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Climate policy uncertainty and analyst forecast quality for greenhouse gas-intensive firms

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  • Lin, K.C.
  • Dong, Xiaobo

Abstract

This study examines the impact of climate policy uncertainty (CPU) on financial analysts' ability to forecast the performance of greenhouse-gas (GHG)-intensive firms. We measure CPU using the Gavriilidis (2021) CPU index, which we validate by confirming its correlation with climate-related legislative activities and its distinction from general economic uncertainty indices. Our findings reveal that CPU negatively impacts forecast quality, increasing dispersion and reducing accuracy, especially for long-term earnings forecasts. Political gridlock, characterized by a divided government and ideological polarization in Congress, mitigates the negative effects of CPU. Furthermore, GHG-intensive firms with higher-quality financial disclosures and those followed by more skilled analysts experience less deterioration in forecast quality due to CPU. Finally, GHG-intensive firms that increase climate-related discussions during earnings calls in periods of high CPU mitigate the adverse impact on forecast quality.

Suggested Citation

  • Lin, K.C. & Dong, Xiaobo, 2025. "Climate policy uncertainty and analyst forecast quality for greenhouse gas-intensive firms," Advances in accounting, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:advacc:v:68:y:2025:i:c:s0882611025000124
    DOI: 10.1016/j.adiac.2025.100817
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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