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The Relevance to Investors of Greenhouse Gas Emission Disclosures

60 Pages Posted: 6 Jan 2011 Last revised: 14 Apr 2015

Paul A. Griffin

University of California, Davis - Graduate School of Management; University of California, Davis

David H. Lont

University of Otago - Department of Accountancy and Finance

Estelle Sun

Boston University - Questrom School of Business

Date Written: June 20, 2012

Abstract

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.

Keywords: Greenhouse gas emissions, investor relevance, Canadian and U.S. disclosure regulations, event study.

JEL Classification: G14, M41, M45, K22, Q20.

Suggested Citation

Griffin, Paul A. and Lont, David H. and Sun, Estelle, The Relevance to Investors of Greenhouse Gas Emission Disclosures (June 20, 2012). UC Davis Graduate School of Management Research Paper No. 01-11. Available at SSRN: https://ssrn.com/abstract=1735555 or http://dx.doi.org/10.2139/ssrn.1735555

Paul A. Griffin (Contact Author)

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

University of California, Davis ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Estelle Yuan Sun

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
1-617-353-2353 (Phone)

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