Climate change performance and financial distress

Abstract

Given the crucial role that environmental accounting plays in sustainable development, this study investigates the relationship between climate change disclosure performance (CCDP) and financial distress as well as the moderating impact of litigation, the existence of a risk committee, the employment of Big4 auditing firms and the level of audit fees. Utilising a sample of the top 300 Australian Securities Exchange (ASX)‐listed non‐financial firms over the period 2008–2019 and ordinary least squares (OLS) regression analysis with fixed effects, it is found that higher levels of CCDP are related to lower levels of financial distress. Additionally, the significant association between CCDP and financial distress is manifested in firms with low litigation risk, firms with a risk committee, firms that employ Big4 auditing firms and firms that incur a higher level of audit fees. Additional tests that mitigate self‐selection and endogeneity, such as propensity score matching (PSM) and the system generalised method of moments (GMM), show that our findings are robust. Finally, our findings shed light on managers' strategic behaviour in relation to the consideration of, and transparency around, climate change risks.

Corporate climate change disclosures and capital structure strategies: evidence from Türkiye

“…Financial leverage is measured by dividing total liabilities by equity and is denoted as “ FL ”. Long-term borrowing level is measured by dividing long-term debt by total assets and is denoted as “ LTBL ” (Huynh et al ., 2020; Alshahrani et al ., 2022).…”

“…Prior studies have shown a link between asset profitability (ROA) and environmental disclosure (Ben-Amar et al. , 2017; Alshahrani et al ., 2022). Akbaş and Canikli (2018) find that the return on assets ratio of firms listed in the BIST100 index had a significantly positive effect on their voluntary participation in CDP reporting in Turkey between 2014 and 2016.…”

“…Long-term borrowing level is measured by dividing long-term debt by total assets and is denoted as "LTBL" (Huynh et al, 2020;Alshahrani et al, 2022).…”

“…Moreover, Lemma et al (2021) show for S&P 500 companies from 2015 to 2019 that the share of long-term credit used by companies is positively associated with their commitment to climate change. Another study is by Alshahrani et al (2022), who look at the nonfinancial companies of the 300 largest companies listed on the ASX from 2008 to 2019. The OLS fixed effects regression analysis shows that CDP is positively related to financial distress.…”

“…Results of theHausman test disclosures. Furthermore,Alshahrani et al (2022) study the Australian Securities Exchange (ASX) listed nonfinancial firms between the years 2008 and 2019. Ordinary least squares regression analysis with fixed effects results that higher levels of climate change disclosures being related to lower levels of leverage.…”