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Does global climate risk encourage companies to take more risks?

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  • Xu, Weidong
  • Gao, Xin
  • Xu, Hao
  • Li, Donghui

Abstract

This paper employs a large international sample of 167,923 firm-year observations across 43 countries spanning 2001–2016 and finds that both annual and long-run climate risks have significantly positive impacts on corporate risk-taking, which is regarded as value-enhancing. Compared to long-run climate risk, annual climate risk plays a more dominant role. Moreover, we find high individualism and low uncertainty avoidance contribute to the positive effect of climate risk on corporate risk-taking. Compared to larger firms, smaller firms are more motivated to take on more risks when exposed to climate risks. Insurance provides protection for companies to take more risks. Also, country-level corporate governance is found to enhance the positive impacts of climate risks on corporate risk-taking. In addition, after taking endogeneity issues into account and conducting robustness tests, our primary conclusions remain.

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  • Xu, Weidong & Gao, Xin & Xu, Hao & Li, Donghui, 2022. "Does global climate risk encourage companies to take more risks?," Research in International Business and Finance, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:riibaf:v:61:y:2022:i:c:s0275531922000460
    DOI: 10.1016/j.ribaf.2022.101658
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    More about this item

    Keywords

    Corporate risk-taking; Climate risk; Corporate governance;
    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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