Drive or Constrain? How High Temperatures Shape Firm Digitalization Strategy
Description
Using matched firm-level and daily meteorological data from China (2001–2020), we examine how sustained high-temperature exposure shapes firms’ digitalization strategy (DS). High temperatures generate two countervailing forces. Rising climate-induced losses prompt managers to pursue performance-improving measures, which we term the adaptation drive effect. At the same time, those losses erode the cash flow needed to fund costly digital investments, giving rise to a damage constraint effect. Thus, the impact direction of high temperatures on DS remains ambiguous. We find the constraint dominates. Relative to the 12°C–15°C baseline, temperatures of 27°C–30°C and above 30°C both significantly reduce firms’ propensity to digitalize; over 9 years, an additional 140 high-temperature days above 30°C (one standard deviation) are associated with a 0.25-unit decline in DS (mean = 0.68). The negative effect attenuates for larger firms and in regions with more developed digital economies or credit markets. Among industries, labor-intensive firms exhibit a comparatively stronger drive effect, while mining and metallurgy firms face prohibitively high digitalization costs that amplify the constraint. This paper enriches the literature on climate adaptation and climate damage, calls on managers to consider environmental factors in strategic decision-making, and provides empirical evidence for the consistency between economic interests and ecological interests.