- Title
- Does carbon risk influence conditional accounting conservatism and financial constraints? Cross-country evidence
- Creator
- Islam, Farhana
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2022
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- Motivated by the growing concern of carbon risk exposure and its consequences, this thesis aims to better understand the financial implications of firms’ carbon risk. Existing studies have documented that a higher level of firms’ carbon risk is related to higher risk premium, lower firm valuation and lower credit rating. Also, carbon risk impacts firms’ financial decisions including dividend policy, merger and acquisition. Contributing to this strand of research, this thesis draws on data collected from the CDP (previously Carbon Disclosure Project) to examine whether firms’ carbon risk is associated with conditional accounting conservatism and financial constraints, respectively, in two empirical studies. The first study examines the association between carbon risk and conditional accounting conservatism, an important financial reporting attribute. Conditional accounting conservatism imposes asymmetric verification requirements for the recognition of earnings to reflect bad news on a more timely basis than good news, which is also referred to as the asymmetric timeliness of earnings. Using 7,960 firm-year observations across 35 countries from 2007 to 2019, this study finds that firms with a higher carbon risk have higher conditional accounting conservatism. The results also show that the positive association between carbon risk and conditional accounting conservatism is attenuated for firms with better corporate governance performance and higher institutional investors’ ownership. These findings suggest that internal and external monitoring mechanisms reduce the impact of carbon risk on conditional accounting conservatism. Additional analyses show that the effect of carbon risk on conditional accounting conservatism is more pronounced for firms in countries that participate in emission trading scheme (ETS) and that have a higher country-level governance quality and stakeholder -orientated business culture, thus indicating institutional heterogeneity in the financial implications of carbon risk. The second study examines the association between carbon risk and financial constraints. Using 10,019 firm-year observations across 39 countries from 2007 to 2019, this study finds that carbon risk is positively and significantly associated with financial constraints. Additional analyses suggest that the positive relationship between firms’ carbon risk and financial constraints is less prominent for firms with better corporate governance, higher institutional investors’ ownership as well as higher analysts’ coverage. These findings recommend that monitoring mechanisms reduce the impact of carbon risk on financial constraints. Additional analyses show that the effect of carbon risk on financial constraints is more pronounced for firms domiciled in countries with stakeholder-orientated business culture, higher investor protection, higher country-level climate risk, and superior country-level governance practices thus indicating differences in the carbon risk effect on financial constraints from international context. The findings of the thesis highlight the urgency of incorporating carbon risk information in financial reporting and also the adverse effect of carbon risk on firms’ financial access. The findings have practical implications for the regulators, standard-setters, environmental supportive organisations, managers, accountants and investors. Further, accounting standard-setters are urged to consider the financial implications of climate-related emerging risks, including carbon risk, in financial reporting.
- Subject
- carbon risk; credit rating; firm valuation; financial reporting
- Identifier
- http://hdl.handle.net/1959.13/1505200
- Identifier
- uon:55644
- Rights
- Copyright 2022 Farhana Islam. This thesis is under embargo until the 31.12.2024
- Language
- eng
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