Save for a Rainy Day: How Do Climate Risks Affect Corporate Cash Holdings?

Climate-related threats are becoming a more prominent constraint on corporate operations, making liquidity policy an important part of climate resilience. Using Chinese A-share listed companies from 2013 to 2022, we find that greater climate risk is associated with more conservative cash policies and higher cash balances. The association is stronger for non-state-owned firms, firms with less financialization, and firms led by less myopic managers. Mechanism tests suggest that climate risk heightens precautionary and transactional cash demand by curbing corporate investment and increasing transaction costs. The effect also intensifies with financing constraints, stricter environmental regulation, and greater managerial attention to environmental issues. The evidence adds to research on the firm-level financial consequences of climate risk and informs corporate liquidity management and regulatory design.