Will temperature change reduce stock returns? Evidence from China

The continuous rise in temperature, on the one hand, will increase the frequency of extreme weather events and disrupt a company's normal production order; on the other hand, it will cause changes in environmental protection policies, leading to increased production costs and even the suspension of business for rectification. Therefore, the continuous rise in temperature is a risk factor that listed companies cannot ignore. This paper uses temperature data at the locations of listed companies in China from 2007 to 2019, as well as stock price data and financial data of listed companies, to study the impact of the continuous rise in temperature on listed companies and the determinants and mechanism of the impact. The empirical results show that a continuous rise in the temperature where a listed company is located will cause a significant negative shock to the listed company, and when the company's size is smaller, the book-to-market ratio is higher, and the consequences of this negative shock are more obvious.