Do Climate Risks Shape Accounting Transparency? Evidence from a Global Sample

This study examines whether firm-level climate risk exposure is associated with accounting transparency using a global panel of firm-year observations spanning 91 countries. Corporate climate risk exposure is measured using earnings-call text-based indicators developed by Sautner et al. (2023), while accounting transparency is captured through three proxies: absolute accruals, earnings smoothing ratio, and earnings smoothing correlation. The results show that climate risk exposure is negatively and significantly associated with absolute accruals, indicating that climate-exposed firms exhibit lower accrual-based opacity and therefore higher accrual-based accounting transparency. The effect is economically meaningful: a one-standard-deviation increase in climate risk exposure is associated with a 13.2% decline in absolute accruals relative to the sample mean. This finding is robust to entropy balancing, dynamic system generalized method of moments (GMM) estimation, and an alternative climate exposure proxy. Environmental, social, and governance (ESG) channel analyses further show that the negative association between climate risk exposure and absolute accruals is stronger among firms with above-median social, environmental, and governance scores, suggesting that ESG performance strengthens the transparency response to climate-related uncertainty. By contrast, climate risk exposure is not significantly associated with earnings smoothing ratio or earnings smoothing correlation across ESG groups, indicating that the effect is concentrated in the accrual-based channel rather than in smoothing-based reporting behaviour. The study contributes to the climate-finance literature and the accounting literature by linking firm-level climate risk exposure to financial reporting quality and by identifying ESG performance as an important conditioning mechanism. The findings are consistent with information asymmetry and signalling perspectives and carry practical implications for regulators, standard-setters, auditors, boards, and investors.