The Impact of Weather on Business: Evidence from Firms' Annual Reports
50 Pages Posted: 20 Aug 2019 Last revised: 24 Apr 2020
Date Written: April 24, 2020
An increasing number of investors and regulators believe that weather poses a serious risk to the economy. We create a new firm-level linguistic measure of weather exposure using annual reports to assess the impact of weather on firms' financial and operational performance. After validating our measure using a difference-in-differences setting and other tests, we find that firms scoring high on our measure exhibit significantly lower returns and an increased likelihood of analyst forecast downgrades during exogenous weather shocks of extreme local storms. These firms also exhibit systematic risk over and beyond standard risk factors. Panel tests using operational measures such as profitability are consistent with the returns results. Overall, our evidence stands in contrast to recent null results on the relation between weather and firms' financial and operational performance.
Keywords: Corporate Investment, Firm Value, Profitability, Weather
JEL Classification: G12, G14, O13, Q54
Suggested Citation: Suggested Citation