Green Signals: The Effect of Green Patents on Voluntary Climate Disclosures

Abstract

How do investors assess the credibility of voluntary climate disclosures? We show that investors understand the signal conveyed by green patents, which certify firms' climate disclosure credibility. Exploiting the variation in the leniency of patent examiners' grant decisions for identification, we show that firms with more green patents (i) are more likely to issue voluntary climate disclosures, (ii) experience higher stock returns around these disclosures, and (iii) see a greater subsequent increase in institutional ownership, especially among climate-conscious investors. Additionally, (iv) the influence of green patents is less pronounced when climate disclosures are externally assured, report bad news, or when reporting firms possess high reputational capital.

Keywords: Green Patents, Voluntary Climate Disclosure, Disclosure Credibility, Climate Risk