Responding to Climate Change Crises: Firms' Tradeoffs

Abstract

In this paper, we examine the trade-offs firms make in their voluntary disclosure decisions following negative media coverage of climate change incidents. We combine a keyword discovery algorithm and a fine-tuned BERT model to identify “hard” and “soft” climate disclosures on Twitter. We find that firms on average tend to issue climate tweets as a rapid response to negative climate incidents. In addition, firms with a history of hard climate change disclosure, as measured by ESG reports, are more likely to issue climate-related responses than those without such a history of disclosure. Furthermore, we show that prior hard disclosure is associated with hard responses when the incident receives moderate media attention, but with soft responses when the incident receives low or high media attention. Our findings are consistent with the dynamic disclosure theory that early disclosure generates a real option for firms to flexibly respond to negative media coverage.

Felix Fritsch

Assistant Professor in Accounting & Taxation

I am an Assistant Professor at the University of Mannheim, Business School specializing in data science and empirical accounting research.