Every Cloud Has a Silver Lining: Climate Risk and Stock Price Informativeness

ABSTRACT This study investigates how climate risks, exemplified by extreme rainfall, influence stock price informativeness by catalysing firms' adaptive strategies and capital market responses. Using data from Chinese A‐share listed companies between 2009 and 2019, we find that extreme rainfall significantly enhances stock price information efficiency, and this result remains robust after addressing a series of endogeneity concerns. This effect is attributable to both heightened information demand and enhanced information supply. Specifically, the increased information demand from institutional investors, particularly those with a short‐term focus, combined with greater analyst coverage, strengthens corporate governance and improves information efficiency. Meanwhile, firms with greater exposure to extreme rainfall respond by adopting strategic adjustments, including increased transparency and more comprehensive climate risk disclosures. Further evidence suggests that favourable institutional environments enable credible disclosure, whereas elevated financial and operational risks strengthen firms' incentives to enhance transparency. Our study highlights that climate risks shape market information efficiency through firm adaptation and investor responses.