We examine the economic impacts of risk disclosures in accounting reports on the real decisions made by information senders (i.e., managers of the disclosing firms). In so doing, we exploit the SEC rule enacted in 2010 regarding climate change risk (CCR) reporting in 10-Ks as a quasi-natural experimental setting in which to apply a difference-in-differences analysis. We focus on CCR because of its vast influence on economic activities and the relative ease of identifying managerial behaviors related to climate change. Our results reveal that CCR-disclosing firms tend to engage more (less) in pro-environmental (anti-environmental) activities after the SEC 2010 rule. These real effects are more pronounced in firms that are under higher pressure from climate-minded external stakeholders and when firms’ businesses are more sensitive to climate change-related risks. We also find improved environmental performance in terms of reductions in the quantity, intensity, and cost of carbon emissions surrounding the SEC 2010 rule. Overall, our findings suggest that CCR disclosures alter corporate behaviors and help curb climate change.
Bibliographical noteWe thank Peter Easton (the Editor), an anonymous referee, Alex Bassen, Wen Chen, Ahrum Choi, Yuyan Guan, Liangliang Jiang, Zhenbin Liu, Kerstin Lopatta, Ying Mao, Thomas Schmid, Byron Song, Nancy Su, Weiqiang Tan, Dragon Tang, Rui Wang, Wenming Wang, Zheng Wang, Xiangang Xin, Rengong Zhang, Yue Zhang, Liu Zheng, Hong Zou, and workshop participants at City University of Hong Kong, Hong Kong Baptist University, Lingnan University, Peking University, University of Hamburg, University of Hong Kong, and Yonsei University for valuable comments. The authors acknowledge research supports from Department of Accountancy, City University of Hong Kong, School of Accounting and Finance, Hong Kong Polytechnic University, and Department of Accountancy, Lingnan University. All errors are our own.
© 2022, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.
- Risk disclosure
- Climate change
- Real effect