Purpose: This study examines the impact of firm-level climate risk exposure (FCRE) on firm stock liquidity by using a sample of Indian-listed firms from the financial years 2003–2004 to 2022–2023. Further, it endeavors to investigate the moderating role of environmental, social and governance (ESG) disclosure in this relationship.Design/methodology/approach: A novel text-based FCRE metric is introduced using a sophisticated Word2Vec model through a Python-generated algorithm for each firm and year based on the management discussions and analysis (MD&A) reports. The panel fixed effect model is used to study how FCRE affects stock liquidity.Findings: The result shows that FCRE negatively affects firms’ stock liquidity, and the effect remains robust after addressing endogeneity concerns. In addition, we find that a high ESG disclosure rating significantly moderated the adverse effect of FCRE. Furthermore, our analysis reveals that investor sentiment, information quality, corporate life cycle and institutional holdings moderate the impact of FCRE on liquidity.Practical implications: The study offers valuable insights for investors, managers and policymakers on integrating climate risk into investment strategies, improving corporate climate governance and shaping policies that incentivize sustainable corporate behavior.Originality/value: To the best of our knowledge, this study is an early study to explore the relationship between firm-specific climate risk exposure and stock liquidity using advanced machine learning techniques. It contributes to the existing literature by illustrating how climate risk can lead to adverse market reactions while highlighting the critical roles of corporate ESG practices, investor sentiment and disclosure quality in influencing this relationship.

Purpose: This paper investigates the relationship between managerial sentiment and corporate investment in emerging capital markets. Further, we begin with the assertion that the positive impact of managerial sentiment on corporate investment varies according to the corporate life cycle. Lastly, we investigate whether the relationship between managerial sentiment and corporate investment can be moderated by factors like (1) economic policy uncertainty/geo-political risk, (2) size of the firm, (3) financial constraint, (4) industrial competition, and (5) Environmental Social and Governance (ESG) rating.Design/methodology/approach: This study has considered Indian listed companies (465 firms) for the period spanning from 2003–2004 to 2022–2023. This study constructs the managerial sentiment using a novel large language model-financial bidirectional encoder representation from the Transformers (FinBERT), as well as on management discussion and analysis reports. Then, we employ fixed effect regression to investigate the relationship between managerial sentiment and corporate investment. Additionally, we use propensity score matching, two-stage least squares instrumental variables, and a two-step system generalized method of moments approach for robustness tests.Findings: The findings show a positive and significant relationship between managerial sentiment and corporate investment. Additionally, our results demonstrate that this relationship is evident only during the growth and maturity phase of the corporate life cycle. Moreover, uncertainty pertaining to the economy and geopolitical issues, firm size, financial health, industry dynamics, and ESG disclosure also play a crucial role in shaping the investment-sentiment relationship.Originality/value: The study is unique because it determines the relationship between managerial sentiment and corporate investment by using the novel FinBERT model. In addition, we have introduced a corporate life cycle, which is an essential aspect of our study. Additionally, this research was conducted in an emerging market with more information asymmetry and weaker disclosure rules. Thus, other emerging markets can benchmark the outcomes.

This study examines the impact of firms’ overall corporate policy risk on stock liquidity. This study constructs a novel overall corporate policies risk index (PRI) for firms by capturing risk embedded in managers’ different policy decisions, such as investment, financing, diversification, and cash management, by weighting each policy risk through the regression decomposition method. Using a large sample of 466 India-listed firms from the financial year 2003–2004 to 2022–2023, this study finds that there is a negative association between PRI and stock liquidity. The study further explores the information environment heterogeneity and finds that the adverse impact of a PRI is a more prominent firm that is hard to value or in a less transparent environment as compared to the transparent firms. Moreover, the adverse impact of PRI on stock liquidity is significantly more pronounced during financial crises, while its effect is less substantial during non-crisis periods. The robustness of these results is confirmed even after addressing endogeneity issues using various techniques, such as propensity score matching (PSM), two-stage least squares instrumental variable approach (2 SLS IV), and the system-generalized method of moments (System GMM).