Abstract
In this thesis, I first explore whether research related to climate change is finding the right platform in leading accounting and finance journals, since dissemination of scientific findings will help raise awareness and encourage stakeholders to implement findings from such research through corporate policies that ensure climate-friendly actions on the part of corporations. I next extend this exploration and test whether or not corporate leaders, especially powerful CEOs, ignore corporate climate change actions. Finally, I study whether corporate climate-friendly actions/policies are rewarded by the capital markets, particularly in the form of low-cost debts. I present these three strands of closely related empirical examinations through three essays, namely: (a) climate change research in accounting and finance journals: A systematic literature review, (b) do powerful CEOs ignore climate change actions?, and (c) do the capital markets reward corporate climate change actions? Evidence from the cost of debt.
The first essay in Chapter 2 is a systematic literature review to explore the extent of the engagement of top-ranked ABDC-listed accounting and finance journals on the issue of climate change discourse. Climate change research published in 72 leading accounting and finance journals over the 20-year period of 2000–2019 was analysed. The findings reveal that research addressing climate change risk is limited to a small minority of journals, with the vast majority choosing to ignore the ‘elephant in the room’. Leading accounting and finance journals have largely failed to leverage their reach and impact in shaping public discourse and policy initiatives in this all-important issue that poses an existential threat to businesses in the not-so-distant future. In addition, the findings indicate that even the thin evidence on published work lacks diversity. Given the relevance of accounting and finance applications for addressing climate change issues, the active engagement of top-tier accounting and finance journals on the issue of climate change would potentially address research lacking in several areas. Furthermore, climate change research, having a focus on accounting and finance, can help businesses in assessing, measuring, and reducing their climate change impacts, as accounting and finance is instrumental in determining climate risk, especially how such risk affects value-creating activities.
I then study the role of corporate leaders in climate change actions. The second essay in Chapter 3 examines the impact of CEO power on companies’ decisions to take action on climate change issues. The study further examines the moderating role of board gender diversity and CSR committees on the relationship between CEO power and climate change actions. Measuring CEO power and climate change indexes based on multiple indicators for S&P 500 companies for the period 2005–2020 this study finds a significant negative relationship between CEO power and firms’ commitment to climate change actions. The findings also reveal that the presence of female directors on boards and CSR committees weaken this relationship. The findings are robust to the use of alternative measures, estimation methods and endogeneity issues. I interpret the findings within the ‘upper echelon perspective’ that CEO power has significant impacts on corporate policies concerning climate change actions and that powerful CEOs tend to ignore this all-important issue. This study offers several important policy implications.
The third essay in Chapter 4 examines whether and how capital markets reward corporate actions aimed at tackling climate changes issues. Using a composite index as a proxy for firms’ climate-change actions for a sample of S&P 500 companies over the period 2005–2020, I find a significant negative relationship between climate change actions and the cost of debt – a finding that exists in both environmentally sensitive and non-sensitive industries. This relationship remains negative and statistically significant even after controlling for the impact of the ongoing pandemic (COVID-19). The findings are robust to the use of alternative measures for my variables, alternative estimation methods and after controlling for endogeneity issues. I interpret my findings within the decision-usefulness and stakeholder-agency theories’ perspective that suggest that non-financial information on firms’ environmental performance is becoming increasingly important when borrowers’ creditworthiness is assessed. Effective dissemination of information related to climate change actions would therefore help reduce information asymmetry, thus attracting easier access to external capital.
Overall, my study adopts a three-pronged approach. First, this study highlights the prevalent inertia on the part of leading accounting and finance journals with respect to providing the right platform and raising awareness regarding the deleterious effects of climate change. Since identifying a research gap in the first essay especially identifying a lack of adequate research on corporate governance in the context of change risk. This study digs deep into this phenomenon by providing empirical insights on how the lack of research on corporate governance can result in exacerbating the impact of climate change risk. Hence, the second essay gives empirical evidence of the role of corporate leadership in adopting an approach that undermines the severity of climate change risk which further validates the findings of the first essay. Finally, the study also provides empirical insight into how capital markets react to climate change actions at the firm level in the third essay. My study provides validation for the argument that climate change is fast outpacing any efforts to slow its progression and therefore needs a concerted response from all segments of society. The study highlights that academics/researchers from the accounting and finance discipline can further exploit accounting applications to broaden the scope of the debate on climate change risk, since there are a number of interconnected areas, such as biodiversity and threatened species, carbon footprints, waste management, land erosion, green technologies.