The valuation demand for accounting conservatism: evidence from firm-level climate risk measures

IF 9 1区 经济学 Q1 BUSINESS, FINANCE China Finance Review International Pub Date : 2024-09-13 DOI:10.1108/cfri-03-2024-0117
Su Li, Tony van Zijl, Roger Willett
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Abstract

Purpose

Prior studies have found that managers adjust operational activities to tackle climate risk. However, the effects of climate risk on accounting practices are largely ignored in the literature. This paper investigates whether and how climate risk influences managers’ decision-making on the level of accounting conservatism and explains the results based on two competing channels: valuation demand and contracting demand.

Design/methodology/approach

Using firm level climate risk measures, we build a modified Basu (1997) model to conduct our econometric tests. In the baseline model, we use earnings before extraordinary items as the dependent variable, referred to as the earnings model. We control for different levels of fixed effect to identify the shocks of climate risk and mitigate potential concerns on endogeneity and bias in the model. A series of robustness tests provide supporting evidence for our baseline results and our explanation.

Findings

Using a sample of 35,832 firm-year observations on listed US firms over the period 2002 to 2019, we find that the perception of climate risk drives managers to choose the less conservative accounting policies. We conclude that the results are consistent with the valuation demand explanation but inconsistent with the contracting demand explanation.

Originality/value

The study provides additional evidence on how managers respond to climate risk by adjusting their corporate polices, specifically accounting policies. Our findings contradict the results of prior studies. We explain our results from a unique perspective. Overall, the study provides valuable insights for academics, investors, managers and policymakers.

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对会计保守主义的估值需求:来自公司层面气候风险措施的证据
目的先前的研究发现,管理人员会调整业务活动以应对气候风险。然而,气候风险对会计实务的影响在文献中大多被忽视。本文研究了气候风险是否以及如何影响管理者的会计保守主义决策,并从估值需求和契约需求两个相互竞争的渠道来解释研究结果。 设计/方法/途径利用公司层面的气候风险度量,我们建立了一个改进的 Basu(1997)模型来进行计量经济学检验。在基线模型中,我们使用扣除非经常性项目前的收益作为因变量,称为收益模型。我们控制了不同水平的固定效应,以识别气候风险的冲击,减少模型中潜在的内生性和偏差问题。一系列稳健性检验为我们的基线结果和解释提供了支持性证据。研究结果通过对 2002 年至 2019 年期间 35832 家美国上市公司的公司年度观察样本进行分析,我们发现气候风险的感知会促使管理者选择不太保守的会计政策。我们的结论是,研究结果与估值需求解释一致,但与契约需求解释不一致。原创性/价值这项研究提供了更多证据,说明管理者如何通过调整企业政策,特别是会计政策来应对气候风险。我们的研究结果与之前的研究结果相矛盾。我们从一个独特的角度解释了我们的结果。总之,本研究为学术界、投资者、管理者和政策制定者提供了宝贵的见解。
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来源期刊
CiteScore
12.40
自引率
1.20%
发文量
112
期刊介绍: China Finance Review International publishes original and high-quality theoretical and empirical articles focusing on financial and economic issues arising from China's reform, opening-up, economic development, and system transformation. The journal serves as a platform for exchange between Chinese finance scholars and international financial economists, covering a wide range of topics including monetary policy, banking, international trade and finance, corporate finance, asset pricing, market microstructure, corporate governance, incentive studies, fiscal policy, public management, and state-owned enterprise reform.
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