Climate vulnerability and corporate investment decisions around the world: Do financial conditions matter?

Abstract

This paper investigates the effects of climate risk on corporate investment using data from forty countries with 37,300 observations, for 2007 - 2018. There is robust evidence showing that climate risk and related natural risks have negative impacts on corporate investment and the data from this paper illustrate significant statistics. Climate risk reduces firms’ willingness to pay dividends, as well as turnover rate and tangibility. Furthermore, it is illustrated in our results that corporates make decisions through their high-tech and sales growth and other operating conditions, to cope with the increasing rate of climate risk. Moreover, how much this impacts a firm depends on the level of its financial constraint. This is more noticeable in companies that are insignificant in size, age or have specific financial challenges indicated by the indexes and how they manage dividends. Our findings remain consistent in several analytical tests.