Research

Using U.S. gubernatorial election-induced state-level political uncertainty, we examine whether and how firms' historical state-related regulatory disclosures help investors cope with heightened uncertainty prior to elections. We construct two text-based measures to capture the quantitative and qualitative aspects of such disclosures: a discussion frequency index derived from the bag-of-words approach and a concreteness index using the recently developed GenAI method. We show that these two measures capture distinct dimensions of state-related regulatory disclosures and that both measures significantly mitigate the heightened investor uncertainty and information asymmetry leading up to gubernatorial elections. The mitigating effects are more pronounced for firms with more forward-looking regulatory discussion, consistent with a preparedness interpretation under which historical disclosures help investors assess firms' preparedness for potential policy changes. We further find stronger mitigating effects of the disclosure when alternative contemporaneous disclosures are limited, when regulatory oversight is locally implemented, and for firms operating in politically sensitive industries. Overall, our findings highlight the usefulness of both the quantity and quality of historical state-related regulatory disclosure in helping investors navigate periods of elevated political uncertainty.

We investigate how the adoption of public climate policy alters private lender monitoring of corporate emissions. Using a staggered adoption of state-level greenhouse gas (GHG) reduction targets and syndicated loans issued between 2002 and 2019, we find that lenders become less likely to include environmental covenants in loan agreements following a borrower’s exposure to these policy adoptions. This decline in covenant use is more pronounced among borrowers in high-emission industries, those that significantly reduce emissions after target adoption, and those subject to strong internal monitoring or external stakeholder pressure. Despite this reduction in private lender monitoring, we find that state GHG targets appear to significantly reduce firm-level emissions. Moreover, when loans include environmental covenants, these provisions further contribute to additional emissions reductions. Overall, the results suggest that public climate policy improves environmental outcomes but may also crowd out private governance mechanisms that play a complementary role.

We examine the determinants of firms’ voluntary disclosures about pending legislation in their conference calls and whether such disclosures are associated with legislative outcomes. We find that firms in industries affected by the bill are more likely to disclose. Further, the decision to disclose is associated with bill saliency, and the firm’s political activities and information environment. Collectively, this evidence is consistent with firms both attempting to influence the political process and responding to analyst and investor demand for information. Our evidence also suggests that when firms in affected industries supporting a bill include bill-related discussion in their conference calls, the bill progresses further and is more likely to be enacted, even after controlling for traditional lobbying activities. In contrast, we do not find a significant association between voluntary bill-related disclosure in conference calls and the legislative process when firms in affected industries oppose the bill. This positive association for supporting firms is pronounced when the bill is more controversial and complex, and when the firm uses more strong modal language in their disclosures.