Abstract
Using a large international sample from 40 countries spanning the period of 2002 to 2022, this paper provides evidence of a significant and positive relationship between firm-level climate change exposure and stock liquidity commonality. We identify two channels through which this impact occurs: the financial constraints channel and the operational risk channel. Additionally, this paper reveals that the positive effect of climate change exposure on stock liquidity commonality is stronger for firms with higher levels of information asymmetry or weaker corporate governance. Furthermore, this study finds that country-level climate risk also contributes to higher stock liquidity commonality and that country-level climate risk and firm-level climate change exposure risk act as substitutes in increasing stock liquidity commonality. After addressing endogeneity concerns and conducting various robustness checks, our main findings remain unchanged.
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