Corporate Climate Risk: Measurements and Responses

69 Pages Posted: 8 Jan 2020 Last revised: 29 Oct 2020

See all articles by Qing Li

Qing Li

University of Florida - Department of Finance, Insurance and Real Estate

Hongyu Shan

Fordham University - Finance Area

Yuehua Tang

University of Florida - Department of Finance

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: July 2, 2020

Abstract

This paper constructs a novel measure of climate risk at the firm level by adopting a textual analysis method. The measure captures the share of conversations on earnings conference calls that center on climate- and weather-related keywords, allowing us not only to construct a total climate risk measure but also to obtain disaggregated climate risk measures, such as those related to long- versus short-run factors, as well as corporate functions affected by climate risk. We analyze the determinants of firm-level climate risk using natural disasters and firm attributes and find that 60% of its variation is due to within-firm variation, and thus it mostly captures idiosyncratic risk at the firm level. We also examine the relation between climate risk and stock price volatility, as well as firm responses to climate risk. The results suggest that firms with higher unexpected climate risk significantly increase their investment while decreasing their employment in subsequent years.

Keywords: Climate risk, earnings calls, investments, natural disasters, textual analysis

JEL Classification: G12, C82, E44

Suggested Citation

Li, Qing and Shan, Hongyu and Tang, Yuehua and Yao, Vincent, Corporate Climate Risk: Measurements and Responses (July 2, 2020). Available at SSRN: https://ssrn.com/abstract=3508497 or http://dx.doi.org/10.2139/ssrn.3508497

Qing Li

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Hongyu Shan

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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