Climate Change Salience and Firm Investment

66 Pages Posted: 4 Oct 2022 Last revised: 13 Apr 2023

See all articles by Jake Smith

Jake Smith

Securities and Exchange Commission (SEC)

Date Written: August 23, 2022


I hypothesize that firms are more likely to make investments that reduce their CO2 emissions intensity if the threat of climate change is more salient. To test this, I examine mergers and acquisitions (M&A) in the US from 2012-2021 and exploit exogenous variation in exposure to abnormally warm temperatures. Conditional on an M&A occurring, if the acquiror experienced abnormally warm temperatures at its headquarters within 6 months prior to the deal’s announcement, then the target has 15% lower estimated CO2 emissions intensity in the full sample of deals. The effect increases to 29% among deals where the acquiror has above median CO2 emissions intensity, as these are the types of firms most exposed to climate change transition costs. This paper shows that firms exhibit a behavioral bias known as attribute substitution in their adjustment to climate change, since they make an estimate of the impact based on local temperatures, an easily accessible proxy, rather than the true determining factors.

Keywords: Salience, Investment, Carbon Emissions, Climate Change, Mergers and Acquisitions

JEL Classification: D22, D91, G31, G34, Q54

Suggested Citation

Smith, Jake, Climate Change Salience and Firm Investment (August 23, 2022). Available at SSRN: or

Jake Smith (Contact Author)

Securities and Exchange Commission (SEC) ( email )

1961 Stout Street
Suite 1700
Denver, CO 80294
United States

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