The Impact of Environmental Disclosure on Firm’s Debt Maturity

Abstract

Our goal is to investigate how environmental performance disclosure affects a firm’s debt maturity. The negative impact of global warming has highlighted the importance of climate risk in external financing for both borrowers and lenders. While lenders can assess firms’ financial risks through well-regulated financial statements, there are no clear requirements for the disclosure of non-financial performance, leading to information asymmetry. This asymmetry hinders firms from achieving an optimal debt structure.

Our study focuses on debt maturity, which should ideally match asset maturity to ease debt repayment pressure on cash flow. Various factors impede firms from achieving optimal debt maturity. We analyze the impact of information asymmetry on firms’ debt choices from both demand and supply perspectives and build hypotheses regarding the change in firms’ debt maturity following environmental performance disclosure. We also investigate whether financial constraints, measured by firm size and tangibility, act as channels through which environmental disclosure affects debt maturity

We analyze data from public companies in the USA between 2014 and 2016 using Staggered DiD models with time and industry fixed effects. The treatment variables are Disclosure, indicating whether a company has disclosed CO2 emission information, and Post, representing the period after disclosure. Debt maturity is measured by the percentage of long-term debt maturing in year three and beyond, with CO2 emissions as the proxy for environmental disclosure. Our findings suggest that after disclosing environmental performance, firms increase the maturity of their long-term debt. We find no evidence that environmental disclosure affects long-term debt maturity through financial constraints, as measured by firm size and tangibility.

Our goal is to investigate how environmental performance disclosure affects a firm’s debt maturity. The negative impact of global warming has highlighted the importance of climate risk in external financing for both borrowers and lenders. While lenders can assess firms’ financial risks through well-regulated financial statements, there are no clear requirements for the disclosure of non-financial performance, leading to information asymmetry. This asymmetry hinders firms from achieving an optimal debt structure.

Our study focuses on debt maturity, which should ideally match asset maturity to ease debt repayment pressure on cash flow. Various factors impede firms from achieving optimal debt maturity. We analyze the impact of information asymmetry on firms’ debt choices from both demand and supply perspectives and build hypotheses regarding the change in firms’ debt maturity following environmental performance disclosure. We also investigate whether financial constraints, measured by firm size and tangibility, act as channels through which environmental disclosure affects debt maturity

We analyze data from public companies in the USA between 2014 and 2016 using Staggered DiD models with time and industry fixed effects. The treatment variables are Disclosure, indicating whether a company has disclosed CO2 emission information, and Post, representing the period after disclosure. Debt maturity is measured by the percentage of long-term debt maturing in year three and beyond, with CO2 emissions as the proxy for environmental disclosure. Our findings suggest that after disclosing environmental performance, firms increase the maturity of their long-term debt. We find no evidence that environmental disclosure affects long-term debt maturity through financial constraints, as measured by firm size and tangibility.