Green Pressure, Climate Exposure, and Financial Reporting Behavior: Evidence from a Highly Environmentally Regulated Environment

Abstract Book of the 11th International Conference on Research in Business, Management and Economics

Year: 2026

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Green Pressure, Climate Exposure, and Financial Reporting Behavior: Evidence from a Highly Environmentally Regulated Environment

Prof. Dr. Nurlan Orazalin

ABSTRACT:

Despite the growing attention to corporate climate risk among organizational stakeholders, empirical evidence on the association between firms’ exposure to climate-related issues and managerial discretion, especially in highly environmentally regulated contexts, remains limited. Using a sample of UK listed firms from 2002 to 2024, this study examines the relationship between corporate climate change exposure and earnings management. The results reveal that climate change exposure is negatively associated with earnings management, indicating that firms facing greater climate-related risks are less likely to engage in earnings manipulation. The results remain robust to alternative measures and endogeneity concerns. Additional analyses reveal that the negative association between climate change exposure and earnings management is more pronounced among firms reporting losses. The results also show that corporate social responsibility (CSR) disclosures weaken this association, whereas corporate governance has no moderating effect. Overall, this study is among the first to provide new evidence on the role of firm-level climate risk in shaping financial reporting behavior and suggests that greater corporate climate change exposure is associated with less managerial discretion in financial reporting, particularly in a stringent regulatory environment such as the United Kingdom.

Keywords: Climate Change Exposure, Earnings Management, Sustainability, United Kingdom