The impact of extreme high temperatures on the firms' cost structure: evidence from China

Purpose As extreme high temperatures (EHT) intensify, firms need effective adaptation strategies. This study aims to examine cost elasticity as a micro-level tool, demonstrating how firms buffer climate shocks and build resilience to support sustainable socio-economic development. Design/methodology/approach Based on a sample of Chinese A-share listed firms from 2011 to 2023, this study empirically tests the influence mechanism of EHT on cost elasticity. Findings EHT significantly increases cost elasticity, especially in less marketized regions, with more pronounced impacts on technology-intensive enterprises, those with lower green innovation and resilience levels and central-region enterprises. Mechanism tests show that EHT tightens financing constraints and operational risk, which enhances cost flexibility but reduces cash holdings. Practical implications Our findings underscore the practical necessity for firms to integrate cost structure optimization into climate adaptation strategies. By enhancing cost elasticity, companies can create a buffer to mitigate the adverse impacts of EHT, thereby improving resilience in the face of climate change. Originality/value This paper expands the analytical framework of corporate cost elasticity by incorporating EHT as a key influencing factor. By integrating resource orchestration and institutional theories, this paper explains how firms reconfigure resources in response to EHT and how the external institutional environment guides this process through resource allocation.