Accounting for Emissions: Evidence from Auditor Pricing of Climate Change Risk

45 Pages Posted: 1 Sep 2021

See all articles by Yezen H. Kannan

Yezen H. Kannan

Zayed University; Duquesne University

Kimberly C. Gleason

American University of Sharjah

Philip Molyneux

University of Sharjah; University of Sharjah - College of Business Administration

Date Written: August 12, 2021

Abstract

We investigate whether, and how, auditors price risks related to greenhouse gas emissions (GHG) for a sample of firms traded in the US that disclose their CO2 emissions data. Specifically, we assess whether auditors price CO2 physical and transition risks among multiple categories of emission measures as auditor business risks. After controlling for audit fee determinants, we find that auditors assign a fee premium in the presence of greater total and direct emissions measures, signifying auditor perception of greater risk arising from higher emitting clients. Our findings are robust to alternate specifications (endogeneity, headquarter state membership in a cap and trade agreement, the Paris climate change agreement). Our paper contributes to the literature by shedding light on whether and how auditors respond to emissions information through their pricing decision.

Keywords: Audit Fees, Greenhouse Gas, CO2 emissions, pollution

JEL Classification: M41, M42, M48

Suggested Citation

Kannan, Yezen H. and Gleason, Kimberly C. and Molyneux, Philip and Molyneux, Philip, Accounting for Emissions: Evidence from Auditor Pricing of Climate Change Risk (August 12, 2021). Available at SSRN: https://ssrn.com/abstract=3904009 or http://dx.doi.org/10.2139/ssrn.3904009

Yezen H. Kannan

Zayed University ( email )

Zayed University
P.O. Box 144534
Dubai
United Arab Emirates
971-054-997-7750 (Phone)

Duquesne University ( email )

600 Forbes Avenue
Pittsburgh, PA 15282
United States

Kimberly C. Gleason (Contact Author)

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

University of Sharjah ( email )

College of Business Administration
University of Sharjah
Sharjah, Sharjah
United Arab Emirates

HOME PAGE: http://www.sharjah.ac.ae/en/academics/Colleges/business/Pages/ppl_detail.aspx?mcid=1

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