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Do investors find carbon information useful? Evidence from Italian firms

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Abstract

The usefulness of carbon disclosures has been questioned in the literature because they do not truly reflect firm’s carbon performance, suggesting that they may not be useful for risk evaluation and investment decisions. This study empirically tests the usefulness of carbon information voluntarily disclosed by the Italian firms. Our results based on the price model show that there is a positive association between the stock price and carbon disclosures, suggesting that investors find carbon information useful for their investment decisions. We find similar results based on the market valuation model. Additionally, the results reveal that the positive association is especially strong for firms that have established environmental committees on a voluntary basis and also for firms from the highly polluting industries defined by the EU_ETS program, confirming that investors’ positive response is especially strong to carbon disclosures by firms from the highly polluting industries. We also find that the market reacts positively to carbon disclosures by firms with a higher percentage of independent directors on their corporate boards, but the positive association is marginally significant.

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Notes

  1. Reduction in greenhouse gases as envisioned in the Kyoto Protocol is receiving an increased attention in the 2015 World Conference on Climate which was held in Paris in November.

  2. The code countries use a two-tier corporate governance structure, where the Supervisory Board (Vorstand) that supervises managerial decisions and activities, consists of representatives who have strong interests in the firm, such as financial interests, whereas in the common law countries, firms operate under a unitary corporate structure, where the Board of Directors are required to have independent directors, who have no direct financial interests in the firm and they are required to monitor managerial decisions and activities to ensure the interests of investors at large. Given differences in the economic and institutional environments of Italian firms compared to US and firms from some European countries, an evaluation of investors’ response to carbon disclosures will provide useful information that will provide a better insight into investors’ reaction to carbon disclosures in a code law country.

  3. The EU Commission recommended to European firms to establish environmental committee on a voluntary basis. See, EU Directive No. 2003/87, as revised by EU Directive No. 29/2009.

  4. Prices are given in Euros.

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Authors and Affiliations

  1. School of Business, Rutgers University, Newark, New Brunswick, NJ, USA

    Bikki Jaggi

  2. Department of Economics, Management, Institutions, University of Naples Federico II, Via Cintia, Montesantangelo, Naples, Italy

    Alessandra Allini & Annamaria Zampella

  3. Department of Economics, Campania University L. Vanvitelli, Corso Gran Priorato di Malta, 81043, Capua, CE, Italy

    Riccardo Macchioni

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  1. Bikki Jaggi
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  2. Alessandra Allini
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  3. Riccardo Macchioni
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  4. Annamaria Zampella
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Correspondence to Bikki Jaggi.

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Jaggi, B., Allini, A., Macchioni, R. et al. Do investors find carbon information useful? Evidence from Italian firms. Rev Quant Finan Acc 50, 1031–1056 (2018). https://doi.org/10.1007/s11156-017-0653-x

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