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Carbon disclosure, emission intensity and cost of equity capital: multi‐country evidence
Author(s) -
Bui Binh,
Moses Olayinka,
Houqe Muhammad N.
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12492
Subject(s) - greenhouse gas , business , equity (law) , cost of capital , emission intensity , monetary economics , cost of equity , carbon fibers , economics , microeconomics , incentive , ecology , physics , materials science , optics , composite number , political science , law , composite material , photoluminescence , biology
This study examines the joint effect of carbon disclosure and greenhouse gas ( GHG ) emissions on firms’ implied cost of equity capital ( COC ). Based on 4655 firm‐year observations across 34 countries, we find firms’ GHG emission intensity to be positively associated with COC . However, we find also that the penalty linked with higher COC is moderated by extensive carbon disclosure. We provide evidence that the extent of carbon disclosure helps reduce the premium required by investors to compensate for poor carbon performance. Our study provides insights to policymakers, investors and managers on the combined effect of carbon disclosure, and emission intensity.