The Impact of Climate Risk on Corporate Leverage: Evidence from Chinese A-Share Listed Companies

Abstract

This paper examines how climate risk influences corporate leverage decisions using a comprehensive panel dataset of Chinese A-share listed companies. By combining firm-level financial information with regional climate-risk indicators, we document a robust and economically meaningful negative relationship between climate risk and corporate leverage. The effect persists after controlling for firm- and year-fixed effects, addressing potential endogeneity through lagged climate exposures and propensity score matching, and conducting extensive robustness checks using alternative climate and leverage measures. Furthermore, heterogeneity analyses reveal that the deleveraging effect is more pronounced among non-state-owned firms, firms with concentrated ownership, and those more exposed to transition risk rather than physical climate threats. We also find that cash holdings significantly moderate this relationship; specifically, firms with higher liquidity reduce leverage more strongly in response to climate risk, suggesting that internal funds facilitate precautionary adjustments in capital structure.