Firm-Specific Climate Risk and Market Valuation

Accounting, Organization and Society

52 Pages Posted: 5 May 2016 Last revised: 8 Mar 2024

See all articles by Henk Berkman

Henk Berkman

University of Auckland Business School

Jonathan Jona

University of New Mexico - Robert O. Anderson Schools of Management

Naomi S. Soderstrom

University of Melbourne

Date Written: January 25, 2024

Abstract

In alignment with the call in Engle et al. (2020) to improve the measurement of firm-level climate risk exposure, we explore usefulness of a firm-specific measure based on 10-K disclosures of climate risk. We find that our measure has incremental explanatory power for firm valuation over climate risk-related measures currently used in the literature. Further, our measure is broadly available, which extends the span of questions related to firm-specific climate risk that can be investigated. Corroborating its usefulness, we find that relative to hedge portfolios based upon the other measures, the return on a hedge portfolio that is long (short) on firms with high (low) values of our climate risk measure has the strongest negative association with a US-news based measure of climate change concerns. By exploiting the broad climate-related disclosures in 10-Ks, our measure provides a tool to better understand valuation implications of climate risk for firms.

Keywords: Climate Risk, Market Valuation, Event Study, textual analysis, disclosure.

Suggested Citation

Berkman, Henk and Jona, Jonathan and Soderstrom, Naomi S., Firm-Specific Climate Risk and Market Valuation (January 25, 2024). Accounting, Organization and Society, Available at SSRN: https://ssrn.com/abstract=2775552 or http://dx.doi.org/10.2139/ssrn.2775552

Henk Berkman

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Jonathan Jona

University of New Mexico - Robert O. Anderson Schools of Management ( email )

Albuquerque, NM 87131
United States

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

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