Effects of climate change on firm credit risk: evidence from China

Our study examines the impact of extreme weather on corporate credit risk, identifies the impact pathway, and explores the influences of different heterogeneity contexts. We propose a modified version of the climate risk measure, Modified Regional Wise Climate Risk Index for Company (MRW-CRIc), which considers not only the climate risk on financial loss but also company-specific factors. We find that climate risk significantly affects enterprise credit risk and that the impact of extreme weather varies across three industries. This research contributes to regulatory efforts by enhancing the measurement of climate risk and deepening understanding of its implications for market stability.