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We explore the extent to which cross-sectional differences in carbon dioxide emissions matter for future valuations of European firms regulated under the European Union Trading Scheme (EU ETS). Counterintuitively, we find that firm-level emissions share a robust concave relationship with future market valuations. Initially, market valuations increase in emissions potentially because emissions are considered essential for normal production processes; however, the valuation premium decreases and becomes negative beyond a threshold of emissions due to looming regulatory and transition risks. Firms in the lower quartile of emissions trade at an average premium of 2.42%, against a 20.78% discount in the upper quartile (the peak is 3.85%). Importantly, the concave relationship obtains only in smaller firms with lower analyst coverage and lower institutional ownership, and the predictive power of emissions is limited to firms with no reported investments in clean technology. Therefore, policymakers might consider promoting the development and diffusion of green technologies.

This paper reviews the existing literature on investor relations. The purpose of investor relations is consistently to provide market participants with decisionrelevant information as a result of either mandatory or voluntary informationdisclosure policies. A causation chain between investor relations and stock prices is established through the liquidity hypothesis with respect to the depth of analyst coverage. Though a positive association is documented, it is not perfectly linear. After presenting the taxonomy of corporate disclosures, we elaborate on how well the fulldisclosure and the discretionary disclosure models fit into reality. In addition, the extant theoretical and empirical literature reports that investor relations policies vary over time, across firms and jurisdictions.

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