How Does Product Market Competition Influence Firm‐Level Climate Change Exposure?

ABSTRACT This study examines the impact of product market competition on firm‐level exposure to climate change. Using a sample of 1441 US firms from 2001 to 2021, the findings indicate that climate change exposure increases with market competition. This suggests that competitive pressure drives firms to focus on core operations and cost‐cutting measures to maximize shareholder value. Further analysis reveals that firms operating in competitive markets are less exposed to climate change risks when they possess substantial market share, exhibit high diversification, and face fewer financial constraints. The results also suggest that the positive relationship between competition and climate change exposure is more pronounced following the 2015 Paris Agreement, though this effect is weaker among firms with a CSR committee on the board. These findings offer important insights for market participants, highlighting the need to balance short‐term competitive strategies with long‐term sustainability under competitive pressure.