Utilizing a panel dataset of Chinese A-share listed firms during 2001-2021, we examine whether and how extreme temperature shocks affect financial distress. Our empirical findings show that extreme temperature shocks have a robust positive effect on financial distress. Further analysis reveals two channels through which extreme temperature shocks exacerbate financial distress: reducing firms’ total factor productivity and tightening financing constraints. Moreover, this effect is stronger among firms with small market capitalization, vulnerabi...
