Events

Prof. Gaoqing Zhang
Visiting Professor of Accounting
Tepper School of Business
Carnegie Mellon University

This paper investigates the real effects of improving the transparency about a firm’s climate risk exposure on its management of systemic supply chain disruption risk, when such risk is driven by occurrences of extreme climate events. Our analysis centers on a dual-transparency framework in which neither the firm’s climate risk exposure nor its supply chain strategies is fully transparent. We show the opacity about the supply chain strategies causes the firm to under-produce by ordering insufficient supplies and under-diversify by relying excessively on the more transparent supplier, relative to the first-best levels. Somewhat surprisingly, when the firm’s supply chain strategies are highly opaque, improving the climate-related transparency further exacerbates the inefficiencies by diminishing the firm’s total orders of supplies and making its orders even more concentrated. An implication of our analysis is that the recent policies toward enhancing climate-related transparency may have an unintended consequence of disrupting effective operations of supply chains.