Climate risk and digital transformation of enterprises – evidence from China

Purpose This paper aims to attempt to analyze the behavior of firms in China when they encounter climate risks through empirical research. Design/methodology/approach Using firm-level data from Chinese listed firms between 2010 and 2022, this study investigated the impact of climate risk on firms’ behavior. Findings It revealed that day-to-day temperature volatility hinders the digital transformation of enterprises. The result still held after robustness tests such as instrumental variable regression and replacement of explanatory variables. The mechanism test found that financial constraints is important mechanism by which climate risk hinders firms’ digital transformation. Further analysis revealed that the negative effect of climate risk on digital transformation is more significant for firms that are not politically connected and have lower levels of institutional investor ownership. Originality/value This study not only adds to the literature on the impact of climate risk on firm behavior but also enriches the research related to the factors influencing the digital transformation of firms.