Natural Disasters, Risk Salience, and Corporate ESG Disclosure

43 Pages Posted: 25 Mar 2021

See all articles by Qiping Huang

Qiping Huang

Boise State University - College of Business & Economics

Yongjia Li

Boise State University - College of Business and Economics, Department of Finance

Meimei Lin

Georgia Southern University

Garrett McBrayer

Boise State University

Date Written: December 31, 2020

Abstract

We examine how natural disasters affect the corporate environmental, social, and governance (ESG) disclosure policies of firms located close to disaster areas. We study firms located in counties neighboring those affected by natural disasters and find that, on average, these firms increase their ESG disclosure transparency over the period subsequent to the disaster. Given that our sample firms are located outside of the area directly affected by the disaster, the changes in disclosure transparency after the disaster are consistent with managers increasing their preference for transparency as their risk salience increases. Further, we find that, though the disaster may be environmental by nature, nearby firms increase their social and governance disclosures in addition to their environmental disclosures. To investigate whether or not the increased transparency is a rational response to the disaster, we explore the costs of capital for the firms in our sample to study what impacts, if any, the increased transparency engenders for the firm. We find that increases in ESG disclosure are associated with reductions in the cost of debt after the disaster consistent with the notion that markets find the increased transparency to be value relevant.

Keywords: natural disasters, corporate social responsibility, disclosure, cost of capital

Suggested Citation

Huang, Qiping and Li, Yongjia and Lin, Meimei and McBrayer, Garrett, Natural Disasters, Risk Salience, and Corporate ESG Disclosure (December 31, 2020). Available at SSRN: https://ssrn.com/abstract=3790821 or http://dx.doi.org/10.2139/ssrn.3790821

Qiping Huang (Contact Author)

Boise State University - College of Business & Economics ( email )

United States

Yongjia Li

Boise State University - College of Business and Economics, Department of Finance ( email )

1910 University Drive
Boise, ID 83716
United States

Meimei Lin

Georgia Southern University ( email )

P.O. Box 8151
Statesboro, GA 30460-8151
United States

Garrett McBrayer

Boise State University ( email )

1910 University Drive
Boise, ID Idaho 83716
United States
2084262713 (Phone)

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