Climate change disclosure and firm value in a frontier market: Exploring the determinants

Abstract

We examine the factors that influence climate change disclosure and its effects on firm value in the context of Sri Lanka. By leveraging data spanning 1031 firm‐year observations from 2017 to 2022, an innovative machine‐learning technique is employed to quantify the level of climate change disclosure within annual corporate reports. Our findings indicate that factors such as firm size, size of the board of directors, the presence of independent and non‐executive directors on the board, and gender diversity of the board positively impact the extent of climate change disclosure. Notably, CEO duality, where the CEO and chairman roles are held by the same individual, demonstrates a negative relationship with climate change disclosure, suggesting that distinct roles can enhance transparency. This underscores the significant role of robust corporate governance practices in promoting environmental transparency and accountability. Additionally, the paper further assesses the implications of climate change disclosure on firm value, revealing that enhanced transparency in climate change disclosure positively impacts firm value.