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

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.

Automated summary

This study examines the valuation consequence of climate risk in financial markets, focusing on the stock price reaction to firms' climate-risk-related information. Using Chinese listed firms' performance briefings, the study finds that greater corporate climate risks lead to negative market reactions over a short time window, which is quickly comprehended by the market. The study further demonstrates that the negative impact operates through increased market trading activities, greater investor attention, and reduced positive media coverage. Various factors such as industry carbon emission, local abnormal temperature, state ownership, institutional shareholding, and dividend payout moderate the association between corporate climate risk and adverse market reaction.