Firm Value and Government Commitment to Combating Climate Change

29 Pages Posted: 17 Jul 2019

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Jonathan Jona

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students

Naomi S. Soderstrom

University of Melbourne

Date Written: July 15, 2019

Abstract

We examine the impact of government commitment to combating climate change on firm value in relation to a firm’s climate risk exposure. We identify major recent regulatory events around climate change that are not fully predicted, including the surprise election of Donald Trump to President of the US and the Paris Climate Change agreement. We predict opposite changes in value for polluting firms (with a high score on climate risk exposure) relative to non-polluting firms (with a low score on climate risk exposure) in reaction to these regulatory changes. We find that around the surprise election of Donald Trump, the market value of firms with high climate risk increases relative to the value of firms with low climate risk, and they find the exact opposite results around the Paris Climate Change agreement, which represents an increased commitment to combating climate change.

Keywords: Climate Risk, Market Valuation, Government, President Trump, Event study, Climate change, Paris Agreement on Climate Change, Cost of Regulation

JEL Classification: G14

Suggested Citation

Berkman, Henk and Jona, Jonathan and Soderstrom, Naomi S., Firm Value and Government Commitment to Combating Climate Change (July 15, 2019). Pacific-Basin Finance Journal, Vol. 53, 2019. Available at SSRN: https://ssrn.com/abstract=3420466

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Jonathan Jona (Contact Author)

Tulane University, A.B. Freeman School of Business, Finance & Economics, Students ( email )

7 McAlister Drive
New Orleans, LA
United States

Naomi S. Soderstrom

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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