The paper examines how firms adjust cash-holding policies in response to climate transition risks and opportunities. Using a sample of S&P 1200 firms from 2010 to 2022, we document a pronounced asymmetry in corporate liquidity management: firms more exposed to regulatory risk accumulate significantly higher cash holdings as a buffer against anticipated compliance costs and regulatory uncertainty, whereas transition opportunities do not drive significant adjustments in cash holdings. This precautionary motive is strongest among financially constrained firms, among those with less agency conflicts, and intensifies following the Paris Agreement and in carbon-intensive industries. Importantly, precautionary cash accumulation generates positive market value only when firms simultaneously face financial constraints, whereas unconstrained firms receive no market value, as the opportunity cost of cash hoarding offsets its hedging value. Overall, these results establish that the efficiency of climate risk integration in corporate liquidity management is contingent on firms' financial structure and that regulatory uncertainty imposes a real cost on capital allocation by inducing precautionary liquidity demand over productive investment.

TYPE OF RESEARCH – empirical
STAGE OF RESEARCH – in progress