Journal of Banking and Finance 166 (2024) 107233
Contents lists available at ScienceDirect
Journal of Banking and Finance
journal homepage: www.elsevier.com/locate/jbf
Climate risk and payout flexibility around the world
Yuyuan Chang a, Wen He b, Lin Mi c, *
a
Department of Financial Management, School of Business Administration, South China University of Technology, China
b
Department of Accounting, Monash Business School, Monash University, Australia
c
UQ Business School, University of Queensland, Australia
A R T I C L E I N F O A B S T R A C T
JEL classification: Using a large sample of firms from 45 countries, we find that firms in countries with high-climate risk reduce
G35 their cash dividends but increasingly use share repurchases to make payouts. The evidence suggests that firms
G15 substitute dividends with repurchases to increase their payout flexibility in response to heightened climate risk.
Q54
Operating volatility and financial constraints are two channels through which climate risk affects firms’ payout
Keywords: flexibility. Further analysis shows that the effect of climate risk on payout flexibility is more pronounced for firms
Climate risk
that are more vulnerable to climate risk, and in countries where people are more concerned about climate risk
Payout flexibility
Dividend substitution
and the national culture emphasizes uncertainty avoidance and long-term orientation.
Share repurchases
Culture
1. Introduction firms alter their investment and financial policies by holding more cash
(Huang et al., 2018; Javadi et al., 2023), adjusting their debt and capital
Climate change has become a pressing challenge for societies and structures (Huang et al., 2018; Nguyen et al., 2022; Ginglinger and
businesses worldwide. Global warming and rising sea levels will make Moreau, 2023), investing more in climate change mitigation technolo
many cities and areas unlivable, and frequent extreme weather events gies (Li et al., 2021), and geographically diversifying their operations
and natural disasters can cause significant economic losses and disrup (Bai et al., 2021).2 This study adds to the growing literature by providing
tions to business operations.1 Governments, organizations, and busi international evidence on whether and how firms change their payout
nesses have recognized that immediate actions must be taken to manage policies when adapting to climate change.
climate risk and slow global warming (IPCC, 2014, 2018). In response, Corporate payouts are important decisions and represent substantial
*We thank the two anonymous reviewers, the associate editor, Edith Hotchkiss (the editor), Millicent Chang (discussant), Marvin Wee, Fan Zhang (discussant), and
participants at the Monash University Mini-Symposium on Climate Change and Financial Markets, Asian Finance Association Conference, Accounting and Finance
Association of Australia and New Zealand Conference, and a seminar at the University of Queensland for their helpful comments and suggestions. We also thank
Hanyu Wang for his excellent research assistance. Chang acknowledges financial support from the National Natural Science Foundation of China [Grant No.
72302091], the Humanities and Social Science Fund of Ministry of Education of China [Grant No. 22YJC630004], the Guangdong Office of Philosophy and Social
Science [Grant No. GD22YGL15], the Basic and Applied Basic Research Foundation of Guangdong Province [Grant No. 2022A1515110425, 2023A1515010223], the
Guangzhou Basic and Applied Basic Research Foundation [Grant No. 2024A04J3843] and the National Social Science Fund of China [Grant No. 23ZDA063]. Any
errors are our own.
* Corresponding author.
E-mail address: [email protected] (L. Mi).
1
For example, it is estimated that globally, 190 million (630 million) people currently live on land that is below the high tide lines projected for 2100 under low
(high) carbon emissions (Kulp and Strauss, 2019). Between 2000 and 2019, extreme weather events caused over 475,000 deaths and direct economic losses totaling
2.56 trillion USD (Eckstein et al., 2021). The World Health Organization estimates climate change will cause approximately 250,000 additional deaths annually
between 2030 and 2050 (https://www.who.int/news-room/fact-sheets/detail/climate-change-and-health). Morgan Stanley estimates that climate disasters cost the
world 650 billion USD from 2016 to 2018 (https://www.cnbc.com/2019/02/14/climate-disasters-cost-650-billion-over-3-years-morgan-stanley.html). Martinich
and Crimmins (2019) estimate that global warming could cost US businesses 520 billion USD each year.
2
Another stream of research investigates the effect of climate risk on prices in financial markets (Chava, 2014; Hrazdil et al., 2020; Huynh et al., 2020; Jiang et al.,
2020; Painter, 2020; Huynh and Xia, 2021; Bolton and Kacperczyk, 2023).
https://doi.org/10.1016/j.jbankfin.2024.107233
Received 20 November 2023; Accepted 30 May 2024
Available online 4 June 2024
0378-4266/© 2024 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
