Climate Change, Firm Performance, and Investor Surprises

76 Pages Posted: 30 Aug 2019 Last revised: 13 Apr 2022

See all articles by Nora M. C. Pankratz

Nora M. C. Pankratz

Board of Governors of the Federal Reserve System

Rob Bauer

Maastricht University; European Centre for Corporate Engagement (ECCE)

Jeroen Derwall

Maastricht University - European Centre for Corporate Engagement; Maastricht University - Department of Finance; Utrecht University - School of Economics

Date Written: May 21, 2019

Abstract

In this study, we link records of firm performance, forecasts of analysts, and the returns after earnings announcements to firm-specific measures of heat exposure for more than 13,000 firms in 93 countries from 1995 to 2019. We find that increasing exposure to extremely high temperatures reduces firms' revenues and operating income. Moreover, the deviation in analyst estimates from actual financial performance and the earnings announcement returns become more negative when firms’ heat exposure increases. These findings indicate that investors do not fully anticipate the economic repercussions of heat as a first-order physical climate risk.

Keywords: Climate Change, Extreme Temperatures, Firm Performance, Analyst Forecast Accuracy, Investor Expectations

JEL Classification: G39, G140, Q54

Suggested Citation

Pankratz, Nora M. C. and Bauer, Rob and Derwall, Jeroen and Derwall, Jeroen, Climate Change, Firm Performance, and Investor Surprises (May 21, 2019). Available at SSRN: https://ssrn.com/abstract=3443146 or http://dx.doi.org/10.2139/ssrn.3443146

Nora M. C. Pankratz (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Rob Bauer

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883871 (Phone)

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

Jeroen Derwall

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.fdewb.unimaas.nl/finance/?page=member&id=175

Maastricht University - European Centre for Corporate Engagement ( email )

FEBA
Tongersestraat 53
Maastricht, Limburg 6200MD
Netherlands

HOME PAGE: http://www.corporate-engagement.com/

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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