Transparency pays: How carbon emission disclosure lowers cost of capital

Amidst increasing global attention on corporate environmental responsibility, the impact of carbon emission disclosure on financial outcomes remains a pertinent question. Existing literature suggests that transparency in carbon disclosure can influence investor perception and capital costs, yet detailed mechanisms and broader economic implications are less understood. In this study, using data from Chinese publicly traded companies from 2017 to 2022, we investigate how carbon emission disclosure affects the implied cost of capital, with a focus on the mediating role of stock liquidity. Our findings reveal that enhanced transparency in carbon reporting significantly lowers the implied cost of capital by improving stock liquidity, a previously underexplored channel. This effect is particularly pronounced in sectors with high carbon footprints and within regions emphasizing sustainable finance policies. The results underscore the economic benefits of environmental transparency, suggesting that robust disclosure practices can serve as a strategic tool for firms to reduce financing costs while contributing to broader sustainability goals.