ABSTRACT This study investigates whether and how climate change exposure (CCE) influences corporate financial reporting practices. Using a newly developed firm‐specific CCE measure from conference calls, we find that US firms with higher CCE exhibit greater real earnings management (REM). A one standard deviation increase in CCE corresponds to an 8.1% increase in REM. In contrast, we observe no significant effect of CCE on accrual‐based earnings management (AEM). The positive association between CCE and REM is more pronounced among firms with weaker profitability, higher financial risk and leverage, poor internal monitoring, and limited social responsibility engagement. Additional analysis reveals that wildfire events and related economic disruptions further strengthen the CCE–REM link.
Benkraiem et al. (Thu,) studied this question.