Understanding the economic effects of abnormal weather to mitigate the risk of business failures (2019)

Journal of Business Research 98:391-402
Jean-Louis Bertrand, Miia Chabot (Parnaudeau)
https://www.sciencedirect.com/science/article/abs/pii/S014829631730334X

Summary

Hot or cold, wet or dry, weather impacts almost every industry, with 70% of businesses exposed to unexpected weather changes that influence demand for goods and services. Financial losses caused by adverse weather, which a decade ago did not seem significant enough to have an impact or require management, may now have an impact, as the frequency and severity of abnormal weather has increased dramatically. The increasing reliability of weather data and the development of new risk mitigation tools have also led to a growing body of research on the contribution of weather to financial distress. Drawing on the UK retail sector for empirical evidence, this paper proposes a methodology for determining the contribution of weather to sales and for structuring financial products to reduce the impact of adverse weather on expected cash flows. Our findings open new avenues for research to consider weather as an additional cause of business failure.

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