The effect of mandatory carbon disclosure regulation on institutional investment behaviour and financial decision-making

Raungsombut, Noppakoaw

Thesis

The effect of mandatory carbon disclosure regulation on institutional investment behaviour and financial decision-making

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Creator

Raungsombut, Noppakoaw

Rights statement

Strathclyde Thesis Copyright

Awarding institution

University of Strathclyde

Date of award

2026

Thesis identifier

T17671

Person Identifier (Local)

202254743

Qualification Level

Doctoral (Postgraduate)

Qualification Name

Doctor of Philosophy (PhD)

Department, School or Faculty

Abstract

This thesis examines the impact of mandatory carbon disclosure on institutional investment behaviour and corporate financial policy, using the U.K.’s 2013 Strategic Report and Directors’ Report Regulations as a quasi-natural experiment. Employing a difference-in differences (DiD) approach to address endogeneity concerns, it draws primarily on agency theory, complemented by signalling and stakeholder theories, to provide causal evidence on how climate-related transparency reshapes investor capital allocation, dividend policy, and liquidity management. The first empirical study examines institutional investor heterogeneity and finds that firms reducing emissions after mandatory disclosure attract greater ownership from long-term, independent, and climate-conscious investors, as well as from investors based in countries with strong environmental norms. In contrast, short-term, grey, non-climate-conscious investors, and those from countries with weaker environmental norms, show little or no response. These patterns suggest that enhanced transparency reduces information asymmetry and aligns managerial incentives with sustainability-oriented stakeholders. The second study analyses dividend policy, finding that disclosure requirements lead to an increase in payouts, particularly in firms with a high level of institutional ownership, specifically long-term institutional investors and low carbon emissions. This aligns with agency theory predictions and highlights dividends’ role as a signalling mechanism of financial stability and responsible management. The third study explores abnormal cash holdings, showing significant reductions in excess liquidity post-disclosure, especially among high-emission firms with strong institutional oversight, consistent with improved governance discipline. Overall, the findings demonstrate that mandatory carbon disclosure not only advances environmental accountability but also drives tangible changes in corporate governance and financial decision-making, reinforcing the role of regulatory transparency as a catalyst for sustainable and shareholder-aligned business practices.

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