Does customer's climate risk disclosure affect supplier's cash holdings? Evidence from China's listed firms

This study utilizes supply chain data from Chinese A-share listed companies to explore how customers’ climate risk disclosures influence their suppliers’ cash holdings. Our findings indicate that a 1% increase in customers’ climate risk disclosures leads to a significant 10.1% rise in their suppliers’ cash holdings. This relationship persists after addressing endogeneity concerns through instrumental variable techniques, Heckman test and conducting a series of robustness checks. Further analysis reveals that as customers disclose more about their climate risks, which typically include heightened default risks, their suppliers, in response, increase their cash holdings to better prevent future uncertainties. Our heterogeneity analysis further delineates that this effect is more pronounced under certain conditions. Specifically, the impact is more pronounced when customers have relatively higher bargaining power, higher degree of financial distress, and higher climate policy uncertainty exposure. This research underscores the cascading effects of climate risk disclosures within supply chains and provides valuable insights for stakeholders aiming to mitigate financial risks associated with environmental uncertainties.