Empirical analysis reveals that regional climate risk suppresses corporate R&D investment in Chinese firms, indicating that environmental threats constrain innovation via reduced profits.
This paper investigates the impact of regional climate risk on firms' R&D investment using data from 23854 firm-year in China from 2008 to 2021. We find that regional climate risk has a significantly negative impact on firms' R&D investment, which shows that climate risk inhibits firms' innovation. In addition, the above-mentioned effect is more pronounced in firms with lower cash holdings and lower manager shareholdings. The mechanism analysis shows that climate risk reduces firms' R&D investment by lowering firms' profitability and exacerbating financing constraint. Further analysis based on China's institutional environment also shows that the above impact of climate risk on firms' R&D investment is more pronounced for firms with non-state property right and lower government subsidies.
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Wang et al. (2025) studied this question.
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