Managerial perspectives on climate change and stock price crash risk

Unprecedented climate change not only affects our health, but also poses a significant risk to the economic and financial systems. Limiting the global temperature rise at below 1.5 °C, as suggested by the Paris Agreement, has a significant effect on financial economics. Physical climate change, such as global warming and sea level rise, may directly reduce a firm's productivity. Climate change may also indirectly affect a firm's costs due to governmental sanctions and regulations, such as the emission trading scheme. Simultaneously, some firms strategically use climate change issues as opportunities. As climate change risks do not unidirectionally affect firms, it is important to understand how firms and managers perceive climate change effects. In this manner, we examine the effects of manager's perspectives on climate change on stock price crash risk. The analysis confirms that manager's climate change perspective is negatively associated with future stock price crash risk likelihood. Various channel tests show that investor attention and analyst coverage are potential channels through which a firm's climate change perspective improves financial stability and ultimately reduces crash risk. Our results are also robust to alternative climate change perspective measures.