental Responsibility and the Cost of Capital: International Evidence," Journal of Business Ethics, Springer, vol. 149(2), pages 335-361, May.
    12. Xiaoping Zhao & Audrey Murrell, 2022. "Does A Virtuous Circle Really Exist? Revisiting the Causal Linkage Between CSP and CFP," Journal of Business Ethics, Springer, vol. 177(1), pages 173-192, April.
    13. Srivastav, Shashank Prakash & Kannadhasan, M., 2025. "Environment and Energy: Does climate risk shape the energy consumption behavior of firms?," Energy Economics, Elsevier, vol. 148(C).
    14. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2023. "Foreign Institutional Investors, Legal Origin, and Corporate Greenhouse Gas Emissions Disclosure," Journal of Business Ethics, Springer, vol. 182(4), pages 903-932, February.
    15. Ashrafee Tanvir Hossain & Amir Hossain & Tom Cooper & Majidul Islam, 2024. "Corporate sexual orientation equality and carbon emission," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(2), pages 1491-1524, June.
    16. Mbanyele, William & Muchenje, Linda Tinofirei, 2022. "Climate change exposure, risk management and corporate social responsibility: Cross-country evidence," Journal of Multinational Financial Management, Elsevier, vol. 66(C).
    17. Hossain, Ashrafee T. & Masum, Abdullah-Al, 2022. "Does corporate social responsibility help mitigate firm-level climate change risk?," Finance Research Letters, Elsevier, vol. 47(PB).
    18. Premti, Arjan & Garcia-Feijoo, Luis & Madura, Jeff, 2017. "Information content of analyst recommendations in the banking industry," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 35-47.
    19. Yi Zhang, 2022. "Analyst coverage and corporate social responsibility decoupling: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(3), pages 620-634, May.
    20. Adhikari, Binay K., 2016. "Causal effect of analyst following on corporate social responsibility," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 201-216.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jforec:v:44:y:2025:i:8:p:2315-2330. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/2966 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.