Market incidence of carbon information disclosure in the oil and gas industry: the mediating role of financial analysts and governance

Purpose - This study aims to assess the informativeness of carbon emission data for the stock markets and the mediating role played by financial analysts and the quality of the governance on this issue. Design/methodology/approach - Relying on structural equation modelling, the authors assess the relation between embedded CO2disclosure or CO2emissions disclosure and the stock market valuation (Tobin Q), considering the mediating roles played by financial analysts (external monitoring) and corporate governance (internal monitoring). Findings - Results based on a sample of North American firms in the oil and gas industry are the following. The disclosure of embedded CO2is negatively associated with a firm’s market value, but this association is mediated by analyst following and corporate governance. The disclosure of yearly CO2emissions is also negatively related to stock market value, while corporate governance mediates this negative impact, and analysts following does not. Considering that yearly CO2emissions represent short-term environmental risks, whereas embedded CO2represents long-term environmental risks, it appears important to consider embedded CO2when studying the impact of carbon disclosure on firm value. The authors also show that a firm’s environmental performance (measured by Carbon Disclosure Project – CDP) is positively associated with two mediating variables (i.e. analyst following and corporate governance). Originality/value - The study results suggest that CO2emissions information is less relevant than embedded CO2in attracting financial analysts when they are assessing a firm’s value because it represents short-term environmental risks, whereas embedded CO2represents long-term environmental risks. Therefore, the authors consider important to include embedded CO2when studying the impact of environmental disclosure on a firm’s value.