Corporate Environmental Disclosures and the Cost of Equity Capital: Evidence from the High-Polluting Chinese Listed Firms

As global environmental pollution increases, it has great significance to explore the economic value relevance of environmental disclosure of the polluting firms, especially in emerging markets such as China. From the perspective of the capital market, we explore whether corporate environmental disclosure will reduce the cost of equity capital based on the sample data of Chinese listed companies in the most polluting industries. We find that environmental disclosure can reduce information asymmetry, help companies build a good image, obtain stronger legitimacy and identity, and ultimately reduce investors' risk-reward requirements. Further, we also find that due to differences in information determination, exposure levels, and investor demand, the negative impact of corporate environmental disclosure on the cost of equity capital will be stronger when a company has a high monopoly power or the industry is highly competitive. The conclusions of this study help to enhance the understanding of the economic consequences of corporate environmental disclosure in emerging markets, enrich research results in related fields and promote polluting companies to more actively improve the quality of environmental disclosure.