Mitigating the impact of extreme heat: spatial diversification and corporate investment

We link records of firm investment to granular measures of extreme heat exposure for China's listed companies from 2003 to 2019. We find that, for every ten additional days per year with days above 90°F, the investment rate decreases by an average of 0.2% points. Furthermore, our findings suggest that extremely high temperatures lead to increased volatility in corporate operating income. Companies tend to reduce long-term debt and increase cash holdings to cope with the increased uncertainty. Notably, corporate investments with tighter financing constraints are more negatively impacted by extremely high temperatures. Heterogeneity analysis revealed that the impact is primarily concentrated among small and private enterprises, as well as enterprises with limited access to credit resources and those with more graphically concentrated subsidiaries.