Climate Policy Uncertainty and Corporate Risk-Taking Behavior: Evidence from China

Uncertainty surrounding climate risks has led governments to adjust climate policies frequently, potentially affecting corporate risk-taking behavior. Combining firm-level data for Chinese A-share companies with city-level CPU, we document a decline in subsequent corporate risk-taking when local climate-policy conditions become more uncertain. Firms respond with lower leverage, larger cash buffers, and lower stock-return volatility, while R&D spending and ESG performance increase, consistent with selective adaptation rather than greater overall risk appetite. This contraction is particularly pronounced among financially constrained firms, Big 4-audited firms, and firms receiving greater media scrutiny. Province-based instrumental-variable estimates yield similar results. The findings show how institutional conditions shape corporate responses to climate-policy uncertainty in an emerging market.