“My current research is studying how firm-level climate change exposure affects companies’ financial misreporting behaviour. Following the introduction of the Paris Accord in 2016, there are increased concerns and awareness about climate change in the business world.

“This risk falls into three categories. The first is physical risk, which comes from the direct negative impact that factors such as an increase in sea level or higher temperatures may have on companies’ property values, municipal-bond yields and underwriter fees.

“The second is transition risk: the capital market requires more green stock, which has fewer greenhouse emissions. This means that when we approach the 2050 deadline for carbon neutrality, some companies face higher challenges in transforming from high emissions to low.

“The third is regulatory risk: the financial and operational risks businesses face due to the increasing likelihood of changes in laws, regulations and policies as governments worldwide respond to the challenges of climate change. For example, the European government has issued policies around emissions quotas. Essentially, if you want to pollute more, you’ll have to buy an additional quota from another company, which will increase your costs – or if you fail to obey the regulations, you’ll face a lawsuit.

“Before narrowing down a specific research topic, I proposed many ideas to my supervisor, Professor Dimitrios Gounopoulos, and he helped me in assessing and analysing each topic - including the availability of data, the feasibility of each topic and the potential for publication.

“I think the quality of financial reporting is very important due to information asymmetry: companies’ management are the ones who hold the most information. Shareholders, creditors and governments all rely on reporting to gain insight into firms’ financial performance and then make informed decisions.

“If the quality of this reporting is questionable, transparency in the capital market decreases and the effectiveness of investments can decrease. As a result, I decided to explore why and how companies tend to alter their financial reporting behaviour when they face higher firm-level climate change exposure.

“So far I’ve examined financial reporting behaviour from two perspectives: the legal and illegal ways by which firms manipulate their reporting. The legal way is through earnings management, whereas the illegal way is intentionally misreporting financial figures, known as financial fraud.

“After analysing the regression between climate change exposure and fraud indicators, we find companies facing significant exposure to climate change are more likely to misreport their financial statements. Our empirical findings remain robust across various tests, including alternative regression models, alternative measurement, matched-sample analyses and difference-in-difference regression.

“I also found that where US stock market firms were investigated and prosecuted by the Securities and Exchange Commission over the past two decades, when they then face higher climate change risk, they reduce intentional misreporting.

“We have extended our analysis to explore the mechanisms underlying this correlation using the fraud triangle. From the 'opportunity' perspective, our findings suggest that climate change exposure decreases accounting comparability. The variation in financial reporting due to disparate responses to climate-related risks can obscure financial statements, making it challenging for external parties to identify inaccuracies or anomalies. This reduced transparency increases the opportunity for financial misreporting.

“Our results also indicate that companies with greater exposure to climate change experience significant financial distress, characterised by higher cashflow shortfalls, diminished revenue-generating capabilities and increased risks of insolvency. These pressures align with the ‘pressure’ component of the fraud triangle, suggesting that companies under severe financial stress due to climate change are more likely to engage in misreporting. This misrepresentation may serve to appease stakeholders, secure financing, or align with market expectations, further emphasising the role of financial pressures as a catalyst for misreporting behaviour.

“Climate change risk is obviously a very topical issue around the world. In June 2017, the Financial Stability Board Task Force on Climate-related Financial Disclosures released its recommendations on disclosure requirements on financial institutions.

“Our results suggest that regulators should consider further standardising climate risk reporting and increasing their scrutiny of companies in high-risk industries or regions prone to the effects of climate change. This would ensure that financial statements more accurately reflect the economic realities companies face, thereby enhancing investor confidence and promoting more sustainable business practices.”