Extreme Weather Impacts on Stock Price Crash Risk: Evidence from China

Main Article Content

Wenjing Ma
School of Economics & Management, Chongqing Normal University, Chongqing, China

Jiusheng Chen
School of Economics & Management, Chongqing Normal University, Chongqing, China

DOI: https://doi.org/10.70267/fer.250302.413429

Keywords

extreme climate, stock market crash risk, information asymmetry, information disclosure

Abstract

Extreme weather events have increasingly imposed significant shocks on corporate operations and the financial system's stability. This study examines the impact of extreme weather on the stock price crash risk and its underlying mechanisms using a sample of A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2010 to 2023. The results demonstrate that extreme weather significantly increases the stock price crash risk for listed companies. After addressing endogeneity issues and conducting a series of rigorous robustness tests, the core conclusions remain robust. Channel analyses reveal that extreme weather exacerbates stock price crash risk by deteriorating corporate fundamentals, reducing the quality of financial disclosures, and exacerbating information asymmetry. Heterogeneity analysis further indicates that the reinforcement effect is more pronounced among firms in the eastern region, firms with high-quality information disclosures, and non-state-owned enterprises. These findings contribute to the literature by identifying novel determinants of stock price crash risk and shedding light on the role of climate risk among investors.

Abstract 72 | PDF Downloads 8

References

  • [1] The IPCC Sixth Assessment Report on Climate Change Impacts [J]. Population and Development Review, 2022,48(2):629-633.
  • [2] Jin L, Myers S C. R2 around the world: New theory and new tests [J]. Journal of Financial Economics, 2006,79(2):257-292.
  • [3] Kim J B, Zhang L. Financial Reporting Opacity and Expected Crash Risk: Evidence from Implied Volatility Smirks [J]. Contemporary Accounting Research, 2014,31(3):851-875.
  • [4] Hutton A P, Marcus A J, Tehranian H. Opaque financial reports, R2, and crash risk [J]. Journal of Financial Economics, 2009,94(1):67-86.
  • [5] Francesca D, Barbara A, Matthias K, et al. Climate actions and macro-financial stability: The role of central banks [J]. Journal of Environmental Economics and Management, 2021,110.
  • [6] Xu G, You W, Boqiang L. Assessing dynamic China’s energy security: Based on functional data analysis [J]. Energy, 2020(prepublish):119324.
  • [7] BOLTON P, KACPERCZYK M. Global Pricing of Carbon-Transition Risk [J]. The Journal of Finance, 2023,78(6):3677-3754.
  • [8] Alharbi S S, Tabash M I, Farooq U, et al. How does climate policy uncertainty determine green innovation adoption? New perspectives from the BRICS [J]. The Journal of Economic Asymmetries, 2025,31:e00411.
  • [9] Raza S A, Khan K A, Benkraiem R, et al. The importance of climate policy uncertainty in forecasting the green, clean and sustainable financial markets volatility [J]. International Review of Financial Analysis, 2024,91:102984.
  • [10] Zhang D. Subsidy expiration and greenwashing decision: Is there a role of bankruptcy risk? [J]. Energy Economics, 2023,118:106530.
  • [11] CHEN Guojin D S Z X. Climate Policy, Bank Risk, and Macro-Prudential Regulation [J]. Journal of Financial Research, 2023,519(9):38-57.
  • [12] Easaw J, Grimme C. The relationship between aggregate uncertainty and firm-level uncertainty [J]. Oxford Economic Papers, 2024,76(4):1108-1127.
  • [13] An Z, Chen C, Naiker V, et al. Does media coverage deter firms from withholding bad news? Evidence from stock price crash risk [J]. Journal of Corporate Finance, 2020,64.
  • [14] Li Y, Zeng Y. The impact of top executive gender on asset prices: Evidence from stock price crash risk [J]. Journal of Corporate Finance, 2019,58:528-550.
  • [15] Callen J L, Fang X. Institutional investor stability and crash risk: Monitoring versus short-termism? [J]. Journal of Banking and Finance, 2013,37(8):3047-3063.
  • [16] Li X, Wang S S, Wang X. Trust and stock price crash risk: Evidence from China [J]. Journal of Banking and Finance, 2017,76:74-91.
  • [17] Hou C, Liu H. Institutional cross-ownership and stock price crash risk [J]. Research in International Business and Finance, 2023,65:101906.
  • [18] Zhou J, Zhu Z, Wang H, et al. Data Asset Disclosure and Stock Price Crash Risk: A Double Machine Learning Study of Chinese A Share Firms: International Journal of Financial Studies [Z]. 2025: 13, 229.
  • [19] Kothari S P, Shu S, Wysocki P D. Do Managers Withhold Bad News? [J]. Journal of Accounting Research, 2009,47(1):241-276.
  • [20] Yuan D, Shao J. Rookie Chinese directors and stock price crash risk [J]. Management Decision, 2025.
  • [21] Liu L, Li Y. Enterprise financialization and stock price crash risk [J]. Finance Research Letters, 2024,60:104878.
  • [22] Zhang X, Wang B, Liu G. Readability of financial reports and stock price crash risk [J]. Finance Research Letters, 2025,86:108489.
  • [23] Fu F, Fang J, Yang M, et al. Institutional investor horizons and stock price crash risk [J]. Research in International Business and Finance, 2024,72:102509.
