Climate risk disclosure and financial market information efficiency: a theoretical analysis based on signal transmission and investor cognition

Abstract

Climate risk disclosure has become an important mechanism to link corporate transparency with financial market results. This study combines signal theory, investor cognitive framework and information economics to study how climate-related disclosure can reduce information asymmetry and improve the quality of stock price information. Based on the recent empirical evidence of the global market, we propose a dual-channel model, in which climate risk disclosure affects market efficiency through the response of investors’ demand (analyst hedging, institutional investors’ participation) and the adjustment of enterprises’ supply side (improving transparency and strategic adjustment). The analysis shows that credible climate information disclosure is an important signal, which can reduce the rigidity of investors’ expectations and improve price discovery, especially with the support of strong governance mechanism and favorable institutional environment. However, the quality of these disclosed information is restricted by measurement accuracy, regulatory coordination and the characteristics of each company. This study provides a unified theoretical framework, reconciles contradictory empirical results, and provides practical influence for the standardization of corporate disclosure and communication strategies.