Environmental information disclosure and idiosyncratic volatility of China’s energy sector: Firm-specific risk or information asymmetry?

Yang, Xin, Hassan, Ahmad F.S. and Karbhari, Yusuf ORCID: https://orcid.org/0000-0003-4513-0928 2025. Environmental information disclosure and idiosyncratic volatility of China’s energy sector: Firm-specific risk or information asymmetry? Energy Sources Part B: Economics, Planning and Policy 20 (1) , 2506129. 10.1080/15567249.2025.2506129

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Abstract

This paper investigates the impact of environmental disclosure by companies in the Chinese energy sector on idiosyncratic volatility in their expected stock returns. Using a panel dataset of A-share listed firms in the Chinese energy sector and environmental disclosure scores from 2011 to 2020, the study finds that environmental disclosure is positively and robustly correlated with idiosyncratic volatility, reflecting firm-specific return variations unexplained by conventional asset pricing models. This relationship arises from environmental disclosure increasing investor concerns and perceptions of associated risks. However, the positive relationship between environmental disclosure and idiosyncratic volatility weakens significantly when renewable energy companies disclose environmental information, while it intensifies for fossil fuel energy companies. Furthermore, the study rules out the possibility that environmental disclosure serves as a noisy measure, even within China’s mixed system of mandatory and voluntary disclosure. The findings validate the differential impacts of environmental risks and pollution levels associated with various energy types on idiosyncratic volatility but challenge the managerial opportunism theory, which suggests that environmental disclosure induces information asymmetry in the energy sector. These results offer important implications for policymakers, investors, and researchers.

Item Type:	Article
Date Type:	Published Online
Status:	Published
Schools:	Schools > Business (Including Economics)
Additional Information:	License information from Publisher: LICENSE 1: URL: http://creativecommons.org/licenses/by-nc-nd/4.0/, Start Date: 2025-05-27
Publisher:	Taylor and Francis Group
ISSN:	1556-7249
Date of First Compliant Deposit:	13 June 2025
Last Modified:	13 Jun 2025 09:45
URI:	https://orca.cardiff.ac.uk/id/eprint/179062

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