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Does climate risk shape firms’ accounting conservatism?

Rong Ding, Gady Jacoby, Mingzhi Liu, Tingting Wang and Zhenyu Wu

Journal of International Financial Markets, Institutions and Money, 2024, vol. 97, issue C

Abstract: We study how climate risk shapes accounting conservatism with data collected from 47 countries. The results suggest that firms that are exposed to higher climate risk use more conditional conservatism, but less unconditional conservatism in their financial reporting. Furthermore, the effect of climate risk on both unconditional conservatism and conditional conservatism is significantly strengthened, both statistically and economically, in well-governed countries. We also find that in countries with higher uncertainty avoidance, the effect of climate risk on unconditional conservatism is significantly enhanced but the effect on conditional conservatism is significantly weakened. Our findings, which are robustly supported by a number of sensitivity checks, enrich the emerging literature on the socio-economic impact of climate risk.

Keywords: Climate risk; Accounting conservatism; Governance; Uncertainty avoidance (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:97:y:2024:i:c:s1042443124001471

DOI: 10.1016/j.intfin.2024.102081

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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