Does Climate Change Affect Firm Sales? Identifying Supply Effects

Claudia Custodio, Miguel A Ferreira, Emilia Garcia-Appendini, and Adrian Lam

♦ We estimate the supply-side effects of climate change on firm sales by exploiting variation in local average temperature across suppliers of the same client. A 1°C increase in temperature leads to a 2.5% decline in annual sales. This effect is nonlinear, with stronger effects among suppliers in regions with the largest temperature increases and in cooler regions. Manufacturing and heat-sensitive industries are more affected, consistent with a reduction in labor productivity and labor supply when local temperatures rise. Non-diversified and financially constrained firms are also more affected, supporting the importance of operational and financial flexibility in adapting to climate change.

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