Mandatory Disclosure and Corporate Green Innovation

46 Pages Posted: 29 May 2024

See all articles by Brian Bratten

Brian Bratten

University of Kentucky - Von Allmen School of Accountancy

Sung-Yuan (Mark) Cheng

University of Kentucky

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy

Date Written: May 2024

Abstract

We examine the relation between mandatory environmental disclosure and corporate green innovation outcomes. Adopting a difference-in-differences research design surrounding the adoption of state-level greenhouse gas (GHG) emissions disclosure mandates, we find that disclosure mandates are associated with an increase in the quantity of patents related to climate change mitigation/adaptation technologies (i.e., “green innovations”). This increase is stronger among firms with more social investors, consistent with investor preferences influencing this relation. We also document a positive association between GHG emissions disclosure mandates and future environmental performance ratings, suggesting a positive externality of these mandates. However, we find that these mandates are associated with a reduction in future financial performance for some firms, suggesting a potential negative effect on shareholder welfare. Collectively, our results provide evidence on the real effects of mandatory environmental disclosure and the determinants of green innovation and contribute to the literature on corporate disclosure and investment decisions. Our findings should be informative to regulators, managers, and investors in assessing the economic consequences of mandatory environmental disclosure.

Keywords: Mandatory environmental disclosure, GHG emissions disclosure, green innovation, patents, social investors, proprietary costs, real effects

JEL Classification: M41, M48; 035

Suggested Citation

Bratten, Brian and Cheng, Sung-Yuan (Mark) and Kleppe, Tyler J., Mandatory Disclosure and Corporate Green Innovation (May 2024). Available at SSRN: https://ssrn.com/abstract=4840459 or http://dx.doi.org/10.2139/ssrn.4840459

Brian Bratten (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
859-257-1947 (Phone)

HOME PAGE: http://gatton.uky.edu/faculty-research/departments/von-allmen-school-accountancy/directory

Sung-Yuan (Mark) Cheng

University of Kentucky ( email )

Lexington, KY 40506
United States

Tyler J. Kleppe

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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