Climate change risks and corporate financialization: Friend or foe? A theoretical and empirical analysis

Feng Zhao, Yuxuan Liu, Yue Dou and Bin Su

Energy Economics, 2025, vol. 149, issue C

Abstract: Climate change risk has emerged as a pressing factor that could reshape corporate financial management. Using the annual reports of listed companies in China, this study innovatively constructs a climate change exposure index to measure the climate change risks (CCRs) faced by listed companies in China from 2007 to 2021. This approach provides a more direct and nuanced measure of climate exposure than traditional proxy methods. Drawing on both theoretical and empirical analyses, we find that CCRs are significantly and negatively associated with financial asset holdings, indicating that firms reduce financialization in response to rising climate risks. This supports the hypothesis that financial assets are held primarily for investment substitution rather than precautionary motives. The negative effect is more pronounced among firms with higher financial constraints, stronger corporate governance, and higher executive shareholding ratios. Furthermore, we observe that as CCRs increase and financialization declines, firms reallocate capital toward cash reserves and environmental investment, reflecting a strategic shift toward resilience and sustainability. These findings contribute to the literature on climate finance and corporate behaviour and offer policy-relevant insights for aligning financial regulation and corporate governance with climate risk management in emerging markets.

Keywords: Climate change risks; Climate change exposure; Corporate financialization; Investment substitution (search for similar items in EconPapers)
JEL-codes: D21 G32 Q50 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988325005845
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:149:y:2025:i:c:s0140988325005845

DOI: 10.1016/j.eneco.2025.108757

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().