Do Firms Adapt to Seasonal Climate Forecasts?

Abstract

We test whether public firms across the U.S. economy adapt operations using seasonal climate forecasts issued by the U.S. National Oceanic and Atmospheric Administration. Decomposing local weather into forecasted and unexpected components, we find evidence of adaptation: forecasted variation has more favorable effects on operating profitability than unexpected shocks. If firms merely absorbed weather variation without forecast-based adjustments, these components should affect performance similarly. Adaptation is stronger when forecasts are more accurate, for nature-dependent firms, and extends beyond traditionally weather-sensitive sectors like agriculture and energy. A survey of 1,095 operational managers validates our empirical approach, provides evidence on the mechanisms of adaptation, and highlights frictions to adaptation, including informational ones. Consistent with the latter, firm-issued guidance often does not fully incorporate available forecast information.