Voluntary Disclosures and Climate Change Uncertainty: Evidence from CDS Premiums

52 Pages Posted: 25 Jul 2022 Last revised: 6 Mar 2023

See all articles by Michael B. Imerman

Michael B. Imerman

University of California, Irvine - Paul Merage School of Business

Xiaoxia Ye

University of Exeter Business School - Department of Finance

Ran Zhao

San Diego State University

Date Written: March 5, 2023

Abstract

We examine the effect of voluntary climate risk disclosure on Credit Default Swap (CDS) premiums. We develop a structural model, in which climate-related disclosures serve as an information source reducing climate change uncertainty. The model predicts a negative relation between the informativeness of climate risk disclosure and the CDS premium, and asymmetric effects of positive and negative disclosure tone on the CDS premium. Using climate risk measures quantified from earnings call transcripts, we provide evidence supporting these predictions with causality. Our study suggests that climate risk is priced in the CDS market, where investors pay attention to climate risk disclosures.

Keywords: Climate change, voluntary disclosure, climate risk, CDS premium, informational uncertainty

JEL Classification: G10, G12, G14, G24, G32

Suggested Citation

Imerman, Michael B. and Ye, Xiaoxia and Zhao, Ran, Voluntary Disclosures and Climate Change Uncertainty: Evidence from CDS Premiums (March 5, 2023). Available at SSRN: https://ssrn.com/abstract=4168250 or http://dx.doi.org/10.2139/ssrn.4168250

Michael B. Imerman

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

Xiaoxia Ye

University of Exeter Business School - Department of Finance ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

HOME PAGE: http://www.xiaoxiaye.me/

Ran Zhao (Contact Author)

San Diego State University ( email )

5500 Campanile Dr
San Diego, CA 92182
United States

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