IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i20p14833-d1258891.html
   My bibliography  Save this article

Impact of Climate Risk on the Financial Performance and Financial Policies of Enterprises

Author

Listed:
  • Xin Zhang

    (Airbus Noise Technology Centre, University of Southampton, University Road, Southampton SO17 1BJ, UK)

  • Mateng Zhang

    (School of Economics, Fujian Normal University, Fuzhou 350007, China)

  • Zhong Fang

    (School of Economics, Fujian Normal University, Fuzhou 350007, China)

Abstract

In this study, The Global Climate Risk Index, a global climate risk score, along with firm-level data are used to investigate how climate risk affects corporate financial performance and financial policy in various nations. To evaluate the impact of climate risk on various parts of a firm, this study uses the capabilities of SPSS (version: 28.0.1.1(15)) to perform correlation and regression analysis between climate risk indicators and the firm’s operational data. We obtained financial information from the Bloomberg database for companies in 37 different countries from 2017 to 2021, including return on assets, cash from operations, sales growth, short-term debt, long-term debt and short- and long-term debt. This is combined with a climate risk index to analyze the impact of climate risk on companies in different countries. The financial performance of a firm is found to be adversely, but not significantly, associated with climate risk in this study using correlation and regression analysis, whereas the long-term debt of the company is found to be favorably related to climate risk. From this investigation, the following findings can be derived. A lower returns on assets is the indicator of the comparatively poor financial performance of businesses in nations with increased climate risk. Businesses in nations with greater climate risk typically retain more long-term debt. Companies in nations with lower climate risk, on the other hand, typically retain less long-term debt. Lastly, this study contributes to the understanding of how climate risk affects different countries and how climate risk affects corporate financing strategies.

