Climate Change and Corporate Cash Holdings: Global Evidence

Forthcoming at Financial Management

81 Pages Posted: 21 Dec 2020 Last revised: 6 Apr 2023

See all articles by Siamak Javadi

Siamak Javadi

University of Texas - Rio Grande Valley

Abdullah-Al Masum

Johnson C. Smith University

Mohsen Aram

Western Kentucky University

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance

Date Written: July 24, 2020

Abstract

Using data from 41 countries, we provide novel empirical evidence that firms’ cash holdings are positively associated with their climate change exposure. This evidence is robust to different model specifications and survives a battery of tests to ease concerns related to spurious correlation and omitted variable bias. Using the release of the Stern Review as an exogenous shock to climate change awareness, we show that this association becomes significantly stronger after the release of the Review and particularly so for firms with higher exposure to regulatory and transition risk dimensions of climate change as well as financially constrained firms. Overall, results fit consistently within the precautionary motive framework and suggest that firms hold more cash to safeguard against the adverse impact of climate change.

Keywords: climate change, drought, cash holdings, physical risk, transition risk, regulatory risk

JEL Classification: G15, G32, G38, Q54

Suggested Citation

Javadi, Siamak and Masum, Abdullah Al and Aram, Mohsen and Rao, Ramesh P., Climate Change and Corporate Cash Holdings: Global Evidence (July 24, 2020). Forthcoming at Financial Management, Available at SSRN: https://ssrn.com/abstract=3717092 or http://dx.doi.org/10.2139/ssrn.3717092

Siamak Javadi

University of Texas - Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX 78539
United States

Abdullah Al Masum (Contact Author)

Johnson C. Smith University ( email )

100 Beatties Ford Road
Charlotte, NC 28216
United States

Mohsen Aram

Western Kentucky University ( email )

Bowling Green, KY 42101
United States

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-1385 (Phone)
405-744-5180 (Fax)

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