The Scorching Temperature Shock Effect on Firms’ Performance– a Global Perspective

This paper examines the existence of adverse effect of temperature shock on firms’ profitability and stock performance. We use temperature and weather scorch as exogenous indicators to measure the weather risks on the firms. The result shows that scorching weather leads to the deterioration of firm earnings through the changes in sales, expenses, and productivity. When the hot weather is more extreme, the more earnings are reduced as the consequences. The further investigations also find that the adverse impact of scorching weather on firm earnings are heterogeneous over time and across sectors, geographic locations, and economic development around the world. The impact of weather scorch is more severe starting from year 2014 and in low latitude regions, especially tropical and subtropical countries. We also find that extreme hot temperature negatively influences stock returns of individual firms, especially small and value stocks, via the influence on earnings. And the last finding is that the weather uncertainty exacerbates the volatility of firm earnings and stock returns