Environmental Disclosure and the Cost of Capital: Evidence from the Fukushima Nuclear Disaster

74 Pages Posted: 2 Jan 2014 Last revised: 26 Apr 2018

See all articles by Pietro Bonetti

Pietro Bonetti

University of Navarra, IESE Business School

Charles H. Cho

York University - Schulich School of Business

Giovanna Michelon

University of Bristol

Date Written: November 1, 2015

Abstract

We exploit the Fukushima nuclear disaster as a source of variation in the demand for environmental information to study the economic consequences of environmental disclosure. Using a large, hand-collected sample of Japanese firms, we find that firms that issue stand-alone environmental reports incur a less severe — although economically and statistically negligible — increase in the cost of capital after the disaster than non-disclosing firms. Most important, we document that, within disclosing firms, those reporting verifiable information on their expected environmental performance experience a lower increase in the cost of capital compared to both non-disclosing firms and to firms that do not report information on their expected performance. Finally, firms react to the disaster by increasing the disclosure of forward-looking information, with a larger effect for firms with histories of forward-looking guidance. Taken together, our results help to clarify the circumstances under which the disclosure of non-financial and unregulated information affects the cost of capital.

Keywords: environmental disclosure, cost of capital, precision of information, commitment to disclosure

JEL Classification: G14, G30, M14, M41

Suggested Citation

Bonetti, Pietro and Cho, Charles H. and Michelon, Giovanna, Environmental Disclosure and the Cost of Capital: Evidence from the Fukushima Nuclear Disaster (November 1, 2015). Available at SSRN: https://ssrn.com/abstract=2373877 or http://dx.doi.org/10.2139/ssrn.2373877

Pietro Bonetti

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Charles H. Cho

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://schulich.yorku.ca/faculty/charles-cho

Giovanna Michelon (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom
BS8 1PQ (Fax)

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