Do Firms Experiencing More Wildfires Disclose More Wildfire Information in Their 10-Ks?

Abstract

Wildfires pose a significant risk that threatens firm value. That risk may have risen significantly in recent years in light of record-breaking wildfires in the United States and elsewhere.It is an open question, however, whether such increasing wildfire risk affects firms' disclosures of wildfire-related information. We match the location of wildfires in the United States to firms with headquarters in the same county as the wildfire. Based on a difference-in-difference design and other econometric tests and methods, we find that firms exposed to more wildfire days on average provide more textual 10-K disclosure of wildfire-related information in their filings compared to firms exposed to fewer wildfire days. Our results are also significant economically. For example, when firms experience three versus zero wildfire days this increases 10-K wildfire word count by 50 percent. We attribute this positive relation to increasing trends in climate change risks and disclosure requirements related to heightened wildfire concerns. These concerns emanate mainly from wildfire-exposed firms in the western states, in the utility and banking industries, those exhibiting a high level of tangible assets, and those having experienced wildfire impacting their past operations. Overall, the findings deepen our knowledge of a heretofore unstudied risk factor important for firm value.