Analysis of the relationship between investment inefficiency and climate risk and the moderating effects of managerial ownership

This study examines the relationship between investment inefficiency and climate risk and the moderating effects of managerial ownership on this relationship of Korean companies. Previous studies have focused on the relationship between climate risk and firm value using disclosure information related to climate risk. In contrast, we directly measure climate risk using actual greenhouse gas emissions and energy consumption data released by Korean companies. We find that the higher is the investment inefficiency, the higher is the climate risk, and the higher is the managerial ownership, the lower is the climate risk. In addition, we find that managerial ownership weakens the positive relationship between investment inefficiency and climate risk. This study suggests alternatives to reduce climate risk through efficient investment, as opposed to simple, large-scale investment in facilities, and emphasizes the role of managerial ownership in the management strategies to reduce climate risk with the goal of enhancing firm value.