Climate change exposure and stock liquidity commonality: International evidence

Ziqiang Liu, Xin Gao, Hao Xu and Weidong Xu

Pacific-Basin Finance Journal, 2024, vol. 86, issue C

Abstract: Using a large international sample from 40 countries spanning the period of 2002 to 2022, this paper provides evidence of a significant and positive relationship between firm-level climate change exposure and stock liquidity commonality. We identify two channels through which this impact occurs: the financial constraints channel and the operational risk channel. Additionally, this paper reveals that the positive effect of climate change exposure on stock liquidity commonality is stronger for firms with higher levels of information asymmetry or weaker corporate governance. Furthermore, this study finds that country-level climate risk also contributes to higher stock liquidity commonality and that country-level climate risk and firm-level climate change exposure risk act as substitutes in increasing stock liquidity commonality. After addressing endogeneity concerns and conducting various robustness checks, our main findings remain unchanged.

Keywords: Climate change exposure; Stock liquidity commonality; Climate risk (search for similar items in EconPapers)
JEL-codes: G15 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24001914

DOI: 10.1016/j.pacfin.2024.102440

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