Climate risk exposure and geographical allocation of business activities: Evidence from Chinese listed companies

This study investigates the effect of climate risk on firms' geographical allocation of business activities. The result shows that climate risk exposure has a positive effect on firms' allocation of subsidiaries across different regions, and the result holds after robustness tests. We further find that the positive relationship between firms' climate risk exposure and cross-regional investment is more pronounced for firms with more cash holdings, with greater geographical proximity between the parent and existing subsidiaries and for non-state-owned enterprises. The economic consequence test suggests that cross-regional investment significantly improves investment efficiency when firms are exposed to higher degree of climate risk. Overall, our paper indicates that firms can change investment strategies in response to climate risk.

Automated summary

This study reveals that climate risk has a positive impact on the geographical distribution of firms' business activities. Companies with more cash holdings, closer geographical proximity between parent and subsidiaries, and non-state-owned enterprises are more likely to engage in cross-regional investment in response to climate risk. Furthermore, cross-regional investment significantly improves investment efficiency for firms facing higher levels of climate risk.