Climate Risk Exposure and Firm Risk-Taking: Evidence from Chinese Listed Firms

Abstract

This paper uses data from more than 2,400 Chinese non-financial A-share listed companies from 2007 to 2022, to investigate the impact of firm-level climate risk exposure on corporate risk-taking. The main conclusions are as follows: (1)First,corporate climate risk exposure has a significant inhibitory effect on the level of risk-taking, and this conclusion remains valid under a series of robustness tests, including instrumental variable regression, propensity score matching regression, and placebo tests.(2)Second, the positive impact of climate risk exposure on risk-taking is more pronounced for heavily polluting enterprises, small enterprises, and state-owned enterprises. Moreover, when enterprises already have a relatively high level of risk-taking, the negative impact of climate risk exposure on them is further strengthened. (3)Finally, climate risk exerts a negative influence on corporate risk-taking mainly through the principal-agent channel and the resource-based channel. Because enterprise managers are concerned about their reputation and future career development, they tend to make short-sighted and cautious decisions, thereby intensifying the negative impact of climate risk exposure on risk-taking. In addition, climate risk exposure prompts enterprises to increase their investments in green environmental protection, which in turn crowds out traditional venture investments and reduces their risk-taking levels.