Price of climate risk: Evidence from the value of cash holdings

Jiezhen Yuan, Yaqi Wang and Wenqi Han

Finance Research Letters, 2025, vol. 83, issue C

Abstract: By integrating satellite data with textual analysis of annual reports from listed Chinese firms, we find a significant positive relationship between climate risk and corporate cash holdings. Climate risk raises debt financing costs through short-term market volatility, prompting firms to build cash reserves. This effect is stronger among firms facing greater market competition, firms led by more highly educated executives, and those with less internationally experienced leadership. Additionally, higher climate risk diminishes the market value of cash holdings. These results deepen understanding of how firms adjust financial policies in response to climate-related challenges and offer insights for corporate financial management.

Keywords: Climate risk; Cash holdings; Debt financing cost (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:83:y:2025:i:c:s154461232500916x

DOI: 10.1016/j.frl.2025.107657

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