Nonfundamental‐Driven Price Shocks and Corporate Climate Risk Disclosure

ABSTRACT Institutional investors are pivotal in driving corporate climate risk disclosure (CRD). We investigate the association between nonfundamental‐driven price shocks and corporate CRD. Our findings indicate that firms increase CRD when faced with nonfundamental‐driven price increases, motivated by the need to meet investors' demands for climate risk information. Conversely, during stock price declines, firms reduce CRD to lower the adverse effects of negative climate risk information. This asymmetric response suggests that managers strategically disclose climate risk information, increasing such disclosures during price increases to capitalize on market optimism while reducing them during price declines to mitigate the intensification of market pessimism. The changes in shareholdings of managers can enhance the alignment between managers' interests and stock price movements, thereby encouraging managers to disclose climate risks during periods of stock price increases. Nonfundamental‐driven price increases lead institutional investors to increase their holdings, thereby strengthening their role in promoting firm CRD. Our study offers novel insights into how institutional investor trading activities influence firm CRD and enhances our comprehension of how institutional investors affect firms' voluntary disclosure of nonfinancial information. JEL Classification : G12, G23, G32