How Does Climate Risk Affect Corporate Investment Efficiency? Evidence From China

Bin Li, Yilan Liang, Bin Liu and Yao Yao

The World Economy, 2025, vol. 48, issue 8, 1897-1921

Abstract: We investigate how climate risk affects corporate investment efficiency in China. Employing a city‐level climate risk indicator that we constructed and a sample of 23,113 firm‐year observations of Chinese‐listed companies, we find that climate risk positively affects corporate investment efficiency. This pattern is unlikely to be driven by different identification strategies and robustness tests. Our mechanism analyses reveal that non‐operating expenses serve as a channel through which climate risks influence corporate investment efficiency. Further analyses reveal that the effect of climate risk on investment efficiency is more pronounced for firms located in areas with lower insurance coverage, undeveloped high‐speed rail networks, and for firms exposed to higher media coverage and with lower financial constraints. Overall, our findings not only shed new light on the relationship between climate risk and corporate investment efficiency but also provide important implications for both regulators and listed firms.

Date: 2025
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