Does physical climate risk affect executive pay? Empirical evidence from the extreme heat weather

Purpose This study aims to examine the impact of extreme heat on executive compensation and further investigate how executives’ risk aversion moderates this relationship. Design/methodology/approach This study draws on a sample of Chinese A-share listed firms on the Shanghai and Shenzhen Stock Exchanges over the period from 2007 to 2022. Findings The results indicate a significant and positive relationship between extreme heat and executive compensation, and this effect becomes stronger at higher levels of executive risk aversion. The risk-compensating effect is also reflected in greater failure tolerance; that is, extreme heat is associated with greater executive pay stickiness. The impact of extreme heat on executive pay is especially significant in labor-intensive industries, less-concentrated industries and firms with higher media attention. In addition, higher executive pay associated with extreme heat is linked to a lower cost of equity capital. Practical implications This study suggests that firms should give careful consideration to climate risk when designing executive compensation policies. In the context of extreme heat, offering appropriate risk-related compensation to executives can help attract and retain talent and reduce the cost of equity capital. These findings provide empirical evidence for firms to optimize governance structures and refine executive compensation contracts. Originality/value This study extends the existing literature on climate risk and executive compensation, providing emerging market empirical evidence on the risk–compensation effect. Furthermore, it finds that extreme heat enhances the stickiness of executive compensation. The evidence is consistent with the view that pay stickiness may reflect a risk–compensation mechanism under extreme heat.

Authors

Institutions

Publication Details

Journal
Pacific Accounting Review
Published
2026-09-18
DOI
https://doi.org/10.1108/par-09-2025-0209
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
0.00
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
article

Does physical climate risk affect executive pay? Empirical evidence from the extreme heat weather

zhuoya guo, Lijia Yang, Yanxi Li, Qingyuan Wang
Pacific Accounting Review
Financial Markets and Investment Strategies
article

Does physical climate risk affect executive pay? Empirical evidence from the extreme heat weather

zhuoya guo, Lijia Yang, Yanxi Li, Qingyuan Wang
article en

Abstract

Purpose This study aims to examine the impact of extreme heat on executive compensation and further investigate how executives’ risk aversion moderates this relationship. Design/methodology/approach This study draws on a sample of Chinese A-share listed firms on the Shanghai and Shenzhen Stock Exchanges over the period from 2007 to 2022. Findings The results indicate a significant and positive relationship between extreme heat and executive compensation, and this effect becomes stronger at higher levels of executive risk aversion. The risk-compensating effect is also reflected in greater failure tolerance; that is, extreme heat is associated with greater executive pay stickiness. The impact of extreme heat on executive pay is especially significant in labor-intensive industries, less-concentrated industries and firms with higher media attention. In addition, higher executive pay associated with extreme heat is linked to a lower cost of equity capital. Practical implications This study suggests that firms should give careful consideration to climate risk when designing executive compensation policies. In the context of extreme heat, offering appropriate risk-related compensation to executives can help attract and retain talent and reduce the cost of equity capital. These findings provide empirical evidence for firms to optimize governance structures and refine executive compensation contracts. Originality/value This study extends the existing literature on climate risk and executive compensation, providing emerging market empirical evidence on the risk–compensation effect. Furthermore, it finds that extreme heat enhances the stickiness of executive compensation. The evidence is consistent with the view that pay stickiness may reflect a risk–compensation mechanism under extreme heat.

Pacific Accounting Review
Dongbei University of Finance and Economics (CN), Dalian University of Technology (CN)
Climate action
Openalex Percentile: Top 7%
Financial Markets and Investment Strategies
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.

Does physical climate risk affect executive pay? Empirical evidence from the extreme heat weather — zhuoya guo, Lijia Yang, et al. · Pacific Accounting Review (2026) | TGRS Research Map | TGRS