Supply Chain Contagion: How Customers’ Abnormal Temperature Exposure Amplifies Suppliers’ Debt Default Risk

Corporate debt defaults are a major source of financial risk and can threaten market stability when they occur on a large scale. Meanwhile, shifts in the global climate and episodes of extreme weather are profoundly altering economies and financial systems. Against this backdrop, examining how temperature-related shocks affect corporate default risk is essential for understanding credit risk transmission under changing environmental conditions. We investigate how customer-side exposure to abnormal temperatures affects suppliers’ debt default risk, using observations for Chinese A-share listed firms over 2008–2023. The findings indicate that suppliers’ debt default risk increases as the annual average temperature in customers’ locations rises further above its long-term historical average. The channel analysis provides evidence consistent with two channels: customers’ abnormal temperature shocks are associated with weaker demand for suppliers’ products and tighter financing conditions, which may help explain the increase in supplier default risk. Heterogeneity tests show that this effect is stronger among suppliers with greater customer dependence or tighter financing constraints, consistent with the demand and financing channels. The effect is also more pronounced for suppliers without green products, whereas stronger ESG performance helps mitigate the adverse impact. Additional analysis links customers’ abnormal temperature exposure to lower subsequent customer concentration among suppliers, suggesting possible adaptation through customer diversification.