Climate Change, Firm Performance, and Investor Surprises

N. Pankratz*, R. Bauer, J. Derwall

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

We link records of firm performance, equity analyst forecast errors, and stock returns around companies' earnings announcements to firm-specific measures of heat exposure for more than 17,000 firms in 93 countries from 1995 to 2019. We find that increased exposure to extremely high temperatures reduces firms' revenues and operating income. A one-standard-deviation increase in the number of hot days decreases revenues (operating income) by 0.6% (1.8%) of the average quarterly revenue (operating income). Moreover, we provide evidence that increased heat exposure impacts negatively on firm financial performance relative to analyst predictions and on earnings announcement returns. These findings indicate that capital market participants do not fully anticipate the economic consequences of heat as a first order physical climate risk.
Original languageEnglish
Pages (from-to)7352-7398
Number of pages48
JournalManagement Science
Volume69
Issue number12
Early online date1 Mar 2023
DOIs
Publication statusPublished - Dec 2023

Keywords

  • climate change
  • firm performance
  • analyst forecast accuracy
  • earnings announcements
  • TEMPERATURE SHOCKS
  • EXPOSURE
  • WEATHER
  • DISASTER
  • RETURNS
  • IMPACTS
  • OUTPUT
  • RISKS

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