Climate risk and asset-liability maturity mismatches

Abstract

This paper aims to investigate how climate change risks affect firms’ financing and investment decisions. Using annual data from Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges from 2007 to 2021, this study finds a statistically significant positive relationship between firm-level climate risk and asset-liability maturity mismatches, even after multiple robustness tests. Climate risks heighten mismatches by tightening financial constraints, worsening information asymmetry between insiders and outsiders, and increasing environmental, social, and governance-related investments. The effect is stronger among firms with weak banking relationships, no political connections, fewer institutional investors, smaller size, nonstate ownership, heavy pollution output, and higher proportions of female managers. Results further show that transition (policy) risks—rather than physical risks—drive the increase in mismatches. Finally, the 2015 Paris Climate Agreement appears to have weakened this linkage.