The Impact Of Climate Change Disclosure Performance

Running head: THE IMPACT OF CLIMATE CHANGE DISCLOSURE PERFORMANCE
The Impact of Climate Change Disclosure Performance
Name of the Student
Name of the University
Author Note

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Table of Contents
Background and Motivation.......................................................................................................2
Literature Review.......................................................................................................................3
Audit Specialist......................................................................................................................3
Climate Change and Tax Avoidance......................................................................................3
An Overview of M&As and CSR......................................................................................3
Hypothesis and Development............................................................................................4
Modernization Effect.............................................................................................................4
Institutional Ownership......................................................................................................4
Managerial Activity...........................................................................................................4
Methodology..............................................................................................................................5
Dependent Variables..............................................................................................................5
Audit Specialist..................................................................................................................5
Audit Fees..........................................................................................................................5
Tax Avoidance...................................................................................................................5
M&As.................................................................................................................................5
Modernization Variables........................................................................................................5
Institutional Ownership......................................................................................................5
Managerial Ability.............................................................................................................5
Control Variables...................................................................................................................5
References..................................................................................................................................7

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The Impact of Climate Change Disclosure Performance on Audit Characteristics, Tax
Avoidance and M&A deals: Evidence from Australia
Background and Motivation
The investors have a concern towards the role of risks related to climate to their
decision making (Li et al 2019). According to them, the impact of the definition of
materiality and APS 2 is that the entities have to consider the climate-related risks also into
the context of their financial report. It is not just left with a matter of corporate social
responsibility.
The framework developed for reporting based on the climate-related risks and
opportunities is highly encouraged by the TCFD to the companies for its use (Jebe 2017). The
TCFD stresses more to use its framework to the companies, who are having material climate-
related risks.
The government of Australia encouraged the stakeholders to consider their
recommendations as to its framework more carefully. This may help the listed companies to
consider the criteria for and type of disclosing the material climate risks. The chosen sample
as the majority of the ASX 100 companies on 31 December 2017, has shown about the
considerable climate risk to the entity’s business (Andersson, Bolton and Samama 2016). The
list has shown that 17% of listed companies come within the climate risk as a material risk in
their OFRs that is Operating and Financial Reviews.
APS/PS2 represents one of the best interpretation of materiality of IASB to practice
(Zhou 2017). Addition to this, the Australian companies are already being a matter to law
uniform with respect to the lack of disclosures. If the companies are not disclosing or not
finding any of the material impacts, then the companies have to disclose their reasons for not
getting or disclosing material impact (Yunus, Elijido-Ten and Abhayawansa 2016). It is a fact

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that Australia is considered one of the highest CO2 emitters in the world. In addition, it has
noticeable oil and mineral excavation industries.
Literature Review
Audit Specialist
The industry specialist auditors are defined in several ways in the studies, which is
done earlier. The term industry, especially auditors, can be described as the auditors who are
having particular expertise in apart that makes them able to provide the clients with more
efficient and a high-quality service (He 2015).
Climate Change and Tax Avoidance
The firm avoids taxes in actual who are claiming that they have been socially
responsible (Hoi et al 2013). Such a situation has arisen in the regions where there is lower
institutional quality. However, in other areas, CSR disclosures are highly associated with
social responsibility in the context of tax compliance.
An Overview of M&As and CSR
The experiment and studies did earlier have shown different aspects of the effects of CSR in
mergers and acquisitions. One of the research was based on the selection of 106 mergers at a
global level from the year 1997-2007. The objective of the research was to find whether the
investors of mergers and acquisitions have an impact of SRI that is Sustainability
Responsible Investments (Deng, Kang and Low 2013). The research had two valuable
outcomes. The first outcome was that the acquirer had been awarded by the stock market for
investing in the targets that were socially and environmentally responsible. The second one is
that the environmental and social performance of the acquirer has increased after the
acquisitions of a target that is related to the high investment sustainability (Zhou 2017). In
other research of a larger sample of 1556 (1992-07) US mergers, the outcome was that the

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acquirers that were having higher CSR got higher returns in the merger for short term as well
as for long term (Gomes et al 2013). However, it is also declared that the effect has not been
measured by the market immediately, and the outcome is focused on the long term.
Hypothesis and Development
The response of the investors is influenced by the SRI that generally declares two
outcomes. The first outcome was that the acquirer had been awarded by the stock market for
investing in the targets that were socially and environmentally responsible. The second one is
that the environmental and social performance of the acquirer has increased after the
acquisitions of a target through the high investment in sustainability (Jansson and Biel 2014).
The research conducted on the shareholders of the firm for whether they are obtaining a value
of CSR by comparing high and low acquirers of CSRs. This has resulted in the acquirers that
were having higher CSR got higher returns (Nilsson, Nordvall and Isberg 2016). In addition,
they found that the high CSR acquirers take a shorter time in merger compare to the low CSR
and less possibility of failing (Gomes et al 2013). The outcome proposed that the acquirer’s
social performance is an effective determinant in completion and better performance of the
merger.
Modernization Effect
Institutional Ownership
There is a positive relationship amongst the CSP that is Corporate Social Performance
and institutional ownership (Long-term). The argument made upon the stakeholder salience
theory was that through the more repeated activity of the institutional owners along with
higher coordination, there is a higher impact on the future CSP of the firm (Thijssens, Bollen
and Hassink 2015).

