Climate Change, Firm Performance, and Investor Surprises
71 Pages Posted: 30 Aug 2019 Last revised: 18 Mar 2021
Date Written: May 21, 2019
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: Suggested Citation