The impact of climate risk on earnings management: International evidence |
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| Authors: | Rong Ding Mingzhi Liu Tingting Wang Zhenyu Wu |
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| Affiliation: | 1. Neoma Business School, Department of Accounting, Control and Legal Affairs, 1 Rue du Maréchal Juin, 76130 Mont-Saint-Aignan, France;2. Asper School of Business, University of Manitoba, Winnipeg, Manitoba, Canada;1. School of Business, University of Connecticut, 2100 Hillside Rd., Unit 1041A, Storrs, CT 06269, United States;2. College of Business, Colorado State University, 501 W. Laurel St., Fort Collins, CO 80523, United States;1. School of Accountancy, Central University of Finance and Economics, Beijing 100081, China;2. SKEMA Business School, 99 Ren’ai Road, Suzhou 215123, China;1. Lehigh University, USA;2. Santa Clara University, USA;3. Korea Advanced Institute of Science and Technology (KAIST), South Korea;4. California State Polytechnic University, Pomona, USA;1. Department of Accounting, Box 8113, North Carolina State University, Raleigh, NC 27695-8113, United States;2. Department of Management, Ca’ Foscari University, Cannaregio 873, 30121 Venice, Italy;1. Texas Christian University, United States;2. University of California at Riverside, United States;3. City University of Hong Kong, Hong Kong;4. West Virginia University, United States |
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| Abstract: | This study explores the influence of climate risk on properties of firms’ financial reporting practices with observations collected from 64 countries between 2005 and 2016. We use a country-level climate risk indicator developed by Germanwatch to measure the degree of damage from extreme weather events, and find that climate risk positively influences firms’ engagements in both accruals-based and real earnings management. Furthermore, we document that the above-mentioned effects of climate risk are moderated by the quality of country-level public governance. Subsample analysis suggests that the main effect of climate risk on earnings management is more pronounced for firms from developed countries, for firms in environment-sensitive industries, and for firms reporting losses. Our findings, which are supported by a battery of robustness tests, have important implication for regulators and policymakers. |
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| Keywords: | Climate risk Earnings management Governance |
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