Temperature shocks and corporate innovation: evidence from China

Abstract

Extreme weather events have increased significantly in recent years, exerting a profound impact on economic and social development. This paper analyses the relationship between temperature shocks and the innovative performance of companies, as measured by patent data. The results show that high-temperature shocks significantly hinder corporate innovation, and this effect is lagged. Specifically, heterogeneity analysis shows that this negative association is particularly salient in firms with low institutional ownership or profitability. Besides, regional variations in climate conditions serve to moderate the impact of temperature shocks on corporate innovation. It has been observed that firms located in cooler areas exhibit heightened sensitivity to such shocks. The findings of the mechanism analysis indicate that temperature shocks hinder innovation by negatively impacting firms’ human capital and innovation efficiency. Moreover, in addition to impacting the quantity of innovation, temperature shocks also exert a significant impact on the structure and quality of corporate innovation. This research enhances our understanding of the impact of climate change on business operations and highlights the urgency of building climate resilience.