Voluntary disclosure to moderate the value relevance of greenhouse gas emissions

Abstract

Climate-related risks and opportunities have been widely factored into the investment decision-making process in recent years. As a response to stakeholder pressure, firms show their organizational efforts to combat climate change. On this backdrop, greenhouse gas (GHG) emissions are studied as a topic of interest closely related to corporate value. The link between voluntary disclosure and firm value is increasingly investigated as shareholders ask firms to prepare voluntary disclosure of climate-related information. However, the financial relevance of voluntary disclosure is still on debate. Besides, its uncertainty-reducing role on carbon risks has been hardly discussed in previous studies. This paper analyzed how corporate GHG emissions and voluntary environmental disclosure is associated with firm value and whether voluntary disclosure alleviates the negative association between GHG emissions and firm value. Propensity Score Matching (PSM) and doubly robust regression are conducted to cope with heterogeneity and endogeneity raised by firms’ choice. Using the proprietary data of the Carbon Disclosure Project and Trucost, the analysis covers 1108 firm-year observations of CDP responses and GHG emissions from 247 U.S. listed companies, which were requested to submit CDP questionnaires between 2010 and 2015. Findings suggest that a decrease in GHG emissions and voluntary disclosure have a positive effect on firm value and that voluntary disclosure attenuates the negative feedback of GHG emissions. This result can be useful to elicit firms with an enormous amount of GHG emissions to disclose their emissions publicly.