Abstract
We study the causal impact of precipitation risks on corporate water consumption decisions by combining daily precipitation data in mainland China with industrial firm water use data from 1998 to 2013. Using a large sample yielding precise estimates, we find that precipitation shocks significantly impact a firm's water usage, in which the higher the risk of precipitation, the less water is used by firms. Furthermore, we find that this water-saving effect is largely driven by potential extreme drought. We also use city-level data to demonstrate that precipitation is an important driver of corporate water-saving measures. The water-saving effects of precipitation uncertainty and extreme precipitation have particularity in areas that are more sensitive to precipitation and high-water-consumption industrial enterprises. Finally, the results reveal that firms mainly realize the water-saving effect of precipitation risk through technological improvement, reduction of wastewater discharge, and abbreviation of investment and production scale.
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