Climate change risk and the marginal value of cash holdings

This study investigates the effects of firm-level climate change risk on the marginal value of cash holdings. Firms facing climate risk may demand more capital, potentially increasing the value of their cash holdings. Investors view excess cash holdings positively because they can be more valuable in preparing for future uncertainties. Empirical analysis shows a positive relationship between firm-level climate change risk and the value of cash. We further investigate how the “green swan” and financial constraints affect the relationship and find that investors appreciate the cash of firms that are more sensitive to climate change and face greater financial constraints.