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Environmental Disclosure, Environmental Performance, and Firm Characteristics: An Analysis of S&P 100 Firms

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Abstract

Environmental protection and sustainable development have become an important issue in today's global economy. However, there are only limited requirements for environmental disclosure for publicly-held firms in the United States. This study first measures the environmental disclosure of S&P 100 firms based on keyword frequency count of their 10k reports from 2004 to 2008. It also examines the relationships between environmental disclosure, firm performance and firm characteristics. Our results indicate that environmental disclosure actually has a significant negative impact on firm performance after controlling for firm size, growth and leverage. The results imply that more environmental disclosure may indicate potential environmental problems within the firm and that this may hamper the firm's financial performance. We also find that better-performing firms and highly-leveraged firms tend to have lower environmental disclosures. It implies that these firms may have better compliance with environmental laws and regulations.
Electronic copy available at: http://ssrn.com/abstract=1861008
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Electronic copy available at: http://ssrn.com/abstract=1861008
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... Saygili et al. (2022) find that while social and governance disclosures positively influence FP, environmental disclosure has the opposite effect. A study by Wu et al. (2010) shows that firms disclose more environmental information when they have more environmental problems which reduce their profitability. If a firm's aim is to achieve legitimacy and reduce public scrutiny, the disclosure of ESG information may be a useful tool. ...
... The negative relationship could be due to the increase in cost a firm may incur when it increases ESGD (Yoon et al., 2018). This relationship could also suggest possible problems within the firm which can reduce its profitability and are concealed through increased ESGD (Wu et al., 2010). Thus, this relationship may indicate that firms increase their ESGD to gain legitimacy and avoid public scrutiny. ...
... The negative impact of ESGD on ROA in high PD countries and the positive impact of ESGD on ROA in low PD countries indicate that firms in high PD countries may disclose ESG information to gain legitimacy and to reduce public scrutiny so that power inequalities are preserved. It is possible that more ESG information is disclosed when there are more ESG-related problems within the firm which can reduce profitability (Wu et al., 2010). ...
Article
Purpose The purpose of this study is to analyze the extent to which culture may affect the relationship between environmental, social and governance disclosure (ESGD) and firm performance (FP). Design/methodology/approach Data for testing the hypotheses are collected from 668 firms in the energy sector worldwide over a period of eight years from 2009 to 2016. The analysis is carried out using the instrumental variables regression technique to account for endogeneity. Hofstede’s cultural dimensions of power distance (PD), masculinity (MASC), long-term orientation (LTO), uncertainty avoidance (UNCAVOID) and individualism (INDV) are used as proxies for culture. Findings The results show that ESGD has a significant negative impact on the profitability of energy firms. When cultural dimensions are taken into account, PD and LTO are found to significantly moderate the relationship between ESGD and FP, whereas MASC, UNCAVOID and INDV have no significant effect on the relationship between ESGD and FP. Practical implications The findings of this study highlight the need for regulators to consider the importance of cultural dimensions when seeking to develop a single global standard for ESGD. In addition, regulators need to weigh both the costs and benefits of developing a global standard for it to be effective and acceptable. Social implications This study emphasizes the need to take into account the cultural orientation of the society in which firms operate when devising strategies to fulfill societal expectations and achieve business goals. Originality/value To the best of the authors’ knowledge, this is the first study that addresses the role of culture in affecting the impact of ESGD on FP.
... [15] define Cost Leadership strategy as an effort to get the lowest cost in the industry by making use of economies of scale and scope as well as utilizing advanced technology. Cost Leadership strategy is capable of creating bigger profits for companies because it enables them to do strict cost control [57]. Strict cost control can be done through experience, strict control towards the current cost, avoiding end users' accounts, and minimizing discretionary costs like research and development, service, salesforce, advertising, and so on [43]. ...
... Differentiation strategy is measured using the following two ratios, first, the ratio of sales, general and administrative costs to net sales (SGA). This variable indicates the company's investment in the activities needed to differentiate its products or services from its competitors [7], [17], [37], [57]. Higher allocation for SGA also reflects companies' pursuit of differentiation strategies (Wiggins and Ruefli, 2002). ...
Article
Business strategy choices are very influential in a company’s environmental performance. Companies that choose the cost leadership strategy tend to streamline their expenses which leads to them overlooking the environmental cost. Meanwhile, differentiation strategy encourages companies to accommodate environmental costs to fulfill customers’ demands. Therefore, this research aims to examine the impacts of the strategy choices on environmental performance, which has not been focused on by previous researchers. This research’s samples are public companies that are consistently participating in the PROPER program during the 2012-2017 period. 228 company years fulfill the sample criteria. The data are processed using the GRETL application that is fit for processing the panel data. We apply two proxies to measure each strategy choice. Cost leadership is proxied with EPAS and SPPE while differentiation is measured with SGAS and SCGS. This research’s findings are, firstly, companies that choose the cost leadership strategy have lower environmental performances, and, secondly, companies with differentiation strategy have high environmental performances. However, not all proxies used to measure the cost leadership and differentiation strategies support the impacts of strategy choices on environmental responsibilities performance.
... The results in model one (see Table 7), revealed a negative and non-significant relationship between CSPOGC, EPOGC and CGPOGC on the performance level (PCM) of the firms under study of -0.573, (0.404); -0.818, (0.623); -0.525 (0.880), respectively. These findings, which support (Wu et al., 2010), show that CSR has a negative relationship with performance and also supports the shareholder theory which hypothesizes that CSR of citizens is solely the responsibility of the government and that the responsibility of firms is exclusively to make a profit. ...
