Theses and Dissertations

Date of Award

7-1-2024

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Siamak Javadi

Second Advisor

Monika Rabarison

Third Advisor

Yu Liu

Abstract

This dissertation comprises of two essays on actions taken at firm-level to mitigate the adverse impacts of climate risk. Our first essay documents a positive relation between firm-level climate change exposure (CCE) and long-term tax avoidance. Our results suggest that firms use tax avoidance to mitigate the adverse impacts of CCE. The positive effect of CCE on tax avoidance is stronger post the release of Stern Review and weaker after the enactment of the Tax Cuts and Jobs Act, 2017. Our study is the first to show that firms with high CCE use tax avoidance to increase cash holdings as a precautionary motive and enhance the firm’s value amidst the challenges due to climate risk. We also document that the effect is not driven by agency views and risk-taking incentives, rather is profound for firms with stronger internal governance. In our second essay, we investigate whether firm-level climate change exposure (CCE) impacts the risk-taking incentives of the CEOs (Vega). We find a negative and significant relation between CCE and Vega. Our results show that the effect is profound after the release of the Stern Review, the Paris Agreement, and the occurrence of Hurricane Sandy. The cross-sectional tests reveal that this negative relation is profound in firms with higher managerial entrenchment, higher managerial ability, and overconfident CEOs. We show that the effect is significantly larger for firms with high institutional ownership and industries vulnerable to climate risk. Further, we document novel evidence that Vega is one of the significant channels through which CCE negatively impacts the firm's long-term risky investments. Our results indicate that the shareholders adjust the CEO's risk-taking incentives to align the CEO's risk-taking preferences with those of the firm amidst the heightened climate risk.

Comments

Copyright 2024 Deepak G. More. https://proquest.com/docview/3100332549

Download

Included in

Finance Commons

Share

COinS