Climate Change and Asset Prices: Are Corporate Carbon Disclosure and Performance Priced Appropriately?

Forthcoming, Journal of Business Finance & Accounting

Posted: 28 Jul 2016

See all articles by Andrea Liesen

Andrea Liesen

Institute for Ecological Economy Research (IOEW)

Frank Figge

KEDGE Business School

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS); European Commission's Technical Expert Group for Sustainable Finance

Dennis M. Patten

Illinois State University

Date Written: July 28, 2014

Abstract

This paper empirically assesses the value relevance of information on corporate climate change disclosure and performance to asset prices, and discusses whether this information is priced appropriately. Findings indicate that corporate disclosures of quantitative GHG emissions and, to a lesser extent, carbon performance are value relevant. We use hand-collected information on quantitative greenhouse gas (GHG) emissions for 433 European companies and build portfolios based on GHG disclosure and performance. We regress portfolios on Carhart (1997) four factor models extended for industry effects over the years 2005 to 2009. Results show that investors achieved abnormal risk-adjusted returns of up to 13.05% annually by exploiting inefficiently priced positive effects of (complete) GHG emissions disclosure and good corporate climate change performance in terms of GHG efficiency. Results imply that, firstly, information costs involved in carbon disclosure and management do not present a burden on corporate financial resources. Secondly, investors should not neglect carbon disclosure and performance when making investment decisions. Thirdly, during the period analysed financial markets were inefficient in pricing publicly available information on carbon disclosure and performance. Mandatory and standardised information on carbon performance would consequently not only increase market efficiency but result in better allocation of capital within the real economy.

Keywords: carbon disclosure, climate change, value relevance, disclosure quality, GHG emissions, market efficiency, stock performance

Suggested Citation

Liesen, Andrea and Figge, Frank and Hoepner, Andreas G. F. and Patten, Dennis M., Climate Change and Asset Prices: Are Corporate Carbon Disclosure and Performance Priced Appropriately? (July 28, 2014). Forthcoming, Journal of Business Finance & Accounting. Available at SSRN: https://ssrn.com/abstract=2815386

Andrea Liesen (Contact Author)

Institute for Ecological Economy Research (IOEW) ( email )

Potsdamer Str. 105
Berlin, 10785
Germany

Frank Figge

KEDGE Business School ( email )

Domaine de Luminy
BP 921 13288 Marseille Cedex 9, 13288
France

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

European Commission's Technical Expert Group for Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Dennis M. Patten

Illinois State University ( email )

Department of Accounting
Normal, IL USA 61761
309-438-7857 (Phone)

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