Balancing Profit and Impact

There is an underlying tension that exists within organizations as they work to drive profits while balancing increased scrutiny around the indirect costs of their economic activities. These earnings pressures and their impact on firms and society are something that Michael Welker has been exploring in his research as far back as the 90s.

“This has been a long-standing interest of mine, and I think it dates back to my service as a Peace Corps Volunteer in the 1980s,” says the professor and Stephen J.R. Smith Chair of Accounting. “That was an eye-opening experience that let me see firsthand the power of business to do good, or do harm, through their operations.”

It’s a focus area he’s returned to in recent years, as the rest of the world’s interest in environmental and social issues is matching his own.

“I wrote an article in the early 1990s about Canadian firms’ social disclosure, and with the renewed interest in these topics, it is actually getting more citations now than when I first published it,” he says.

Today, Welker is leveraging that demand, and increased data availability, to contribute to a growing body of research at the intersection of accounting and corporate social responsibility.

For example, he is in the early stages of a new study exploring how carbon emissions impact company valuations. By looking in detail at how financial analysts respond to changes in carbon emissions, he and his co-authors hope to reveal that firms that demonstrate emissions improvements are rewarded by analysts.

“The goal with that work is to try to promote greater attention to reducing carbon emissions now, rather than later when it may be too late,” he says. “Identifying a short-term financial impact related to carbon emissions is probably one of the best tools we have to give companies incentives to do the work.”

Welker has also spent the better part of the summer revising two papers for resubmission to top journals.

“It is a long road to publish in our better journals, but I think it is worth it and important if our work is to have impact,” he says. “Having research published in top journals is an important step in having the work taken seriously by my academic peers, and should, and probably does, affect how seriously the research findings are taken by the private sector.”

Welker says that as a Smith Chair, he benefits from concentrated time to focus on research projects.

“Time is one of the biggest barriers to getting research through the peer-review system,” he explains. “It’s fantastic to actually have longer blocks of relatively uninterrupted time to focus on trying to finish off research projects, or get new ones started.”

In one of his more recent works, published in the Journal of Accounting and Economics, Welker and his co-authors found that firms under pressure to beat earnings expectations have higher sulphur dioxide emissions, highlighting the conflict that can occur between financial goals and environmental objectives, especially in the absence of monitoring and regulation. Welker says this research, which was published in the Journal of Accounting & Economics, to bring these issues to the surface and suggest potential remedies for issues that can arise with poorly designed incentives.

As with his other projects, Welker hopes this research attracts the attention of policymakers, corporate boards and fellow academics.

Established through Stephen J.R. Smith’s $50-million gift to Queen’s University in 2015, The Stephen J.R. Smith Chairs recognize and financially support high quality research being conducted at the business school.