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Managerial Activity
The firm that is financially distressed requires an efficient managerial ability that also
increases the fees of audit and reduces fees for low distressed firms. One of the studies also
files a statistically major negative relationship amongst tax avoidance and managerial ability.
The outcome of the study was that high managerial ability is able to mitigate the negative
relations amongst the value of the firm and tax avoidance (Gallemore and Labro 2015). The
acquisitions of the firms with better managerial ability tend to give a better result and have to
pay lower premiums than without transactions.
Methodology
Dependent Variables
Audit Specialist
If a firm hires an auditor as an Industry Specialist, then the dependent variable is an
indicator variable that is equivalent to one otherwise zero. The industry specialist auditor is
being measured through three specifications. These are National level, City level and both
national and city-level industry leader. Industry market share of an auditor is measured to
measure the industry specialist auditor. If an auditor has the highest market share at the
national level, then that auditor is classified under national-level industry leader. The city-
level leader is with highest industry market share within two-digit SIC.
Audit Fees
The efforts of the auditor, the risk involved in their working and complexity are some
factors that are directly related in determining the fees of the auditor.
Tax Avoidance
Based on effective tax rates (ETR), the following two measures have been discussed.
The first measure is ETR that is measured by adding the total income tax expense with

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Current deferred tax expense and finally divided the added one by pre-tax book income. The
second measure is the Cash Effective Tax Rate (CETR) that is considered as the cash ratio of
taxes paid over pre-tax income.
M&As
Estimating that the market model with the use of 200 trading days of return data
ending 11 days prior to the merger announcement so that to measure abnormal return at
announcement return. From day prior to the merger announcement (t1) date today (t2) after
the date of the merger announcement, the daily abnormal stock returns are being added to
obtain the (CAR) Cumulative Abnormal Return.
Modernization Variables
Institutional Ownership
The organizations that include the institutional ownership are the superannuation and
pension funds, life and non-life insurance companies, several financial institutions, invested
and nominee companies that are associated with all these categories. The (PISH) Proxy for
Institutional ownership is calculated by dividing the total shares held by the institutional
investors with the total outstanding shares.
Managerial Ability
This is measured through considering several revenue-generating resources and use of Data
Envelopment Analysis. It obtains the optimal weighed of such resources in the contribution to
generating revenue of the form in each industry. The efficiency scores of the firm not only
reflect the efficiency of the manager but also reflect the specific efficiency drivers of the firm.
Control Variables
Audit specialist includes control variables such as size, age of the firm, leverage,
turnover of an asset, current ratio, profitability, foreign transactions, litigation risk, audit

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committee’s characteristics and board of directors. Tax avoidance includes the control
variables such as BLOCKHLD, AGEPUB, serving a period of CEO, a dummy variable,
SIZE, LEV, net property, CINT, expenditure divided by total assets, ROA, YEAR dummy
variable, coded 1 in the specific category of the year otherwise zero. For M&A control
variables include the size of the firm, equity's market value, leverage, cash flow, price of the
stock, subsidiary, public and private target, diversified acquisition, the high tech industry and
cash or stock deal.

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References
Andersson, M., Bolton, P. and Samama, F., 2016. Governance and climate change: A success
story in mobilizing investor support for corporate responses to climate change. Journal of
Applied Corporate Finance, 28(2), pp.29-33.
Deng, X., Kang, J.K. and Low, B.S., 2013. Corporate social responsibility and stakeholder
value maximization: Evidence from mergers. Journal of Financial Economics, 110(1), pp.87-
109.
Gallemore, J. and Labro, E., 2015. The importance of the internal information environment
for tax avoidance. Journal of Accounting and Economics, 60(1), pp.149-167.
Gomes, E., Angwin, D.N., Weber, Y. and Yedidia Tarba, S., 2013. Critical success factors
through the mergers and acquisitions process: revealing pre‐and post‐M&A connections for
improved performance. Thunderbird international business review, 55(1), pp.13-35.
He, L.J., 2015. Auditor industry specialization, audit experience and accounting
restatement. International Business Management, 9(7), pp.1686-1697.
Hoi, C.K., Wu, Q. and Zhang, H., 2013. Is corporate social responsibility (CSR) associated
with tax avoidance? Evidence from irresponsible CSR activities. The Accounting
Review, 88(6), pp.2025-2059.
Jansson, M. and Biel, A., 2014. Investment institutions' beliefs about and attitudes toward
socially responsible investment (SRI): A comparison between SRI and non‐SRI
management. Sustainable Development, 22(1), pp.33-41.
Jebe, R., 2017. Corporate Sustainability Reporting and Material Information: An Empirical
Study of Materiality under the GRI and Frameworks. Conn. J. Int'l L., 33, p.95.

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Li, A., Michaelides, M., Rose, M. and Garg, M., 2019. Climate‐related Risk and Financial
Statements: Implications for Regulators, Preparers, Auditors and Users. Australian
Accounting Review, 29(3), pp.599-605.
Nilsson, J., Nordvall, A.C. and Isberg, S., 2016. The information search process of socially
responsible investors. In Financial Literacy and the Limits of Financial Decision-
Making (pp. 57-76). Palgrave Macmillan, Cham.
Thijssens, T., Bollen, L. and Hassink, H., 2015. Secondary stakeholder influence on CSR
disclosure: An application of stakeholder salience theory. Journal of Business Ethics, 132(4),
pp.873-891.
Yunus, S., Elijido-Ten, E. and Abhayawansa, S., 2016. Determinants of carbon management
strategy adoption: Evidence from Australia’s top 200 publicly listed firms. Managerial
Auditing Journal, 31(2), pp.156-179.
Zhou, Y., 2017. Materiality as a sustainability accounting concept: Three definitional streams
and critiques. Corporate Ownership & Control, 15 (1), pp.83-89.
Zhou, Y., 2017. Materiality in sustainability accounting: a critical realist perspective.