Suggested Citation

  • Xin Zhang & Mateng Zhang & Zhong Fang, 2023. "Impact of Climate Risk on the Financial Performance and Financial Policies of Enterprises," Sustainability, MDPI, vol. 15(20), pages 1-24, October.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:20:p:14833-:d:1258891
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/20/14833/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/20/14833/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Henry He Huang & Joseph Kerstein & Chong Wang, 2018. "The impact of climate risk on firm performance and financing choices: An international comparison," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(5), pages 633-656, July.
    2. Zhu, Bo & Hu, Xin & Deng, Yuanyue & Zhang, Bokai & Li, Xiru, 2023. "The differential effects of climate risks on non-fossil and fossil fuel stock markets: Evidence from China," Finance Research Letters, Elsevier, vol. 55(PB).
    3. Bos, Jaap W.B. & Li, Runliang & Sanders, Mark W.J.L., 2022. "Hazardous lending: The impact of natural disasters on bank asset portfolio," Economic Modelling, Elsevier, vol. 108(C).
    4. In, Soh Young & Weyant, John P. & Manav, Berk, 2022. "Pricing climate-related risks of energy investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    5. Sun, Yongping & Yang, Ying & Huang, Nan & Zou, Xin, 2020. "The impacts of climate change risks on financial performance of mining industry: Evidence from listed companies in China," Resources Policy, Elsevier, vol. 69(C).
    6. Masulis, Ronald W. & Mobbs, Shawn, 2014. "Independent director incentives: Where do talented directors spend their limited time and energy?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 406-429.
    7. Tesfaye T. Lemma & Ayalew Lulseged & Mohammad Tavakolifar, 2021. "Corporate commitment to climate change action, carbon risk exposure, and a firm's debt financing policy," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3919-3936, 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. Xu, Weidong & Huang, Wenxuan & Li, Donghui, 2024. "Climate risk and investment efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    2. Le, Anh-Tuan & Tran, Thao Phuong & Mishra, Anil V., 2023. "Climate risk and bank stability: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 70.
    3. Xiaojun Chu & Nianrong Sui, 2023. "Does Weather-Related Disaster Affect the Financing Costs of Enterprises? Evidence from Chinese Listed Companies in the Mining Industry," Sustainability, MDPI, vol. 15(2), pages 1-14, January.
    4. Miaomiao Niu & Guohao Li, 2022. "The Impact of Climate Change Risks on Residential Consumption in China: Evidence from ARMAX Modeling and Granger Causality Analysis," IJERPH, MDPI, vol. 19(19), pages 1-15, September.
    5. Lai, Shaojie & Chen, Lihan & Wang, Qing Sophie & Anderson, Hamish, 2022. "Natural disasters, trade credit, and firm performance," Economic Modelling, Elsevier, vol. 116(C).
    6. Sirin, Selahattin Murat & Uz, Dilek & Sevindik, Irem, 2022. "How do macroeconomic dynamics affect small and medium-sized enterprises (SMEs) in the power sector in developing economies: Evidence from Turkey," Energy Policy, Elsevier, vol. 168(C).
    7. Suman Lodh & Nitin Deshmukh & Alireza Rohani, 2024. "Stemming the tide: Does climate risk affect M&A performance?," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 858-881, February.
    8. Minfeng Yu & Yi Si & Gaoliang Tian & Lei Zhang, 2023. "Climate risk and audit fees: An international study," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 4989-5025, December.
    9. Lee, Chien-Chiang & Wang, Chih-Wei & Thinh, Bui Tien & Xu, Zhi-Ting, 2022. "Climate risk and bank liquidity creation: International evidence," International Review of Financial Analysis, Elsevier, vol. 82(C).
    10. Sun, Yanpeng & Song, Yuru & Long, Chi & Qin, Meng & Lobonţ, Oana-Ramona, 2023. "How to improve global environmental governance? Lessons learned from climate risk and climate policy uncertainty," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1666-1676.
    11. Jiao Ji & Oleksandr Talavera & Shuxing Yin, 2018. "The Hidden Information Content: Evidence from the Tone of Independent Director Reports," Working Papers 2018-28, Swansea University, School of Management.
    12. Sandra Cavaco & Patricia Crifo & Antoine Rebérioux & Gwenael Roudaut, 2014. "Independent directors: less informed, but better selected? New evidence from a two-way director-firm fixed effect model," Working Papers hal-04141284, HAL.
    13. Li, Weiping & Chen, Xiaoqi & Huang, Jiashun & Gong, Xu & Wu, Wei, 2022. "Do environmental regulations affect firm's cash holdings? Evidence from a quasi-natural experiment," Energy Economics, Elsevier, vol. 112(C).
    14. Jesse M. Keenan & Anurag Gumber, 2019. "California climate adaptation trust fund: exploring the leveraging of cap-and-trade proceeds," Environment Systems and Decisions, Springer, vol. 39(4), pages 454-465, December.
    15. Upadhyay, Arun, 2023. "Rising board gender diversity and incentives of female directors," Journal of Corporate Finance, Elsevier, vol. 80(C).
    16. Haoyuan Ding & Bo Pu & Tong Qi & Kai Wang, 2022. "Valuation effects of the US–China trade war: The effects of foreign managers and foreign exposure," Journal of Economic Surveys, Wiley Blackwell, vol. 36(3), pages 662-683, July.
    17. Randy Beavers & Shawn Mobbs, 2020. "Director overconfidence," Financial Management, Financial Management Association International, vol. 49(2), pages 389-422, June.
    18. Neeraj Gupta & Jitendra Mahakud, 2020. "CEO characteristics and bank performance: evidence from India," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 35(8), pages 1057-1093, August.
    19. Nadine Gatzert & Philipp Reichel, 2022. "Awareness of climate risks and opportunities: empirical evidence on determinants and value from the U.S. and European insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 5-26, January.
    20. Volonté, Christophe, 2015. "Boards: Independent and committed directors?," International Review of Law and Economics, Elsevier, vol. 41(C), pages 25-37.

    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:gam:jsusta:v:15:y:2023:i:20:p:14833-:d:1258891. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.