Climate change and corporate cash holdings: Global evidence

Siamak Javadi; Abdullah‐Al Masum; Mohsen Aram; Ramesh P. Rao

doi:10.1111/fima.12420

journal article Apr 26, 2023

Climate change and corporate cash holdings: Global evidence

Siamak Javadi Abdullah‐Al Masum Mohsen Aram Ramesh P. Rao

Financial Management Vol. 52 No. 2 pp. 253-295 · Wiley

View at Publisher Save 10.1111/fima.12420

Abstract

AbstractUsing 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.

Topics

No keywords indexed for this article. Browse by subject →

References

123

[1]

When Should You Adjust Standard Errors for Clustering?

Alberto Abadie, Susan Athey, Guido W Imbens et al.

The Quarterly Journal of Economics 10.1093/qje/qjac038

[2]

10.1093/rfs/hhs106

[3]

Adrian T. (2022)

[4]

Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

Rui Albuquerque, Yrjo Koskinen, Chendi Zhang

Management Science 10.1287/mnsc.2018.3043

[5]

10.1175/1520-0450(1984)023<1100:tpdsil>2.0.co;2

[6]

10.1111/j.1540-6261.2004.00679.x

[7]

Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools

Joseph G. Altonji, Todd E. Elder, Christopher R. Taber

Journal of Political Economy 10.1086/426036

[8]

Does gender diversity in the workplace mitigate climate change?

Yener Altunbas, Leonardo Gambacorta, Alessio Reghezza et al.

Journal of Corporate Finance 10.1016/j.jcorpfin.2022.102303

[9]

10.1016/j.jenvman.2017.09.052

[10]

10.2139/ssrn.3632832

[11]

10.1515/9781400829828-009

[12]

Corporate governance and the information environment: Evidence from state antitakeover laws

Christopher S. Armstrong, Karthik Balakrishnan, Daniel Cohen

Journal of Accounting and Economics 10.1016/j.jacceco.2011.06.005

[13]

Atanasova C. &Schwartz E. S.(2020).Stranded fossil fuel reserves and firm value. National Bureau of Economic Research working paper no. w26497. 10.3386/w26497

[14]

10.1093/rfs/hhz073

[15]

Bali T. G. (2016)

[16]

Bansal R. Kiku D. &Ochoa M.(2016).Price of long‐run temperature shifts in capital market. National Bureau of Economic Research working paper no. w22529. 10.3386/w22529

[17]

10.1016/j.jacceco.2009.05.001

[18]

Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks *

Jean-Noël Barrot, Julien Sauvagnat

The Quarterly Journal of Economics 10.1093/qje/qjw018

[19]

Basel Committee on Banking Supervision. (2021).Climate‐related risk drivers and their transmission channel.https://www.bis.org/bcbs/publ/d517.pdf<./bib>

[20]

10.1111/j.1540-6261.2009.01492.x

[21]

10.1007/978-3-030-38858-4_2

[22]

Feeling the heat: Climate risks and the cost of sovereign borrowing

John Beirne, Nuobu Renzhi, Ulrich Volz

International Review of Economics & Finance 10.1016/j.iref.2021.06.019

[23]

Disaster on the horizon: The price effect of sea level rise

Asaf Bernstein, MATTHEW T. GUSTAFSON, Ryan Lewis

Journal of Financial Economics 10.1016/j.jfineco.2019.03.013

[24]

How Much Should We Trust Differences-In-Differences Estimates?

M. Bertrand, E. Duflo, S. Mullainathan

The Quarterly Journal of Economics 10.1162/003355304772839588

[25]

10.1016/j.jhydrol.2018.02.021

[26]

A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management

PATRICK BOLTON, Hui Chen, Neng Wang

The Journal of Finance 10.1111/j.1540-6261.2011.01681.x

[27]

10.1016/j.jfineco.2013.02.006

[28]

Do investors care about carbon risk?

PATRICK BOLTON, MARCIN KACPERCZYK

Journal of Financial Economics 10.1016/j.jfineco.2021.05.008

[29]

Bolton P. &Kacperczyk M. T.(2020).Global pricing of carbon‐transition risk. National Bureau of Economic Research working paper no. w28510.https://doi.org/10.2139/ssrn.3550233 10.2139/ssrn.3795029

[30]

Botta E. &Koźluk T.(2014).Measuring environmental policy stringency in OECD countries: A composite index approach. OECD Economic Department working paper.

