The impact of climate risk on accounting conservatism: evidence from developing countries

Maha Khalifa, Haykel Zouaoui, Hakim Ben Othman () and Khaled Hussainey ()
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Maha Khalifa: ISCAE - Institut Supérieur de Comptabilité et d'Administration des Entreprises [Manouba] - UMA - Université de la Manouba [Tunisie]
Haykel Zouaoui: UCAR - Université de Carthage (Tunisie)
Hakim Ben Othman: ICN Business School, CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine

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Abstract: Purpose The authors examine the effect of climate risk on accounting conservatism for a sample of listed companies operating in 26 developing countries. Design/methodology/approach The authors employ the Climate Risk Index (CRI) developed by Germanwatch to capture the severity of losses due to extreme weather events at the country level. The authors use different approaches to measure firm-level accounting conservatism. Findings The authors find that greater climate risk leads to a lower level of accounting conservatism. The results hold even after using different estimation methods. Research limitations/implications Although the authors' analysis is limited to the period 2007–2016, it could be helpful for standard setters such as International Accounting Standards Board (IASB) and International Sustainable Standards Board (ISSB) as they may consider the potential effect of climate risk in their international standards. Practical implications The negative impacts of climate risk on the quality of financial reporting as proxied by accounting conservatism could trigger regulators and standard setters to require disclosure of information relating to climate risks and to incorporate climate-related risks in their risk management systems. In addition, for policymakers, incorporating accounting conservatism as a financial quality reporting standard could help promote greater transparency, accuracy and reliability in financial reporting in the context of climate risk. Originality/value The authors add to the literature on international differences in accounting conservatism by showing that climate risk significantly affects unconditional and conditional conservatism. The authors' results provide fresh evidence of the dark side of climate change. That is, climate risk is shown to decrease financial reporting quality.

Keywords: Accounting conservatism; Climate risk; Natural disasters; Conditional conservatism; Unconditional conservatism; Developing countries (search for similar items in EconPapers)
Date: 2023-08-16
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Citations: View citations in EconPapers (1)

Published in Journal of applied accounting research, 2023, ⟨10.1108/JAAR-01-2023-0028⟩

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Journal Article: The impact of climate risk on accounting conservatism: evidence from developing countries (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04194433

DOI: 10.1108/JAAR-01-2023-0028

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