Climate Change Exposure and Trade Credit Provision

ABSTRACT Climate change presents increasing operational risks for firms, yet its influence on financial policy remains underexplored. While prior research has examined climate change's effects on capital structure and investment decisions, the role of trade credit, a vital tool for liquidity management, has received limited attention. Drawing on data from US firms between 2001 and 2021, this study investigates how climate change exposure affects suppliers' provision of trade credit. The empirical findings reveal a statistically significant positive relationship between climate exposure and trade credit provision, particularly among firms with greater financial flexibility, weaker performance, or lower reputational standing. Moreover, shareholders respond favorably to such credit expansions. These results suggest that trade credit functions as a risk‐sharing mechanism for climate‐exposed firms, offering novel insights into adaptive financial strategies and stakeholder responses to environmental challenges.