[31]

The role of state and foreign owners in corporate risk-taking: Evidence from privatization

Narjess Boubakri, Jean-Claude Cosset, Walid Saffar

Journal of Financial Economics 10.1016/j.jfineco.2012.12.007

[32]

Weathering Cash Flow Shocks

James R. Brown, MATTHEW T. GUSTAFSON, IVAN T. IVANOV

The Journal of Finance 10.1111/jofi.13024

[33]

A Practitioner’s Guide to Cluster-Robust Inference

A. Colin Cameron, Douglas L. Miller

The Journal of Human Resources 10.3368/jhr.50.2.317

[34]

10.1198/016214504000001051

[35]

10.1016/j.gloenvcha.2016.04.012

[36]

CDP. (2012).Carbon reductions generate positive ROI. Carbon Action Report. In: Carbon Action Plan Available at:https://www.yumpu.com/en/document/read/8691735/carbon‐reductions‐generate‐positive‐roi‐carbon‐disclosure‐project

[37]

10.1016/j.eneco.2022.105856

[38]

10.1257/aer.102.6.2381

[39]

Chang X. S. Fu K. Li T. Tam L. &Wong G.(2021).Corporate environmental liabilities and capital structure.https://doi.org/10.2139/ssrn.3200991 10.2139/ssrn.3200991

[40]

Environmental Externalities and Cost of Capital

Sudheer Chava

Management Science 10.1287/mnsc.2013.1863

[41]

10.1080/0015198x.2022.2100233

[42]

10.1111/j.1540-6261.2008.01379.x

[43]

Home Bias at Home: Local Equity Preference in Domestic Portfolios

Joshua D. Coval, Tobias J. Moskowitz

The Journal of Finance 10.1111/0022-1082.00181

[44]

10.1016/j.enpol.2015.03.023

[45]

10.1029/2010jd015541

[46]

10.1175/jhm-386.1

[47]

Daniel K. D. Litterman R. B. &Wagner G.(2017).Applying asset pricing theory to calibrate the price of climate risk. National Bureau of Economic Research working paper no. w22795. 10.3386/w22795

[48]

When green meets green

Hans Degryse, Roman Goncharenko, Carola Theunisz et al.

Journal of Corporate Finance 10.1016/j.jcorpfin.2023.102355

[49]

Delis M. D. deGreiffv K. &Ongena S.(2020).Being stranded with fossil fuel reserves? Climate policy risk and the pricing of bank loans. European Bank Reconstruction and Development Research Paper Series No. 231.https://doi.org/10.2139/ssrn.3125017 10.2139/ssrn.3451335

[50]

Do managers overreact to salient risks? Evidence from hurricane strikes

Olivier Dessaint, Adrien Matray

Journal of Financial Economics 10.1016/j.jfineco.2017.07.002

Showing 50 of 123 references

Cited By

127

Does climate risk influence analyst forecast accuracy?

Incheol Kim, Suin Lee · 2024

Journal of Financial Stability

Metrics

127

Citations

123

References

Details

Published: Apr 26, 2023
Vol/Issue: 52(2)
Pages: 253-295
License: View

Authors

S

Siamak Javadi

Department of Finance University of Texas Rio Grande Valley Brownsville, Texas 78520 USA

A

Abdullah‐Al Masum

Department of Finance and Business Law University of Wisconsin Oshkosh Oshkosh, Wisconsin 54901 USA

M

Mohsen Aram

Department of Finance Western Kentucky University Bowling Green, Kentucky 42101 USA

R

Ramesh P. Rao

Department of Finance Oklahoma State University Stillwater, Oklahoma 74078 USA

Cite This Article

Siamak Javadi, Abdullah‐Al Masum, Mohsen Aram, et al. (2023). Climate change and corporate cash holdings: Global evidence. Financial Management, 52(2), 253-295. https://doi.org/10.1111/fima.12420

Climate change and corporate cash holdings: Global evidence

You May Also Like