Corporate climate risk and stock market reaction to performance briefings in China

Abstract

This study aims to enrich our understanding of the valuation consequence of climate risk in financial markets. The primary focus of our study is on the stock price reaction to firms’ climate-risk-related information. We employ transcripts of Chinese listed firms’ performance briefings to capture the climate risk at the firm level. Using a sample of Chinese listed firms between 2009 and 2021, we find that greater corporate climate risks lead to negative market reactions over a short time window, consistent with the market quickly comprehending corporate climate risks. This result holds for a series of robustness checks. We further find that the negative impact of corporate climate risk on the stock price reaction operates through the increased market trading activities, greater investor attention, and reduced positive media coverage. Finally, we demonstrate that industry carbon emission, local abnormal temperature, state ownership, institutional shareholding, and dividend payout are important moderators that shape the association of the corporate climate risk and the adverse market reaction. Our evidence suggests that disclosures of climate-related information can help the stock market to price climate risk more efficiently.

Firm‐Level Climate Change Risk and CEO Equity Incentives

“…Hossain et al This measure has already been recognized as useful, and has been adopted in numerous recently published studies (see e.g. Ben-Amar et al, 2022;Cook and Luo, 2021;Hossain and Masum, 2022;Wu et al, 2022). One noticeable limitation of this measure, however, is that a significant portion of the firms in our sample ignore climate change issues in every conference call (resulting in zero climate risk for those particular firm-year observations).…”

“…, 2022; Cook and Luo, 2021; Hossain and Masum, 2022; Wu et al. , 2022). One noticeable limitation of this measure, however, is that a significant portion of the firms in our sample ignore climate change issues in every conference call (resulting in zero climate risk for those particular firm‐year observations).…”

The Green Chain: A Carbon Neutral Path from Climate Risk to Environmental, Social and Governance Performance

“…All levels of business are affected by climate transition risks, including share price depreciation and negative market reactions (Wu et al, 2022), rising costs (Yang et al, 2023b) and changes in business performance (Ren et al, 2022), which strains financial stability and profitability.…”

Climate change and stock market: a review

“…With regards to the news-based climate indicators, the past studies that documented corporate climate risk at the business level using information have all been used in the expanding body of financial research to demonstrate the importance of climate risk for getting value-relevant information out to the market and aiding the effective assimilation of new information into stock prices. Wu et al [23] demonstrated that climate-related news can reflect firms' exposure to climate risks by employing a sample of Chinese listed firms between 2009 and 2021. Through a regression analysis, they discovered that greater business climate risks cause adverse market reactions over a limited time period.…”