The Impact of Weather on Business: Evidence from Firms' Annual Reports

50 Pages Posted: 20 Aug 2019 Last revised: 24 Apr 2020

See all articles by Venky Nagar

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Jordan Schoenfeld

Dartmouth College - Tuck School of Business

Date Written: April 24, 2020

Abstract

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

Nagar, Venky and Schoenfeld, Jordan, The Impact of Weather on Business: Evidence from Firms' Annual Reports (April 24, 2020). Tuck School of Business Working Paper No. 3438428. Available at SSRN: https://ssrn.com/abstract=3438428 or http://dx.doi.org/10.2139/ssrn.3438428

Venky Nagar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Jordan Schoenfeld (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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