Gone with the Wind: An Externality of Earnings Pressure

45 Pages Posted: 18 Mar 2021 Last revised: 25 Mar 2021

See all articles by Zheng Liu

Zheng Liu

Queen's University, Smith School of Business

Hongtao Shen

Jinan University

Michael Welker

Queen's University - Queen's School of Business

Ning Zhang

Queen's University, Smith School of Business

Yang Zhao

Jinan University - Management School

Date Written: January 6, 2021

Abstract

We investigate an externality of earnings pressure from capital markets. We define earnings pressure as managers’ incentives to meet or beat earnings expectations. Using detailed establishment-level sulfur dioxide emission data from China covering 2003 to 2012, we find that firms with earnings pressure have higher intensity sulfur dioxide emissions. This effect is more pronounced when the strength of monitoring and regulatory enforcement is weak, when litigation risk is low, and when the public firm is not mandated to issue a corporate social responsibility report. Our study sheds light on how financial goals may conflict with environmental goals, and has important implications for academics, regulators and society.

Keywords: Earnings pressure, Capital market, Externality, Economic growth, Pollution, Environment

Suggested Citation

Liu, Zheng and Shen, Hongtao and Welker, Michael and Zhang, Ning and Zhao, Yang, Gone with the Wind: An Externality of Earnings Pressure (January 6, 2021). Journal of Accounting & Economics (JAE), 2021, Available at SSRN: https://ssrn.com/abstract=3800156

Zheng Liu

Queen's University, Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada
K7L 1B5 (Fax)

Hongtao Shen

Jinan University

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Michael Welker

Queen's University - Queen's School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

Ning Zhang (Contact Author)

Queen's University, Smith School of Business ( email )

Kingston, Ontario K7L 3N6
Canada

Yang Zhao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

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