Environmental Disclosure Dimensions and Japanese Firm Valuation: Volume, Sentiment, and Market Heterogeneity

ABSTRACT Against the backdrop of rapidly increasing investor demand for credible environmental information, this study examines how granular dimensions of corporate environmental disclosure—reporting volume, overall sentiment, and topic‐specific tone—affect firm valuation among Japanese listed companies. Using a two‐way fixed effects panel regression, we analyze a comprehensive dataset spanning 2016–2025. Specifically, we quantify the impact of lagged disclosure volume, overall report sentiment, and topic‐specific positive and negative tone intensity across decarbonization, circular economy, and biodiversity on subsequent market capitalization, while controlling for firm and year fixed effects. The results show that greater disclosure volume and more positive overall sentiment are associated with higher market valuation. However, these effects are highly heterogeneous across environmental topics and Global Industry Classification Standard (GICS) sectors. By disentangling multiple dimensions of environmental communication, this study provides a more granular understanding of how financial markets price corporate environmental disclosure in security reports, with implications for both reporting strategies and sustainability disclosure policy.