Climate change exposure and short-termism: Evidence from net trade credit

We study the impact of climate change exposure on corporate short-term policies. We find that firms increase their use of accounts payable, receivable, and net trade credit due to high climate change exposure. We argue that affected firms increasingly use accounts receivable to boost sales and mitigate buyer reluctance, which can alleviate the downfall in sales, cash-flows, and profitability caused by climate risk. Moreover, such firms are oftentimes faced with credit constraints and increasingly use supplier-provided payables to ease financing woes. The cumulative impact of the receivable and payable policy is an increase in net trade credit, funded by forgoing research and development, which indicates a myopic and conservative strategy. Our results are robust and withstand multiple tests for endogeneity. Furthermore, our results are stronger for firms in industries and states exposed to climate change threats. Overall, climate change exposure encourages corporate short-termism and intertemporal substitution between short-term and long-term activities.