Extreme Weather and Firm Market Value: Roles of Corporate Social Responsibility and Stock Analyst Attention

ABSTRACT

The outbreak of extreme weather events is increasing in frequency for the last decade, resulting in tremendous human and industrial losses worldwide. Evaluating and managing the effects of such events are highly urgent matters for firms, but the literature on this topic is limited. In this study, the effects of extreme weather events on the stock market performance of firms were estimated to provide a foundation for exploring how to manage such effects. From the perspective of the shareholder view, the heterogeneous effect of corporate social responsibility (CSR) on stock performance associated with extreme weather events were examined. Data on natural disasters that were caused by six types of extreme weather and occurred between 2001 and 2021 in China were used to construct a database of 2,718 Chinese listed manufacturing firms and 23,529 observations regarding the potential effects by extreme weather events. An event analysis indicated that the extreme weather events bring an average of 0.97% drop in the stock performance of potentially affected firms for the month that the event starts and the next month. A subsequent cross-sectional analysis revealed that a high CSR level is associated with low market value during extreme weather events, while a high level of stock analyst attention alleviates the negative effect of CSR on the stock performance of extreme weather events. This study enriches the existing literature and offers practical insights for managers in the fields of CSR and operations management, highlighting the complex dynamics between CSR activities, analyst attention, and stock market performance during extreme weather events.

KEYWORDS:

• Natural disasters
• information and market efficiency
• social responsibility
• event study

JEL:

• G14
• M14
• Q54

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. “Heatwave sweeps across many countries in Northern Hemisphere.” https://news.cgtn.com/news/2022-07-21/Heatwave-sweeps-across-many-countries-in-Northern-Hemisphere-1bQXGKjyRnW/index.html.

2. “Climate change: Huge toll of extreme weather disasters in 2021.” https://www.bbc.com/news/science-environment-59761839.

3. “The Coca-Cola Company: Building a Climate-Resilient Value Chain.” https://www.bsr.org/en/our-insights/case-study-view/the-coca-cola-company-climate-resilience.

4. The National Climate Center (NCTC) was established with the approval of the State Council of China in 1994. It is an independent legal entity and institution at the bureau level, and it is under the authority of the China Meteorological Administration. The Center is a key component of China’s national meteorological operations system. At present, the role of the Center aligns with those of the World Meteorological Organization, Regional Climate Center for Asia, East Asian Monsoon Activity Center, Monitoring and Evaluation Center for Extreme Weather and Climate Events in Asia, and Global Long-term Forecast Product Center. Its missions are to perform accurate climate monitoring and predictions, conduct scientific assessments of climate effects, implement effective disaster risk management, and actively respond to climate change. The data on extreme weather and climate events can be obtained from the following website: http://cmdp.ncc-cma.net/Monitoring/cn_china_extreme.php.

5. The list of top disasters for 2020 released by the Ministry of Emergency Management of China can be found at the following website: https://www.mem.gov.cn/xw/yjglbgzdt/202101/t20210102_376288.shtml.

6. For example, Reuters reported that numerous firms and their supply chains were affected by the Henan Floods that occurred in July 2021 immediately after the floods ended; however, the severity of the floods’ effects was unclear. Adapted from: https://www.reuters.com/business/sustainable-business/coal-cars-chinese-floods-tangle-supply-chains-2021-07-22/.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [72102036]; Shanghai Sailing Program [21YF1401000]; Ministry of Education in China Project of Humanities and Social Sciences [22XJC630002]; Guanghua Talent Project of Southwestern University of Finance and Economics.