  • [24] Pu G, Xie Y, Wang K. Board faultlines and risk-taking [J]. Finance Research Letters, 2023,51:103404.
  • [25] DAI Bingbin, YUE Heng. Monetary Policy, Liquidity Shortage and Stock Price Crash Risk. Journal of Financial Research, 2015, 421(7): 135-151.
  • [26] Shao H, Wang Y, Wang Y, et al. Green credit policy and stock price crash risk of heavily polluting enterprises: Evidence from China [J]. Economic Analysis and Policy, 2022,75:271-287.
  • [27] Ye Y, Zeng L, Tao Y, et al. Tax authority monitoring and corporate information disclosure quality in China [J]. International Review of Financial Analysis, 2023,90:102872.
  • [28] Stroebel J, Wurgler J. What do you think about climate finance? [J]. Journal of Financial Economics, 2021,142(2):487-498.
  • [29] Naumann G, Cammalleri C, Mentaschi L, et al. Increased economic drought impacts in Europe with anthropogenic warming [J]. Nature Climate Change, 2021,11(6):485-491.
  • [30] Massa M, Zhang L. The Spillover Effects of Hurricane Katrina on Corporate Bonds and the Choice between Bank and Bond Financing [J]. Journal of Financial and Quantitative Analysis, 2020,56(3):1-57.
  • [31] Choi D, Gao Z, Jiang W. Attention to Global Warming [J]. The Review of Financial Studies, 2020,33(3):1112-1145.
  • [32] D. H T, Ying X. Panic Selling When Disaster Strikes: Evidence in the Bond and Stock Markets [J]. Management Science, 2021.
  • [33] Rye C J, Boyd J A, Mitchell A. Normative approach to risk management for insurers [J]. Nature Climate Change, 2021,11(6):460-463.
  • [34] M. A J, T. N D, Ariel O B. Temperature shocks and industry earnings news [J]. Journal of Financial Economics, 2023,150(1):1-45.
  • [35] Ojea Ferreiro J, Reboredo J, Ugolini A. The impact of climate transition risks on financial stability. A systemic risk approach [M]. 2022.
  • [36] Huang H H, Kerstein J, Wang C. The impact of climate risk on firm performance and financing choices: An international comparison [J]. Journal of International Business Studies, 2018,49(5):633-656.
  • [37] LV Yongbin L Z G Y. Marching Against the Wind: Typhoon Disasters and Banks' Risky Behaviors [J]. Journal of Financial Research, 2024,523(1):19-37.
  • [38] Huang R, Xie X, Zhou H. ‘Isomorphic’ behavior of corporate greenwashing [J]. Chinese Journal of Population, Resources and Environment, 2022,20:29-39.
  • [39] Al Mamun M, Balachandran B, Duong H N. Powerful CEOs and stock price crash risk [J]. Journal of Corporate Finance, 2020,62:101582.
  • [40] Wang, H.C., Cao, F. and Ye, K.T. Monitoring or Tunneling? The Proportion of the Proportion Held by the Big Shareholders and the Risk of the Crash of the Stock Price [J]. Management World, 2015,02:45-57.
  • [41] Kim J B, Lee E, Zhu Z J. Do Firm-Specific Stock Price Crashes Lead to a Stimulation or Distortion of Market Information Efficiency? [J]. Contemporary Accounting Research, 2022,39(3):2175-2211.
  • [42] Chang X, Chen Y, Zolotoy L. Stock Liquidity and Stock Price Crash Risk [J]. The Journal of Financial and Quantitative Analysis, 2017,52(4):1605-1637.
  • [43] Habib A, Hasan M M, Jiang H. Stock price crash risk: review of the empirical literature [J]. Accounting & Finance, 2018,58:211-251.
  • [44] Ziqi Z, Zhi S, Ke W, et al. Corporate environmental information disclosure and stock price crash risk: Evidence from Chinese listed heavily polluting companies [J]. Energy Economics, 2022,112.
  • [45] He G, Bai L, Ren H M. Analyst coverage and future stock price crash risk [J]. Journal of Applied Accounting Research, 2019,20(1):63-77.
  • [46] He G, Ren H. Are financially constrained firms susceptible to a stock price crash? [J]. The European Journal of Finance, 2022,29:1-26.
  • [47] Yu H, Liang C, Liu Z, et al. News-based ESG sentiment and stock price crash risk [J]. International Review of Financial Analysis, 2023,88:102646.
  • [48] Rao S, Koirala S, Thapa C, et al. When rain matters! Investments and value relevance [J]. Journal of Corporate Finance, 2022,73:101827.
  • [49] Ni X, Si Y, Zhang B. Climate vulnerability and stock price crash risk worldwide [J]. Journal of International Business Studies, 2025:1-24.
  • [50] Yin Z, Li X, Si D, et al. China stock market liberalization and company ESG performance: The mediating effect of investor attention [J]. Economic Analysis and Policy, 2023,80:1396-1414.
  • [51] Kong D, Kong G, Liu S, et al. Does competition cause government decentralization? The case of state-owned enterprises [J]. Journal of Comparative Economics, 2022,50(4):1103-1122.
  • [52] Li X L, Si D K. Does financial market liberalization promote corporate radical innovation? Evidence from China [J]. International Review of Financial Analysis, 2024,95:103500.
  • [53] Si D K, Liu G. How does capital market liberalization shape corporate shadow banking? Evidence from China [J]. China Economic Review, 2025,93:102484.

Article Sidebar

PDF
Published
Jul 10, 2026
Issue
Vol. 3 No. 2 (2026)
Section
Research Articles
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

Ma, W., & Chen, J. (2026). Extreme Weather Impacts on Stock Price Crash Risk: Evidence from China. Financial Economics Research, 3(2), 413-429. https://doi.org/10.70267/fer.250302.413429