Voluntary Carbon Disclosure, Earnings Management, and Corporate Debt Maturity

• In Event: Capital Markets Research I

Abstract

The study seeks to examine how corporate carbon risk and its voluntary disclosure practice interact with a firm’s ethical, cultural, political cost considerations and debt maturity decisions within the context of South Africa, a ‘rising power’ in the climate policy debate. Using a system of simultaneous equations model, we analyze data drawn from firms traded on the Johannesburg Securities Exchange (JSE), for the period 2011 to 2015. Three-stage least squares (3SLS) regression results indicate that voluntary carbon disclosure quality is negatively (positively) associated with the magnitude of discretionary accruals (debt maturity ratio). We also find firms with higher corporate carbon risk tend to engage in more earnings management activities. The findings suggest not only that voluntary carbon disclosure and financial reporting practices of JSE listed firms are shaped by corporate ethical, cultural and political cost considerations but also the firms take advantage of the resulting information environment to access debts with longer maturity terms.

Authors

• Mehrzad Azmi, Towson University

• Tesfaye Lemma, Towson University

• Martin Freedman, Towson University