Volume 21, Number 1, June 2026
| Do Political Connections Affect the Relationship between Climate Risk and Dividend Policy? Evidence from China
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Abstract
This paper examines the influence of political connections and climate risk on dividend policy using a sample of Chinese listed firms from 2009 to 2019. Utilizing the Germanwatch Global Climate Risk Index, three hypotheses were formulated and tested regarding the roles of political ties and climate exposure in determining payout policies. Empirical findings show that politically connected firms exhibit higher dividend payouts, indicating that political ties reduce financial constraints and enhance payout capacity. In contrast, higher climate risk is associated with lower dividend payouts, suggesting that the disruptive nature of climate threats forces firms to increase cash retention for precautionary motives. Notably, the interaction analysis reveals that the resource advantages provided by political connections cannot fully buffer against climate risk; firms remain compelled to hoard cash to mitigate operational crises arising from extreme weather events. Managerially, this study underscores the systemic destructiveness of climate risk. It suggests that managers must align their strategies with evolving environmental challenges, while investors should strictly integrate climate risk management into corporate valuation and portfolio analysis.
Keywords: Political Connections, Climate Risk, Dividend Policy, China
JEL Classification: G30, G35, G39