Center for Advancing Accounting

The Politics of Climate Change and Materiality in Accounting Disclosures: Evidence from Juror Judgments

• In Event: ESG: Litigation, Juror Judgements and Earnings Management

Abstract

This paper examines the impact of two recent developments related to the Securities and Exchange Commission (SEC). First, the SEC recently proposed new, politically divisive climate-related disclosures with a bright-line materiality threshold for all registrants. The proposed rules are expected to increase climate-related litigation against registrants. Second, a recent U.S. Court of Appeals ruling will likely cause significant changes to the SEC enforcement process and result in more jury trials, including trials related to climate disclosure. In an experiment, we predict and find that even though jurors are expected to set aside their personal views when issuing verdicts, their views on climate change significantly influence their verdicts and materiality judgments. Further, we find that rather than mitigating the influence of their views on climate change, the presence of a bright-line materiality threshold actually exacerbates this influence. We discuss the practical and regulatory implications of these results.

Authors

• Michael Thomas Durney, The University of Iowa

• Joseph Johnson, University of Central Florida

• Rick C. Warne, University of San Diego