Market incidence of carbon information disclosure in the oil and gas industry: the mediating role of financial analysts and governance

Abstract

Purpose

This study aims to assess the informativeness of carbon emission data for the stock markets and the mediating role played by financial analysts and the quality of the governance on this issue.

Design/methodology/approach

Relying on structural equation modelling, the authors assess the relation between embedded CO₂ disclosure or CO₂ emissions disclosure and the stock market valuation (Tobin Q), considering the mediating roles played by financial analysts (external monitoring) and corporate governance (internal monitoring).

Findings

Results based on a sample of North American firms in the oil and gas industry are the following. The disclosure of embedded CO₂ is negatively associated with a firm’s market value, but this association is mediated by analyst following and corporate governance. The disclosure of yearly CO₂ emissions is also negatively related to stock market value, while corporate governance mediates this negative impact, and analysts following does not. Considering that yearly CO₂ emissions represent short-term environmental risks, whereas embedded CO₂ represents long-term environmental risks, it appears important to consider embedded CO₂ when studying the impact of carbon disclosure on firm value. The authors also show that a firm’s environmental performance (measured by Carbon Disclosure Project – CDP) is positively associated with two mediating variables (i.e. analyst following and corporate governance).

Originality/value

The study results suggest that CO₂ emissions information is less relevant than embedded CO₂ in attracting financial analysts when they are assessing a firm’s value because it represents short-term environmental risks, whereas embedded CO₂ represents long-term environmental risks. Therefore, the authors consider important to include embedded CO₂ when studying the impact of environmental disclosure on a firm’s value.

Citation

Cormier, D. and Beauchamp, C. (2021), "Market incidence of carbon information disclosure in the oil and gas industry: the mediating role of financial analysts and governance", Journal of Financial Reporting and Accounting, Vol. 19 No. 5, pp. 901-920. https://doi.org/10.1108/JFRA-10-2020-0302