Extreme heat, supply chain risks and enterprise performance

Abstract

This paper examines the impact of exposure to high temperatures on the performance of downstream enterprises. By constructing “supplier-customer” pairs during 2010-2019, we explore exogenous variation in temperature and find that high temperatures in suppliers' regions significantly reduce the performance of downstream enterprises. The effects are more pronounced for non-state-owned, smaller, less digitalized, more supply-chain-concentrated, and less monopolistic enterprises. The possible channel is that upstream suppliers pass on the increased costs and risks due to high temperatures to downstream customers, leading to adverse impacts on their performance. Furthermore, downstream enterprises also conduct adaptive behaviors. This study enriches the research on the impact of extreme weather on business activities and provides insights for business managers on how to sustainably adapt to supply chain risks in a warming world.