Firm-level climate sentiments, climate politics and implied cost of equity capital

Katsiaryna Salavei Bardos, Dev R. Mishra and Hyacinthe Y. Somé

Journal of Corporate Finance, 2025, vol. 94, issue C

Abstract: In a sample of U.S. firms, we find strong evidence that firms' implied cost of equity is decreasing in a novel proxy of firm-level climate change sentiments of earnings call participants, supporting prior literature that shows investors demand higher returns from their investments in brown firms and lower returns from that in green firms. This effect, however, is particularly pronounced for the firm-years headquartered in the states experiencing higher than median per-capita energy related CO2 emissions, those headquartered in climate related disaster intensive counties and those headquartered in RED and SWING states, supporting “boomerang hypothesis” that green firms are hedged against potential changes in local climate standards and thus enjoy considerably cheaper financing in the localities marred with greenhouse gas emission concerns, climate related physical disasters, and climate unfriendly political environment. We utilize the variation in regionwide and statewide public beliefs about scientists' beliefs regarding the occurrence of global warming as an instrument to address endogeneity issues, among other tests.

Keywords: Implied cost of equity; Climate sentiments; Earnings conference calls (search for similar items in EconPapers)
JEL-codes: G3 G32 M12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:94:y:2025:i:c:s0929119925001142

DOI: 10.1016/j.jcorpfin.2025.102846

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