Signaling through Carbon Disclosure
41 Pages Posted: 19 Jan 2021
Date Written: December 26, 2020
We estimate effects of voluntary and mandatory disclosure of carbon emissions on stock returns, volatility, and turnover. We find that voluntary disclosure of scope 1 emissions by companies results in lower stock returns relative to non-disclosing companies. However, a cost of disclosing emissions is increased divestment by institutional investors. We also find that U.K. mandatory carbon disclosure rules for publicly traded companies resulted in lower stock-level uncertainty. The effect of these mandatory disclosure rules also spilled over into other markets, especially those with close geographic and economic proximity, and companies in the same industry.
Keywords: Carbon Emissions, Voluntary and Mandatory Disclosure, Stock Returns
JEL Classification: G12, G23, G30, D62, D83
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