Abstract
Employing a panel sample of 29,316 firms across 34 countries spanning 2006 to 2019, we investigate the impact of climate risk on firm-level investment efficiency. We find that climate risk significantly increases investment inefficiency, namely, the investment deviation from the expected optimal level. Cross-sectional analyses show that the increasing impact of climate risk on investment inefficiency can be mitigated by stronger country-level uncertainty avoidance and long-term orientation culture, while at the firm level, corporate operational risk and industry competition can magnify the impact of climate risk on investment inefficiency. Our results remain valid after considering various robustness tests and endogeneity concerns.
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