Analysis reveals a strong link between climate risks and cash holdings in firms, suggesting regulatory risks drive liquidity strategies.
We examined how climate change exposure (CCE) affects corporate cash holdings (CCH), highlighting how firms adjust liquidity strategies in response to environmental risk. Using data from 12,806 firms across 81 countries, we analyzed how physical, regulatory, and opportunity‐related climate risks affect cash management. Results reveal a strong positive CCE‐CCH relationship driven by precautionary motives to buffer against financial uncertainty. Regulatory risk has the greatest impact, as firms may hold additional cash to meet compliance demands. We found that higher ESG performance reduces cash holdings, reflecting better capital access and aligning firms' financial strategies with climate resilience.
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Wattanatorn et al. (2025) studied this question.
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