Climate risk and labor investment efficiency: Evidence from Taiwan

Abstract Using Taiwanese data (2009–2019), we examine the impact of climate risk on labor investment efficiency. Contrasting prevailing views, we find that higher climate risk significantly improves labor investment efficiency, primarily by mitigating under‐investment. We attribute this to a “discipline effect,” where heightened uncertainty fosters managerial prudence and aligns labor decisions with operational needs. This efficiency‐enhancing effect is pronounced in firms with strong governance, superior ESG performance, and high competition. Our findings offer novel evidence that climate risk can optimize resource allocation rather than merely disrupting it.