TY - JOUR
T1 - Environmental legal institutions and management earnings forecasts
T2 - Evidence from the establishment of environmental courts in China
AU - Liu, Xiaofeng
AU - Feng, Hua
AU - Tian, Gaoliang
AU - Zhang, Ting
N1 - Publisher Copyright:
© 2024
PY - 2024/6
Y1 - 2024/6
N2 - This paper investigates whether and how managers of highly polluting firms adjust their earnings forecast behaviors in response to the introduction of environmental legal institutions. Using the establishment of environmental courts in China as a quasi-natural experiment, our triple difference-in-differences (DID) estimation shows that environmental courts significantly increase the likelihood of management earnings forecasts for highly polluting firms, compared to non-highly polluting firms. This association becomes more pronounced for firms with stronger monitoring power, higher environmental litigation risk, and greater earnings uncertainty. Additionally, we show that highly polluting firms improve the precision and accuracy of their management earnings forecasts following the establishment of environmental courts. Furthermore, we provide evidence that our results do not support the opportunistic perspective that suggests managers strategically issue more positive earnings forecasts to inflate stakeholders' expectations subsequent to the implementation of environmental courts. Overall, our research indicates that environmental legal institutions make firms with greater environmental concerns to provide more forward-looking information, thereby alleviating stakeholders’ apprehensions regarding future profitability prospects.
AB - This paper investigates whether and how managers of highly polluting firms adjust their earnings forecast behaviors in response to the introduction of environmental legal institutions. Using the establishment of environmental courts in China as a quasi-natural experiment, our triple difference-in-differences (DID) estimation shows that environmental courts significantly increase the likelihood of management earnings forecasts for highly polluting firms, compared to non-highly polluting firms. This association becomes more pronounced for firms with stronger monitoring power, higher environmental litigation risk, and greater earnings uncertainty. Additionally, we show that highly polluting firms improve the precision and accuracy of their management earnings forecasts following the establishment of environmental courts. Furthermore, we provide evidence that our results do not support the opportunistic perspective that suggests managers strategically issue more positive earnings forecasts to inflate stakeholders' expectations subsequent to the implementation of environmental courts. Overall, our research indicates that environmental legal institutions make firms with greater environmental concerns to provide more forward-looking information, thereby alleviating stakeholders’ apprehensions regarding future profitability prospects.
KW - China
KW - Environmental court
KW - Environmental legal institution
KW - Management earnings forecasts
KW - Voluntary information disclosure
UR - https://www.scopus.com/pages/publications/85192303374
U2 - 10.1016/j.iref.2024.05.004
DO - 10.1016/j.iref.2024.05.004
M3 - 文章
AN - SCOPUS:85192303374
SN - 1059-0560
VL - 93
SP - 545
EP - 573
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -