Climate change and shareholder value: Evidence from textual analysis and Trump’s unexpected victory

Abstract

Exploiting a novel measure of firm-specific exposure to climate change generated from cutting-edge machine learning algorithms, we explore the effect of climate change vulnerability on shareholder wealth using Donald Trump’s unexpected election victory in 2016. Our results demonstrate that companies more vulnerable to climate change experienced significantly more adverse market reactions when Trump was elected. Considering Trump’s public skepticism on climate change, investors expected him to oppose actions that seriously addressed climate change, resulting in more negative consequences for firms with higher climate change exposure. Our results provide compelling evidence that the positions taken by politicians on climate change directly impact firm value and shareholder wealth. Our findings suggest that elections have significant ramifications on financial and capital markets and that climate change is a crucially important issue for shareholders and investors.