Climate change and corporate financialization: International evidence

Climate change is a critical global challenge, intensifying risks and influencing corporate financial behavior. Employing a high-dimensional fixed-effects model on a panel dataset of 11,167 firms across 59 countries, the study finds that climate change acts as a significant catalyst for corporate financialization, compelling firms to increase their allocation of capital to financial assets. This effect, robust under various checks, operates via two mechanisms: climate change exacerbates financing constraints, prompting firms to accumulate liquid assets for precautionary motives, and it dampens the efficiency of real investments, driving a strategic reallocation of capital toward financial assets as a form of investment substitution. Heterogeneity is evident in relation to energy vulnerability, digitalization, industrial structure, carbon emission intensity, and Islamic countries. Furthermore, increased financialization leads to elevated dividend payouts. Adopting a global perspective, this study fills a critical gap, providing empirical evidence on firms’ strategic financial adaptation to climate change. It contributes to academic discourse and offers practical implications for policymakers and corporates.