When Hurricanes Rewrite Balance Sheets: The Climate Adaptation Paradox in Corporate Resilience

ABSTRACT When Hurricane Harvey struck Houston in 2017, companies with seemingly identical business models experienced dramatically different outcomes, exposing critical gaps in understanding how extreme climate events affect corporate performance through complex transmission mechanisms. Using panel data from 1517 Chinese A‐share listed companies (2013–2023), we employ fixed‐effects regression with instrumental variables to examine these pathways. Results show extreme climate risk significantly reduces financial performance, yet operates through three transmission mechanisms creating measurable benefits: green innovation intensity, environmental governance investment, and social responsibility investment generate positive returns that partially offset direct climate damages. Supply chain localization provides protection by enabling better coordination during disruptions, while ESG transparency gaps amplify vulnerability through damaged stakeholder trust. These findings reveal the climate adaptation paradox—resilience depends less on geographic location than on strategic positioning within innovation ecosystems, governance structures, and stakeholder networks, where adaptation represents risk mitigation rather than value creation.