Climate Change Exposure and Firm Cash Holdings

Abstract

Using firm-level climate change exposure data, we show that firms significantly increase their cash holdings in response to increases in climate change exposure. Our results are robust to using alternative climate change measures and alternative cash ratio measures. We present that the increase in cash holdings is more pronounced in firms with higher financial constraints. Further, exploiting staggered adoptions of climate change adaptation across states, we find that climate adaptation actions lessen the effect of climate change exposure. We also find that firms in more vulnerable industries increase cash holdings more than firms in other industries.

Keywords: climate change, firm-level climate change exposure, cash holdings, precautionary savings, financial constraints, climate adaptation, vulnerable industry

JEL Classification: G15, G32, G38, Q54