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Ms. Viktoriya Zotova
Ph.D. Candidate in Business and Management, Accounting and Information Assurance
R. H. Smith School of Business
University of Maryland

In this study, I exploit a quasi-natural experiment—the introduction of the mandatory Greenhouse Gas Emissions Reporting Program (GHGRP) in the United States—to examine the impact of climate change regulations on corporate investments, in particular, the effect of non-financial carbon disclosures on firms’ capital investment location decisions. Using unique project-level data on inter-state and foreign direct investments (FDI) for a sample of U.S. corporations, I document two sets of findings. Domestically, firms reacted by increasing investments in more environmentally-oriented states, while decreasing investments in less environmentally-oriented states. Internationally, in contrast, I find that, against a backdrop of declining global FDI, the reduction of U.S. FDI was significantly smaller in less environmentally-oriented countries. These results are driven by firms with lower environmental, social and governance (ESG) ranking. I show that a channel for the Program’s effect on investment location decisions is the capital market’s perception of carbon disclosures. Consistent with investment and disclosure theory, the results suggest that firms with low ESG reputation respond to investor pressures by geographically shifting investments into more eco-friendly locations at home but not abroad. Overall, the study demonstrates that carbon disclosure policies, such as the GHGRP, can have a significant effect on firms’ real decisions as well as potential international spillovers.