Climate change exposure and firm value in China: evidence consistent with a discount-rate interpretation

This paper examines the relationship between firm-level climate change exposure and firm value in China. Using A-share listed firms from 2002 to 2020 and a disclosure-based measure of perceived climate change exposure, we find a significant negative association between climate change exposure and firm value. Our measure provides incremental explanatory power beyond conventional proxies, including ESG indicators and climate change news risk measures. Channel tests provide evidence consistent with a discount-rate interpretation. Both transition and physical-risk exposures are negatively associated with firm value. However, for firms in carbon-neutral industries, transition exposure is positively associated with firm value, consistent with transition-related growth opportunities. The negative associations are more pronounced for firms in high-pollution industries and coastal regions. Further results indicate that the negative valuation association is weaker among firms with stronger green innovation and ESG ratings. Overall, our findings highlight the pricing of climate risk and the role of transition opportunities in firm valuation.