Responding to Climate Change Crises: Firms' Tradeoffs

Abstract

In this paper, we describe how the market forces shape firms' voluntary climate change disclosure. Using a dataset of firms' disclosure on Twitter, we find that adverse climate change incidents are important triggers of U.S. firms' voluntary disclosure on such issues. Firms are more likely to respond to adverse incidents if they have (1) higher climate risk exposures, (2) credible and comparable information on climate change issues, or (3) better governance on sustainability. Moreover, we find that such disclosure is associated with increases in abnormal returns and trading volumes. Our evidence informs academics and regulators about firms' trade-offs in the absence of mandated ESG reporting requirements.