Does political risk exacerbate climate risk? Firm-level evidence

Shabeen Afsar Basha, Ramzi Benkraiem, Hamdi Ben-Nasr and Abdullah-Al Masum

International Review of Financial Analysis, 2025, vol. 104, issue PA

Abstract: Using machine-learning-based measures for political and climate risks derived from corporate conference calls, we discover a link between the two in a large sample of US firms from 2002 to 2021. Our findings suggest that firms facing higher political risk are more susceptible to climate risk. Additionally, we find that a firm's emitter category industry classification and exposure to environmental litigation can exacerbate this situation, while managerial ability helps reduce the impact. Furthermore, political lobbying and donations effectively check corporate climate risk, but only under non-partisan conditions. Importantly, our findings are robust to concerns of reverse causality, sample selection bias, and measurement errors.

Keywords: Political risk; Corporate decision-making; Climate risk (search for similar items in EconPapers)
JEL-codes: D81 G32 H32 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:104:y:2025:i:pa:s1057521925003692

DOI: 10.1016/j.irfa.2025.104282

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