This paper examines the effect of climate change on corporate performance. Using exposure to wildfire smoke as a novel setting, I document a significant physical effect of climate change on corporate operating income. On average, a one-standard-deviation increase of wildfire smoke exposure is associated with an $18.7 million loss in operating income. The effect is strongest for firms with high R & D-to-employee ratios, with high average labor costs, or that operate in industries that are highly dependent on skilled labor, suggesting that decreased productivity among high-skilled employees drives the observed effect. I also find that the stock market does not fully incorporate the effect of wildfire smoke into stock prices until annual earnings announcements. More climate change disclosure moderates the negative market reaction around annual earnings announcements. Overall, this paper documents the less salient effects of climate change on corporate performance and asset prices.
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