The effect of renewable energy policies on earnings management

Wonseok Choi, Chune Young Chung and Haowen Luo

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: This study provides novel evidence that renewable energy policies, while environmentally motivated, can unintentionally influence firms’ financial reporting behaviors. Leveraging cross-state policy shocks in renewable mandates and incentive programs, combined with electricity production metrics, we provide evidence that a higher intensity of renewable policy raises earnings volatility and, as a result, motivates additional earnings management. Energy-intensive industries especially exhibit this effect. Unlike prior studies that rely on voluntary firm disclosures, our identification strategy leverages regulatory shocks to establish a causal link between renewable energy adoption and financial reporting quality. Our findings underscore an often-overlooked cost of the green transition and offer important implications for policymakers, investors, and regulators.

Keywords: Renewable energy; Government policies/incentives; Earnings management (search for similar items in EconPapers)
JEL-codes: G32 G38 M14 Q21 Q28 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025006653

DOI: 10.1016/j.iref.2025.104502

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