N°26-39: Emissions, Liquidity, and Institutional Ownership

We examine how the introduction of standardized carbon emissions information affects equity-market liquidity and ownership. Using Trucost coverage data from 2010-2023 and a staggered difference-indifferences design, we find that first-time emissions information narrows bid-ask spreads by 2%, reduces Amihud illiquidity by 4%, and increases dollar trading volume and turnover by 4%. Institutional ownership increases by approximately 0.3 percentage points, representing roughly $30 billion in capital reallocated to newly covered firms. This ownership shift partially explains the liquidity improvement: a one-percentage-point increase in institutional ownership is associated with an additional 0.2% reduction in spreads. Liquidity gains are strongest for high-emission firms and late disclosers. Our results indicate that non-financial information, when standardized and comparable, is financially consequential: it attracts institutional capital, reduces adverse-selection costs, and enhances market efficiency.