Climate Risk and Stock Price Crash: The Role of Text-Based Carbon Disclosure

This paper investigates the relationship between corporate climate risk disclosure and stock price crashes. Using an international dataset of firms issuing CDP reports from 2009 to 2017, we show that climate risk disclosure is positively associated with stock price crashes. Governance and contextual factors moderate this relationship, with weaker associations in firms with higher institutional ownership and in countries with stricter environmental regulations and greater uncertainty avoidance. Additionally, an overly optimistic climate risk disclosure tone distorts investor perceptions, exacerbating stock price crashes. Our findings highlight the critical role of effective climate disclosure in guiding investor decisions and assessing risks.