Temperature Trend and the Value of Cash Holdings

46 Pages Posted: 25 Mar 2021 Last revised: 10 Jan 2022

Date Written: December 20, 2018

Abstract

We examine the causal effects of temperature change on companies’ cash policies. We find that US firms increase their cash holdings in response to increasing climate risks. The empirical results show that firms with greater mean temperature departure hold more cash. The increase in cash reserves is attributed to growing public awareness of climate-related risks (e.g. global warming). The positive effect of temperature change is more pronounced among financially constrained firms, socially responsible firms, and firms in high-carbon-emission industries. Further, we demonstrate that investors increase their valuation of cash in unconstrained firms and in better monitored firms. Overall, our findings support the precautionary motive for a firm’s cash holdings.

Keywords: Climate (Temperature) Change; Cash Holdings; Global Warming; Policy Uncertainty

JEL Classification: R31; R32

Suggested Citation

Gounopoulos, Dimitrios and Zhang, Yu, Temperature Trend and the Value of Cash Holdings (December 20, 2018). Available at SSRN: https://ssrn.com/abstract=3788628 or http://dx.doi.org/10.2139/ssrn.3788628

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Yu Zhang

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
0752916118 (Phone)
BA2 7AY (Fax)

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