IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v55y2023ipas1544612323002131.html
   My bibliography  Save this article

How does carbon emissions trading policy affect accrued earnings management in corporations? Evidence from China

Author

Listed:
  • Long, Wenbin
  • Qu, Xin
  • Yin, Saifeng

Abstract

This paper examines the impact of carbon emissions trading scheme (ETS) on firms’ accrued earnings management. Based on Chinese A-share listed firms from 2008 to 2020, we find that emission-regulated firms significantly engage in accrued earnings management after implementing ETS. The impact is strengthened for firms with a lower cost pass-through ability and firms with a higher carbon emissions intensity. The results from mechanism analysis support that firms are motivated to manage earnings by the compliance costs and carbon risks associated with the new environmental regulation. Insights are provided into the potential downside consequence of the carbon emission trading policy.

Suggested Citation

  • Long, Wenbin & Qu, Xin & Yin, Saifeng, 2023. "How does carbon emissions trading policy affect accrued earnings management in corporations? Evidence from China," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002131
    DOI: 10.1016/j.frl.2023.103840
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323002131
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.103840?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Oestreich, A. Marcel & Tsiakas, Ilias, 2015. "Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 294-308.
    2. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    3. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
    4. Juhyun Jung & Kathleen Herbohn & Peter Clarkson, 2018. "Carbon Risk, Carbon Risk Awareness and the Cost of Debt Financing," Journal of Business Ethics, Springer, vol. 150(4), pages 1151-1171, July.
    5. Ren, Shenggang & Hu, Yucai & Zheng, Jingjing & Wang, Yangjie, 2020. "Emissions trading and firm innovation: Evidence from a natural experiment in China," Technological Forecasting and Social Change, Elsevier, vol. 155(C).
    6. Ehlers, Torsten & Packer, Frank & de Greiff, Kathrin, 2022. "The pricing of carbon risk in syndicated loans: Which risks are priced and why?," Journal of Banking & Finance, Elsevier, vol. 136(C).
    7. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    8. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    9. Eugénie Joltreau & Katrin Sommerfeld, 2019. "Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature," Climate Policy, Taylor & Francis Journals, vol. 19(4), pages 453-471, April.
    10. Lv, Miaochen & Bai, Manying, 2021. "Evaluation of China's carbon emission trading policy from corporate innovation," Finance Research Letters, Elsevier, vol. 39(C).
    11. Peter M. Clarkson & Yue Li & Matthew Pinnuck & Gordon D. Richardson, 2015. "The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme," European Accounting Review, Taylor & Francis Journals, vol. 24(3), pages 551-580, September.
    12. Chen, Xiaoqi & Li, Weiping & Chen, Zifang & Huang, Jiashun, 2022. "Environmental regulation and real earnings management—Evidence from the SO2 emissions trading system in China," Finance Research Letters, Elsevier, vol. 46(PB).
    13. Bergstresser, Daniel & Philippon, Thomas, 2006. "CEO incentives and earnings management," Journal of Financial Economics, Elsevier, vol. 80(3), pages 511-529, June.
    14. Koch, Nicolas & Bassen, Alexander, 2013. "Valuing the carbon exposure of European utilities. The role of fuel mix, permit allocation and replacement investments," Energy Economics, Elsevier, vol. 36(C), pages 431-443.
    15. Phan, Dinh Hoang Bach & Tran, Vuong Thao & Ming, Tee Chwee & Le, Anh, 2022. "Carbon risk and corporate investment: A cross-country evidence," Finance Research Letters, Elsevier, vol. 46(PB).
    16. Yang, Shengyi, 2023. "Carbon emission trading policy and firm's environmental investment," Finance Research Letters, Elsevier, vol. 54(C).
    17. Robin Smale & Murray Hartley & Cameron Hepburn & John Ward & Michael Grubb, 2006. "The impact of CO 2 emissions trading on firm profits and market prices," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 31-48, January.
    18. Liu, Menghe & Li, Yuxiao, 2022. "Environmental regulation and green innovation: Evidence from China's carbon emissions trading policy," Finance Research Letters, Elsevier, vol. 48(C).
    19. Ni, Xiaoran & Jin, Qi & Huang, Kunhao, 2022. "Environmental regulation and the cost of debt: Evidence from the carbon emission trading system pilot in China," Finance Research Letters, Elsevier, vol. 49(C).
    20. Yu, Fang (Frank), 2008. "Analyst coverage and earnings management," Journal of Financial Economics, Elsevier, vol. 88(2), pages 245-271, May.
