The 39th Frontier Forum for Digital Technology and Finance

Abstract：

This study investigates whether firms use forward contracts with suppliers to hedge the climate-change-related risk in supply chains. We find that firms engage in more forward contracts following natural-disaster hits on their major suppliers, consistent with managers’ belief-updating about supply-chain climate risk and firms using operational hedging as an adaption strategy for increased climate risk, This effect increases with the severity of climate-change-related disasters, while it is insignificant for disasters not related to climate change. The duration ofthe effect is consistent with the persistence ofmanagers’ belief-updating over time. We further find that the effect is more pronounced when firms have no access to futures markets and when they hold greater bargaining power over their suppliers. Lastly, we find that operational hedging can mitigate the effect of climate risk on subsequent operating volatility. Overall, our study provides novel evidence on firms hedging behavior in response to increased supply-chain climate risk.

Speaker Introduction：

Xiangang Xin is an Associate Professor of School of Accountancy at The Chinese University of Hong Kong (CUHK). He obtained his MA degree from Shanghai University of Finance and Economics and PhD degree from CUHK. He has published research articles in journals such as Journal of Financial Economics, The Accounting Review, Journal of Accounting Research, Contemporary Accounting Research. He has broad research interests in financial accounting and corporate governance topics and is particularly interested in corporate disclosure, culture and international accounting.