Corporate Climate Risk: Measurements and Responses

Review of Financial Studies, Forthcoming

82 Pages Posted: 8 Jan 2020 Last revised: 7 Dec 2023

See all articles by Qing Li

Qing Li

University of Florida - Department of Finance, Insurance and Real Estate

Hongyu Shan

Fordham University - Finance Area; China Europe International Business School (CEIBS)

Yuehua Tang

University of Florida - Department of Finance

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: July 2, 2020

Abstract

This paper conducts a textual analysis of earnings call transcripts to quantify climate risk exposure at the firm level. We construct dictionaries that measure physical and transition climate risks separately and identify firms that proactively respond to climate risks. Our validation analysis shows that our measures capture firm-level variations in respective climate risk exposure. Firms facing high transition risk, especially those that do not proactively respond, have been valued at a discount in recent years as aggregate investor attention to climate-related issues has been increasing. We document differences in how firms respond through investment, green innovation, and employment when facing high climate risk exposure.

Keywords: Climate risk, Transition Risk, Climate finance, Earnings calls, Valuation, Textual analysis

JEL Classification: G12; G31; C82; E44

Suggested Citation

Li, Qing and Shan, Hongyu and Tang, Yuehua and Yao, Vincent, Corporate Climate Risk: Measurements and Responses (July 2, 2020). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3508497 or http://dx.doi.org/10.2139/ssrn.3508497

Qing Li

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Hongyu Shan

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

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