    21. Sreedhar T. Bharath & Tyler Shumway, 2008. "Forecasting Default with the Merton Distance to Default Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1339-1369, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Ping & Guo, Qinghua, 2023. "Carbon Emission Reduction Effects of China's Green Local Government Special Bonds under ‘Dual Carbon Goals’," Finance Research Letters, Elsevier, vol. 58(PA).
    2. Wang, Yong & Song, Chunyang & Wang, Wenhao, 2023. "Suppliers’ decision on green innovation: A response to customers’ environmental regulation," Finance Research Letters, Elsevier, vol. 58(PA).
    3. Wu, Yizhong & Liu, Xiaoxing & Tang, Chun, 2024. "Carbon Market and corporate financing behavior-From the perspective of constraints and demand," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 873-889.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiang, Fuxiu & Ma, Yunbiao & Wang, Xue, 2020. "Multiple blockholders and earnings management," Journal of Corporate Finance, Elsevier, vol. 64(C).
    2. Zhang, Xiaoliang & Zheng, Xiaojia, 2024. "Does carbon emission trading policy induce financialization of non-financial firms? Evidence from China," Energy Economics, Elsevier, vol. 131(C).
    3. Zhong, Tingyong & Ma, Fuqi & Sun, Fangcheng & Li, Jiangna, 2024. "Can green finance reduce corporate carbon risk?," Finance Research Letters, Elsevier, vol. 63(C).
    4. Guo, Chenhao & Zhang, Sirui & Chen, Sian, 2024. "Does carbon risk travel along the supply chain? Evidence from corporate default risk," Economics Letters, Elsevier, vol. 236(C).
    5. Louis Daumas, 2024. "Financial stability, stranded assets and the low‐carbon transition – A critical review of the theoretical and applied literatures," Journal of Economic Surveys, Wiley Blackwell, vol. 38(3), pages 601-716, July.
    6. Ding, Xin & Li, Jingshan & Song, Tiantian & Ding, Chenyang & Tan, Wenhao, 2023. "Does carbon emission of firms aggravate the risk of financial distress? Evidence from China," Finance Research Letters, Elsevier, vol. 56(C).
    7. Suryadeepto Nag & Siddhartha P. Chakrabarty & Sankarshan Basu, 2021. "Single Event Transition Risk: A Measure for Long Term Carbon Exposure," Papers 2107.06518, arXiv.org, revised May 2022.
    8. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2024. "Greening the future: How mergers and acquisitions in China tackle carbon challenges," Energy Economics, Elsevier, vol. 136(C).
    9. Chen, Haiwei & Jory, Surendranath & Ngo, Thanh, 2020. "Earnings management under different ownership and corporate governance structure: A natural experiment with master limited partnerships," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 139-156.
    10. Chowdhury, Hasibul & Hodgson, Allan & Pathan, Shams, 2020. "Do external labour market incentives constrain bad news hoarding? The CEO's industry tournament and crash risk reduction," Journal of Corporate Finance, Elsevier, vol. 65(C).
    11. Qingxia (Jenny) Wang, 2023. "Financial effects of carbon risk and carbon disclosure: A review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4175-4219, December.
    12. Wu, Zhenshu, 2023. "Essays in corporate finance and ESG," Other publications TiSEM fe6f9604-d0c5-46f3-9492-f, Tilburg University, School of Economics and Management.
    13. Chu, Baoju & Dong, Yizhe & Liu, Yaorong & Ma, Diandian & Wang, Tianju, 2024. "Does China's emission trading scheme affect corporate financial performance: Evidence from a quasi-natural experiment," Economic Modelling, Elsevier, vol. 132(C).
    14. Alexandre Garel & Jose Martin-Flores & Arthur Petit-Romec & Ayesha Scott, 2021. "Institutional investor distraction and earnings management," Post-Print hal-03096196, HAL.
    15. Jian Zhang, 2018. "Public Governance and Corporate Fraud: Evidence from the Recent Anti-corruption Campaign in China," Journal of Business Ethics, Springer, vol. 148(2), pages 375-396, March.
    16. Chen, Yangyang & Rhee, S. Ghon & Veeraraghavan, Madhu & Zolotoy, Leon, 2015. "Stock liquidity and managerial short-termism," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 44-59.
    17. Fung, Simon Y.K. & Goodwin, John, 2013. "Short-term debt maturity, monitoring and accruals-based earnings management," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(1), pages 67-82.
    18. Gounopoulos, Dimitrios & Loukopoulos, Georgios & Loukopoulos, Panagiotis & Zhang, Yu, 2024. "Do CFO career concerns matter? Evidence from IPO financial reporting outcomes," Journal of Corporate Finance, Elsevier, vol. 87(C).
    19. Nguyet T. M. Nguyen & Abdullah Iqbal & Radha K. Shiwakoti, 2022. "The context of earnings management and its ability to predict future stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 123-169, July.
    20. Yangyang Chen & C. S. Agnes Cheng & Shuo Li & Jingran Zhao, 2021. "The monitoring role of the media: Evidence from earnings management," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 533-563, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.