Weathering the Risk: How Climate Uncertainty Fuels Corporate Fraud

While previous research has primarily focused on the impact of climate risk on corporate socially responsible behaviors, this study investigates how climate risk may influence corporate social irresponsibility. Using panel data from Chinese listed firms spanning from 2003 to 2020, we find that heightened exposure to climate risk correlates with an increased likelihood of fraud commission. Moreover, we observe that financial distress positively moderates the relationship between climate risk and corporate fraud, particularly within climate-vulnerable industries or financially constrained firms. Our findings further suggest that climate risk exacerbates corporate fraud by increasing pressures related to performance, debt financing, and shareholder demand. This study highlights the detrimental role of climate risk in shaping corporate ethics and amplifying the incidences of corporate fraud.