Does Carbon Disclosure Levels Affect Analyst Forecasts? Evidence from China

We examine the relationship between the level of carbon disclosure and analyst forecast accuracy using firm-level data of listed companies in China. We use the reports issued by listed companies, such as financial reports, CSR reports ESG reports, carbon information on company websites, and other relevant reports to proxy for disclosure of carbon information. We find that the level of carbon disclosure is associated with lower analyst forecast error. Further analysis reveals that carbon disclosure levels enhances corporate transparency, which in turn reduces analyst forecast error. The relationship is also stronger for firms that are heavy polluters and have less competitive markets, suggesting that carbon disclosure levels play a role complementary to financial disclosure. In addition, when considering the differences in green cognition of company executives, company size characteristics, and whether or not the CSR report has been certified by a third party, this effect will be different. These results hold after we control for various factors related to firm financial transparency and other potentially confounding factors. Collectively, our findings have important implications for academics and practitioners in understanding the function of the level of carbon disclosure in financial markets.