Climate Change and Corporate Investments: Evidence from Planned Power Plants

Fisher College of Business Working Paper No. 2019-03-026

Charles A. Dice Center Working Paper No. 2019-26

55 Pages Posted: 4 Nov 2019 Last revised: 11 Sep 2020

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: September 9, 2020

Abstract

How does global warming affect firms’ activities? We consider this issue from the perspective of the
electricity producing industry. Warmer temperatures increase the demand for air conditioning, the use of which fluctuates substantially over time, making investments in “flexible” power plants that can be turned on quickly and at low cost more valuable. Using an international sample of planned power plants, we estimate that hotter weather in a region leads utilities to increase their investments in flexible power plants. This effect appears to be driven by long-term changes in climate rather than abnormally high temperatures that occur over a short period. While these results are specific to the electricity industry, it is likely that climate change will require similar adjustments of firms’ assets in other industries as well.

Keywords: Climate change, global warming, firm investment, electricity generation, power plants

JEL Classification: G30, G31

Suggested Citation

Lin, Chen and Schmid, Thomas and Weisbach, Michael S., Climate Change and Corporate Investments: Evidence from Planned Power Plants (September 9, 2020). Fisher College of Business Working Paper No. 2019-03-026, Charles A. Dice Center Working Paper No. 2019-26, Available at SSRN: https://ssrn.com/abstract=3478625 or http://dx.doi.org/10.2139/ssrn.3478625

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Thomas Schmid

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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