Environmental Disclosure and the Cost of Capital: Evidence from the Fukushima Nuclear Disaster
74 Pages Posted: 2 Jan 2014 Last revised: 26 Apr 2018
Date Written: November 1, 2015
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: Suggested Citation