Impact of Climate Change on Firm Earnings: Evidence from Temperature Anomalies

44 Pages Posted: 2 Nov 2018 Last revised: 30 Jan 2019

See all articles by Artur Hugon

Artur Hugon

Arizona State University (ASU)

Kelvin Law

Nanyang Technological University (NTU)

Date Written: January 24, 2019


This study examines the impact of climate change on firm earnings, and how well managers anticipate the impact. Exploiting regional temperature variation around corporate headquarters, we find that firms’ earnings, on average, are negatively impacted by an unusually warm climate. In economic terms, a 1°C increase in temperature is associated with a $1.6 million decrease in earnings for a median-sized firm. In sensitivity analyses, the negative impact is also found with alternative measures of economic location (10-K text-based measure) and climate change (extreme climate index). An unusually warmer climate not only reduces sales, but also increases operating expenses and the frequency of special and extraordinary expense items. In cross-sectional analyses, we find a substantially smaller impact on firms with greater diversification and for those in industries with higher climate lobbying intensity. Firm-level regressions indicate there are some “winners” with about one-third of individual firms benefitting from a warmer climate. Finally, managers of firms which are the most susceptible to a warmer climate tend to underestimate the negative impact on earnings, and this problem is more severe in states where climate change skepticism is high.

Keywords: Climate change; Earnings performance; Management anticipation

JEL Classification: Q54, M41, G31

Suggested Citation

Hugon, Artur and Law, Kelvin, Impact of Climate Change on Firm Earnings: Evidence from Temperature Anomalies (January 24, 2019). Available at SSRN: or

Artur Hugon (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Kelvin Law

Nanyang Technological University (NTU) ( email )

Nanyang Business School
Singapore, 639798

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