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Climate change, technological innovation, and firm performance

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  • Zhao, Le
  • Parhizgari, A.M.

Abstract

There is substantial evidence that firms are adversely affected by climate risk. At the same time, technological innovations have been fast advancing. It is unknown how much of the negative effect of climate risk is neutralized by the positive effect of country-level technological innovations. Using the global climate risk index (CRI) and the information technology emanated from exports, we examine whether technological innovations can mitigate adverse effects of climate risk on firm performance and investment policy. We interact country-level innovation with CRI for 46 countries over the period of 2011–2018. We find statistically and economically significant evidence supporting the hypothesis that technological innovations mitigate climate risk's adverse effect on firm performance. We attribute this finding to firms that are in high innovation countries, and posit that such firms have more confidence towards the future, thus enabling them to be less concerned about climate risk.

Suggested Citation

  • Zhao, Le & Parhizgari, A.M., 2024. "Climate change, technological innovation, and firm performance," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 189-203.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:189-203
    DOI: 10.1016/j.iref.2024.04.025
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    More about this item

    Keywords

    Climate risk; Innovation; Financing policy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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