Climate Risk in Supply Chains and Corporate Cash Holdings: Mechanisms and Mitigation Strategies

This paper analyzes Chinese A-share listed firms to investigate the influence of climate risks on corporate cash reserves via the supply chain channel. We construct a measure of supplier climate-risk exposure by matching firms’ supplier lists with climate-disaster records. Higher supplier climate risk significantly reduces corporate cash holdings. This suggests that climate-driven cash outflows often exceed firms’ precautionary reserves. Empirical analysis suggests that supplier concentration has a significant moderating effect on outcomes. Firms with more concentrated suppliers tend to detect potential climate risks earlier and establish preventive buffers by augmenting cash reserves, thereby improving financial resilience. We also find that firms’ adoption of AI mitigates the negative cash-flow impacts of climate disasters by improving forecasting and risk-management capabilities.