From Emissions to Earnings: Evolving Financial Reporting Quality in Carbon-Intensive Industries

Carbon emissions have gained media attention and public discussion. Motivated by recent trends and scholarly debate on climate change, this study explores whether firms in carbon-intensive industries exhibit inferior financial reporting quality relative to other sectors and examines how the relationship evolves. Our analysis which used data from US firms for the period between 2006 and 2024 indicates that companies in high-emissions industries engage in more earnings management activities compared to those in other sectors. Interestingly, the discretionary accruals disparity between carbon-intensive and other sectors has diminished over time, while the real earnings management gap persists but narrows. This research adds to the growing body of research examining the impact of climate-related uncertainties on corporate information disclosure.