Extreme temperature shocks and firms’ financial distress

Xinheng Liu, Shumei Lv, Xin Yang, Jie Cao and Chuangxia Huang

International Review of Economics & Finance, 2025, vol. 98, issue C

Abstract: Utilizing a panel dataset of Chinese A-share listed firms during 2001–2021, we examine whether and how extreme temperature shocks affect financial distress. Our empirical findings show that extreme temperature shocks have a robust positive effect on financial distress. Further analysis reveals two channels through which extreme temperature shocks exacerbate financial distress: reducing firms’ total factor productivity and tightening financing constraints. Moreover, this effect is stronger among firms with small market capitalization, vulnerability to climate change, poor corporate governance, and a lower proportion of intangible assets. Additional tests reveal that the disclosure of temperature extremes during the workday has a higher effect on financial distress. Overall, our results shed additional light on the important role of extreme temperature shocks in corporate risk management and government decision-making.

Keywords: Extreme temperature shocks; Financial distress; Financing constraint; Risk management (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025001091

DOI: 10.1016/j.iref.2025.103946

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