Does climate policy uncertainty matter for financial reporting quality? Evidence from China

Climate policy uncertainty (CPU) poses a potential threat to corporate operation and information disclosure quality. This article aims to examine the impact of CPU on financial reporting quality to enrich the extant literature on the economic consequences of climate-related uncertainty. Based on data from Chinese listed companies between 2010 and 2023, the empirical analysis shows that CPU significantly impairs financial reporting quality. Further analysis indicates that executive performance pressure and corporate operating risk serve as important channels through which CPU reduces financial reporting quality. This study also finds that the adverse impact of CPU on financial reporting quality is more pronounced in non-state-owned enterprises and firms audited by non-Big Four accounting firms, where external support and monitoring mechanisms are relatively weaker. Our findings provide empirical evidence and new insights for policymakers and corporate managers to improve information disclosure quality in the climate change environment.