Follow the Money: Are Severe Weather Events Value Relevant?

An important contemporary policy debate relates to whether climate risk significantly impacts a firm’s financial performance. Our examination of this debate leads to three key findings. First, a severe weather event knocks off 1.3% of an affected public firm’s market capitalization. Second, specific industries and certain time periods drive statistically significant stock price reactions. Moreover, firms that disclose climate risks tend to experience slightly smaller stock price reactions. Third, private companies are particularly susceptible to the negative financial impact of natural disasters. However, private firms exhibit greater resilience when they receive financial assistance from government programs and when they are diversified across geographies. We caution policymakers on disclosures aimed at regulating public firms’ disclosure of climate risks while the disproportionate financial impact of severe weather events potentially affects private firms. JEL: D03, G14, G18, G38, K22, K32, M41, M48.