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Climate Change Exposure and Firm Performance: Does Managerial Ability Matter?

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  • Khadija S. Almaghrabi

    (Business Department, The Applied College, King Abdulaziz University, Jeddah 21589, Saudi Arabia)

Abstract

Using a firm-level measure of climate change exposure, this study examines the role of managerial ability in the association between climate change exposure and corporate performance. Based on a sample of 43,620 firm-year observations over the period between 2001 and 2021, the study documents that although increased climate change exposure reduces corporate performance, managerial ability moderates this relationship. Specifically, this study shows that higher managerial ability mitigates the negative effect of climate change risk on financial performance and cash flow volatility reported by prior studies. These results hold across different specifications and when addressing the potential endogeneity issue concerning managerial ability. The findings of this study are essential to build a complete picture of the effect of climate change exposure on corporate performance. A key implication of the findings is that firms exposed to climate change risk are encouraged to enhance their managerial ability to overcome the negative impact of climate change exposure on corporate performance.

Suggested Citation

  • Khadija S. Almaghrabi, 2023. "Climate Change Exposure and Firm Performance: Does Managerial Ability Matter?," Sustainability, MDPI, vol. 15(17), pages 1-16, August.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:17:p:12878-:d:1225281
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    References listed on IDEAS

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