ESSAYS IN CORPORATE FINANCE

Abstract

In this chapter, I investigate the phenomenon of “cheap talk” in corporate environmental disclosures by comparing environmental programs discussed in corporate reports against actual environmental expenditures disclosed in SEC filings. Using the pretrained large language model, ClimateBERT, to quantify the specificity of climate-related commitments, my study employs the Cheap Talk Index (CTI) to measure the extent of non-specific firm-disclosed environmental policies. My findings suggest that higher CTI values, indicative of cheap talk, correlate with lower actual environmental expenditures, showing that, on average, climate talk by firms is, indeed, cheap. The analysis finds that institutional ownership and the proportion of independent directors are not significantly associated with variations in CTI. The former finding suggests that sophisticated investors see through and disregard cheap talk. Using machine learning techniques, this study highlights the importance of transparency in environmental reporting and provides evidence of “greenwashing” in voluntary disclosures.