Climate Change Exposure and Firm Cash Holdings

Abstract

Using firm-level climate change exposure data, we show that firms significantly increase their cash holdings in response to increases in climate changes. Our results are robust to using alternative climate change measures and alternative cash ratio measures. We present that the increase in cash holdings is more pronounced in firms with higher financial constraints, higher cash flow volatility, and less cash resilience. We further find that, after Paris Agreement, firms exposed to more climate changes hoard more cash. We also find that firms in more vulnerable industries increase cash holdings more than firms in other industries.