Foreign Institutional Investors, Legal Origin, and Corporate Greenhouse Gas Emissions Disclosure

Abstract

The disclosure of corporate environmental performance is an increasingly important element of a firm’s ethical behavior. We analyze how the legal origin of foreign institutional investors affects a firm’s voluntary carbon disclosure. Using a large sample of firms from 36 countries, we show that foreign institutional ownership from civil law countries improves the scope and quality of a firm’s greenhouse gas emissions reporting. This relation is robust to addressing endogeneity and selection biases. The effect is more pronounced in firms from non-climate-sensitized countries, for which the gap between firms’ environmental standards and investors’ environmental targets is potentially larg-er, and in less international firms. Firms with a higher level of voluntary carbon disclosure also exhibit higher valuations.

Keywords: Institutional investors, foreign ownership, legal origin, corporate environmental responsi-bility, carbon disclosure, firm value