Does Climate Risk Disclosure Affect Stock Liquidity?

Abstract

This study empirically examines the effects of climate risk disclosure on stock liquidity at the f irm-quarter level. Using panel data from 5161 U.S. listed firms from 2007 to 2022, we employ a two-way fixed effects (TWFE) model to estimate the causal impact of firm-level climate risk disclosure on stock liquidity. Our findings reveal that climate risk disclosure significantly enhances stock liquidity in the current and subsequent quarters. These results remain robust across various model specifications, sample variations, and periods. Specifically, disclosures related to opportunity and physical risks have a more pronounced effect on current stock liquidity, while regulatory risk disclosures exert a more substantial influence on future stock liquidity. Furthermore, firms with greater information transparency and proactive commitment to climate change amplify the positive effects of climate risk disclosure on stock liquidity. These findings highlight the critical role of corporate climate risk disclosure in shaping market dynamics and improving liquidity.