Date of Award
Campus Access Dissertation
Doctor of Philosophy (PhD)
The three related essays in my dissertation focus on analyzing the impact of climate risk on firm-level risk, corporate innovation, and CEO decision making.
The first essay investigates how climate risk, proxied by exposure to major catastrophic climate events, impacts firm-level risk. Using the location of both corporate headquarters and affiliations, this paper finds a positive association between a firm's exposure to abnormal extreme climate events and both idiosyncratic risk and systematic volatility. These effects are stronger on companies that are more geographically dispersed, more diversified, or operate in an industry with more environmental issues that are considered financially material according to the SASB (Sustainability Accounting Standards Board). Additionally, the impacts are more substantial for events with greater investor awareness when the company is located in areas with stronger beliefs in climate change. Moreover, this effect is mitigated when companies have better environmental performance. Overall, our research contributes to a better understanding of businesses’ exposure to the risks associated with climate change.
The second essay studies whether catastrophic climate events spur environmental innovation in companies. Climate disasters are random events whose occurrence may influence managers’ risk perception. Using a new approach to classify environmental patents under the updated U.S. patent classification system and a difference-in-differences design, we show that when the headquarters of a company is exposed to a climate disaster event the number of environmental patent applications increases over the following three years. We also find that the market value of a company’s environmental patents increases after exposure to climate disasters. In addition, these effects are stronger for companies operating in industries with higher environmental materiality and when companies’ headquarters are in Democratic counties and are mitigated for firms experiencing financial distress.
The third essay studies whether climate disasters in the CEO’s hometown impact the firm’s environmental performance and corporate social responsibility. I argue that CEOs’ perceptions of climate risk are altered when a catastrophic hurricane strikes their hometown. My findings suggest that CEOs adjust their firm policies when their hometown experiences a climate disaster. Specifically, I find that environmentally irresponsible activities and CSR concerns decrease after hurricanes strike the CEO's hometown, resulting in improved environmental performance. Consistent with the salience and availability heuristic theories, this effect is more pronounced when it is the first time the CEO’s hometown is hit by a hurricane and for CEOs with greater ability.
Ai, Li, "Essays on the Impacts of Climate Risk on Corporations" (2023). Graduate Doctoral Dissertations. 834.