Climate Change Exposure and Cash Holdings

Xiaoyang Li () and Xinyue Zhang
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Xiaoyang Li: Department of Finance, Deakin University, 221 Burwood Highway, Burwood, VIC 3125, Australia
Xinyue Zhang: Department of Finance, Deakin University, 221 Burwood Highway, Burwood, VIC 3125, Australia

Sustainability, 2025, vol. 17, issue 1, 1-35

Abstract: We study the effects of climate change exposure on firms’ cash holdings using a recently developed measure which decomposes the overall exposure into opportunities and uncertainties. We find that firms with a greater overall exposure to climate change hold more cash, and this effect is mainly driven by climate change-related opportunities. This is consistent with the hypothesis that firms hoard cash to prepare for future opportunities. Methodologically, we use the contemporaneous weather conditions as well as those from the recent past as instrumental variables. These results provide new evidence on the relationship between climate change and cash holding.

Keywords: climate change; uncertainty; opportunity; cash holdings (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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