Climate effects on the diversification strategy of export firms: Evidence from China

strategies should aim to assist these firms in enhancing worker conditions, upgrading produc- tion equipment with advanced technologies such as digitization, and instituting monitoring systems to decrease machinery sensitivity to temperature. Such measures will foster the evolu- tion of green and sustainable production practices. Impact of regional financial development Access to finance is pivotal for firms seeking to bolster their resilience against extreme climate events [41,42]. In regions with immature financial systems, financing channels are often lim- ited, the cost of borrowing for firms is higher, and the amount of financing available is lower. These constraints make it harder for firms to get the support they need to cope with sudden economic pressures, such as those caused by extreme climate events [43]. Furthermore, finan- cial constraints may prevent timely adjustments to production processes or supply chains, lim- iting their ability to maintain or expand a diverse range of products and services in the face of extreme temperature changes. In addition, these financial constraints may limit the ability of firms to develop new products or services to respond to market shifts, thereby reducing their adaptability and survival in extreme climatic conditions. However, the extent and speed with which firms can access finance is influenced by a number of factors, of which the external financial environment is a key one. The local financial environment has a direct impact on the efficiency and economy with which firms can secure external finance. Regions with more

advanced financial systems often have a larger number of financial institutions and more robust capital liquidity, offering firms more efficient and cost-effective financing options. As a result, we expect the negative impact of extreme temperatures on firms’ diversification strate- gies to be less pronounced in cities with mature financial systems. To empirically examine this hypothesis, we employ the ratio of city commercial bank branches to total financial institution branches as an indicator of a city’s financial development level. City commercial banks reflect the maturity of urban financial systems in three ways: First, they possess greater autonomy than larger banks in approving loans to small and micro firms, which aids in expanding credit supply and equalizing the distribution of financial resources, thus reducing financing costs; Second, as local financial institutions, they have a deeper understanding of local economic conditions and market situations, effectively reducing information asymmetry and providing higher quality credit services; Third, the competition they introduce stimulates the financial industry, enhancing the availability of financing chan- nels for firms and alleviating capital constraints. Based on the median level of financial devel- opment, cities are divided into two categories: those that are less developed (Underdevelope group) and those with advanced financial systems (Advance group). A regression analysis is then carried out (as shown in columns (3) and (4) of Table 5-I). The results show that in cities

with less developed financial systems, extreme temperatures significantly inhibit the firms’ diversification strategies in export markets. In contrast, this negative effect is significantly reduced in cities with a mature financial infrastructure. This finding highlights the importance of local financial development in enhancing firms’ strategic flexibility and risk management in the context of climate change, particularly in terms of resource allocation and mitigation of economic shocks. Impact of economic development level and energy usage The previous analysis has shown that a higher level of financial development in cities can enhance firms’ adaptability to extreme temperatures by providing greater access to capital and more sophisticated financial services. However, a potential concern is that financial develop- ment may be closely related to the city’s economic development, potentially masking the PLOS ONE Climate effects on the diversification strategy of export firms PLOS ONE | https://doi.org/10.1371/journal.pone.0308391 August 16, 2024 17 / 28