Financial innovation and corporate climate policy uncertainty exposure: Evidence from China's crude oil futures

Abstract

The global proliferation of climate policy revisions has expanded the uncertainty spectrum confronting corporate entities, posing novel challenges to enterprise risk management frameworks. Exploiting the exogenous shock of China's crude oil futures market launch, this study provides causal evidence on whether derivative instrument innovation could mitigate corporate climate policy uncertainty exposure (CPUE). By utilizing a difference-in-differences approach, we find that energy-dependent firms experience a significant reduction in CPUE after the launch of Shanghai oil futures compared with nonenergy-dependent firms. Further tests indicate that futures trading influences corporate CPUE by alleviating internal financial pressure and increasing corporate information transparency. Cross-sectional heterogeneity tests further demonstrate that the effect is more pronounced in larger firms, firms with higher financial transparency, and firms with greater managerial attention to climate risk. Our findings advance climate finance theory by providing empirical evidence from firm-level impact of energy-related financial innovation.