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Measuring weather exposure with annual reports

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Author
Venky Nagar Jordan Schoenfeld
Category
Financial
Date Posted
2019/08/20
Date Retrieved
2022/08/05
Date Revised
Empty
Date Written
2022/08/05
Description
The FASB and IFRS Foundations International Sustainability Standards Board have called for measuring individual firms exposure to weather a fundamentally amorphous concept as a first step toward quantifying the impact of environmental factors on financial reporting. This study builds a large-scale measure of individual firm exposure to weather using linguistic analysis of annual reports. Preliminary analyses suggest that weather is a determinant of our measure: e.g. the measure increases significantly after the firm gets hit by a severe storm. Despite being constructed from largely backward-looking mandated reports our measure is forward looking in that it can predict variation in returns around future extreme weather events. Exposure to our measure is also priced as a risk factor further establishing its forward-looking nature systematically in the cross-section. Our measure appears to reasonably capture a firms business exposure to weather thus showcasing the power of accounting to m
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JEL Classifications
G12 G14 O13 Q54
Keywords
annual reports asset pricing climate CSR ESG weather
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Pages
44
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4182668
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