The Relevance to Investors of Greenhouse Gas Emission Disclosures
Paul A. Griffin
University of California, Davis - Graduate School of Management
David H. Lont
University of Otago - Department of Accountancy and Finance
Boston University - School of Management
June 20, 2012
UC Davis Graduate School of Management Research Paper No. 01-11
This study documents that investors care about companies’ greenhouse gas (GHG) emission disclosures. Three kinds of evidence support this finding. First, using companies that disclose GHG emissions voluntarily through the Carbon Disclosure Project (CDP), we show that investors act as if they use GHG emission information to assess company value. Second, our evidence finds that investors view estimates of non-disclosed GHG emission amounts as value relevant, suggesting that stock prices reflect GHG information from channels other than CDP disclosure. Third, we conduct an event study and observe a significant stock market response when companies disclose climate change information in an 8-K filing. Our results strengthen for GHG-intensive industries such as utilities, energy, and materials companies, whose valuation effects are more negative. Economically, our results suggest that for every ton of GHG emitted by the median company in our sample at an assumed cost of $20 per ton, the stock market recognizes about 20-50 percent of that amount as an off-balance sheet liability.
Number of Pages in PDF File: 60
Keywords: Greenhouse gas emissions, investor relevance, Canadian and U.S. disclosure regulations, event study.
JEL Classification: G14, M41, M45, K22, Q20.
Date posted: January 6, 2011 ; Last revised: June 21, 2012
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