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Extreme temperature shocks and firms’ financial distress

Author

Listed:
  • Liu, Xinheng
  • Lv, Shumei
  • Yang, Xin
  • Cao, Jie
  • Huang, Chuangxia

Abstract

Utilizing a panel dataset of Chinese A-share listed firms during 2001–2021, we examine whether and how extreme temperature shocks affect financial distress. Our empirical findings show that extreme temperature shocks have a robust positive effect on financial distress. Further analysis reveals two channels through which extreme temperature shocks exacerbate financial distress: reducing firms’ total factor productivity and tightening financing constraints. Moreover, this effect is stronger among firms with small market capitalization, vulnerability to climate change, poor corporate governance, and a lower proportion of intangible assets. Additional tests reveal that the disclosure of temperature extremes during the workday has a higher effect on financial distress. Overall, our results shed additional light on the important role of extreme temperature shocks in corporate risk management and government decision-making.

Suggested Citation

  • Liu, Xinheng & Lv, Shumei & Yang, Xin & Cao, Jie & Huang, Chuangxia, 2025. "Extreme temperature shocks and firms’ financial distress," International Review of Economics & Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025001091
    DOI: 10.1016/j.iref.2025.103946
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