Recently, a research work of Dr. Wentao Yao from school of management, has been accepted and published online by the prestigious accounting journal, Review of Accounting Studies. The research paper is titled "Meet, Beat, and Pollute," which he co-authored with Prof. Jake Thomas and Prof. Frank Zhang from Yale University, as well as Prof. Wei Zhu from the University of Illinois Urbana-Champaign. The paper can be freely accessed using the following link:
https://link.springer.com/article/10.1007/s11142-022-09694-0
Abstract of the paper: We investigate two related questions about the trade-off between the short-term pressures on managers to meet earnings targets and the long-term environmental benefits of reduced pollution. Do firms release more toxins by cutting back on pollution abatement costs to boost earnings in years they meet earnings benchmarks? If so, is that relation weaker for firms with higher environmental ratings? Using Environmental Protection Agency (EPA) data on toxic emissions, we find that U.S. firms pollute more when they meet or just beat consensus earnings per share (EPS) forecasts, suggesting that meeting expectations is a more important goal than reducing pollution. We find this relation is stronger, not weaker, for firms with higher environmental ratings: they increase pollution even more when meeting earnings benchmarks than firms with lower ratings. This suggests that highly rated firms build regulatory and reputational slack over time and use it when needed to soften the negative impact of increased pollution. We contribute to the real earnings management and environmental economics literatures by documenting a negative externality of financial reporting incentives on the environment and society. We also contribute to the corporate sustainability literature by showing that an environmental, social, and governance (ESG) focus does not curb managerial short-termism.
Dr. Wentao Yao is an assistant professor of finance at XMU. He received a PhD in Finance from University of Hong Kong and joined in XMU in 2021. His research interests include corporate finance, corporate governance, risk management, and the Chinese financial market. His research works appear in prestigious accounting and finance journals, such as Review of Accounting Studies, Journal of Empirical Finance. Please see more of his research in his website (https://sites.google.com/connect.hku.hk/yaowentao).
