ALJALEXU_Volume 8_Issue 3_Pages 407-457 (1) (2)

Study Overview

Research Purpose

The study investigates the interactive impact of accounting disclosures regarding climate change risks and the quality of corporate governance mechanisms on investors' decisions. It focuses on companies listed on the Egyptian Stock Exchange and applies this to analyze the decisions made by investors in light of climate-related disclosures under the ESG standards and TCFD recommendations.

Design and Methodology

The research employs content analysis of annual reports from a sample of 50 public companies over the period following the implementation of the Financial Regulatory Authority's Resolutions No. 107 and 108 in 2021, which mandated climate change disclosures. Such analysis covers disclosures from 2022 to 2023, utilizing 100 views to test various hypotheses regarding the relationship between climate risk disclosures and governance mechanisms on investor decisions.

Research Models

Three models were established:

  1. Impact of Climate Risk Disclosure on Investor Decisions: This model examines how such disclosures influence investor choices.

  2. Effect of Governance Quality on Investor Decisions: This assesses how strong governance mechanisms affect investor behaviors.

  3. Interaction Effects: This model analyzes how disclosures about climate change risks in concert with governance quality affect investor decisions.

Results and Recommendations

Key Findings

  1. Positive Impact on Decisions: The study concludes that effective climate change risk disclosures positively influence investors' decisions.

  2. Governance Mechanisms Matter: The quality of governance mechanisms also shows a positive correlation with investor decisions, indicating that better governance aligns with improved investment choices.

  3. Interaction Effects: The interaction between climate risk disclosures and governance mechanisms suggests compounding positive impacts on investors' choices, underscoring the importance of both factors.

Recommendations

  • Adoption of IFRS S2 Standards: It is advised that Egyptian accounting standards should adopt the international IFRS S2 standard on climate disclosures to enhance transparency and regulatory compliance.

  • Focus on Assurance by Auditors: Auditors in Egypt should evidently scrutinize climate-related disclosures to provide confidence and credibility to this critical information used by investors.

  • Market Dynamics and Regulatory Framework: The findings indicate a crucial need for legislation encouraging comprehensive disclosures that address climate change risks, enhancing corporate responsibility and aligning with a low-carbon economy.

  • Improved Reporting Practices: Companies are encouraged to improve their sustainability reporting practices and ensure they adequately address climate-related risks to satisfy investor expectations and foster trust.

Implications for Accounting Literature

This research adds significant value to current accounting literature by presenting empirical evidence on the interplay between climate risk disclosures and corporate governance mechanisms, further shedding light on their collective impact on investment decisions in Egypt.

Keywords

  • Climate Change Risk Disclosure

  • Quality of Governance Mechanisms

  • Investor Decisions

Conclusion

The study reveals critical insights into how climate-related disclosures affect corporate governance and investors, emphasizing the integral role these factors play in shaping investment decisions. This highlights a broader trend towards responsible and sustainable business practices in Egypt's evolving market.