Firm Value and Government Commitment to Combating Climate Change
29 Pages Posted: 17 Jul 2019
Date Written: July 15, 2019
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: Suggested Citation