... and reported a positive significant effect on performance; Ajide and Aderemi (2014) adopted the KLD index as a measure of CSR and reported a positive result of CSR on profitability; Joseph and Okafor (2016) used corporate donation and charity as proxies for CSR and reported mixed results of both positive and negative effects of CSR on performance.Wu et al. (2010) used the disclosure index and reported a negative performance result. As a measure of performance, the study adopted the price-cost margin measure in addition to ROA and EPS because indicators based on net profit, which are mostly used in Nigeria, might be misleading as they are after tax adjustments(Abdulrahman, 2013);(Odetayo, Adeyemi ...
... The higher the financial leverage, the higher the demand for investors' environmental disclosures was not proven to be positive. Sulkowski (2010) argued that negative correlation might occur in companies that get pressure from lenders by having high financial leverage and creating a low environmental disclosure. Companies have fears that providing more information about environmental disclosures will bring down their image (Sulkowski, 2010). ...
... Sulkowski (2010) argued that negative correlation might occur in companies that get pressure from lenders by having high financial leverage and creating a low environmental disclosure. Companies have fears that providing more information about environmental disclosures will bring down their image (Sulkowski, 2010). Based on author perspective, financial leverage is a reflection of the operational performance of the firm. ...
Article
Full-text available
Sustainability issues have increased the need for stakeholder toward environmental information disclosure. Quality of environmental information is pivotal for stakeholders to make a proper assessment of a firm’s environmental performance. This study examines the relationship between a firm’s characteristics and environmental disclosure quality. Firm’s characteristics in this study refer to the size, ownership concentration, age, and leverage. Content analysis of sustainability reporting was applied in this study. The study involved 33 listed firms in Indonesia Stock Exchange (IDX) that are consistently issued sustainability reporting during 2014-2016. Simultaneously test indicated that characteristics of the firm significantly explain the variance of environmental disclosure quality. However, partially test showed that leverage is the only variable significantly influenced environmental disclosure quality.
... Extant literature shows that technology innovation can inhibit environmental pollution and ecological damage, and it can also promote firm performance and green development [6,7]. Green innovation includes two components, namely green product innovation and green process innovation [8]. ...
... We suggest investigating green innovation needs high quality system as a guarantee, especially in the design of an incentive system; it needs to increase financial support, in particular, the construction of low carbon industrial chain in poor or economically backward areas, to develop the circular business model innovation while improving the employment and quality of life of people living in low and underdevelopment regions, and reflect the organic unity of government, significant market, and capable enterprises. We also recommend that secondary data on green technology innovation of energy-intensive enterprises is collected to discuss government subsidy, information disclosure, green technology innovation, environmental innovation capability, and environmental performance [5,7,12,28,43]. ...
Article
Full-text available
Chinese manufacturing has recently undertaken the responsibility of energy conservation and emission reduction to address climate change. This research analyzes green innovation on business sustainability in the energy-intensive industry in China from the manager perspective, researched data from 229 Chinese managers via structural equation modeling (SEM). The results demonstrated that green innovation had three dimensions: green product innovation, recycling, and green publicity. Business sustainability also had three dimensions: financial performance, environmental performance, and social performance. It also shows that green innovation had a significant effect on business sustainability in the energy-intensive industry. More specifically, we found that recycling has more impact on social performance when compared with green publicity. However, green publicity has a large effect on environmental performance; moreover, green product innovation has more impact on financial performance than green publicity. We also found that environmental performance has a positive effect on financial and social performance results. The alternative models were used to examine the second-order factors of green innovation and business sustainability to test the study’s robustness and supported our findings. Thus, this study contributes to the field by helping managers to make decisions when dealing with sustainable environmental management. It provides new empirical evidence to support the development of a low-carbon circular economy and realization of a carbon-neutral goal by 2060 in China.
... Similarly, it has been argued that environmental information disclosure may increase brandnamed costs for high leverage companies and such costs could make credit negotiations more difficult and costly (Cormier & Gordon, 2001). Moreover, it has been contended that high leverage companies have little environmental issues to report since they are more probable to conform to environmental regulations (Wu Liu & Sulkowski, 2010). Umulkher and Muganda (2017) found that financial leverage has a positive and significant influence on CEAD in Kenya. ...
Article
Full-text available
This study examines the cognitive factors that determine corporate environmental accounting disclosures (CEAD). The population consists of all the fourteen (14) listed oil and gas firms in Nigeria. Panel data were obtained from the annual reports and accounts of the firms for the period of 2010 to 2019. A correlational research design was used and the data were analyzed using the Generalized Least Square regression (random model). The study found that firm size; leverage and multi-national companies have positive significant influence on the CEAD of listed oil and gas firms in Nigeria. Whilst firm growth has a negative significant relationship with the CEAD of listed oil and gas firms in Nigeria. It is concluded that larger firms and multi-national companies in the Nigerian oil and gas sector have high likelihood of disclosing environmental accounting information. Thus, it is recommended that the management of listed oil and gas firms in Nigeria should expand their size by acquiring more assets, maintain a consistent growth by exploring more opportunities while improving their gearing ratio to ensure a stable balance between the proportion of debt and assets. It therefore, highlighted the need for Securities and Exchange Commission (SEC) to come up with enabling laws geared towards ensuring that listed oil and gas firms in Nigeria embrace CEAD. Furthermore, Global Environmental Disclosure Index (GEI) should be considered as the most acceptable yardstick for measuring environmental accounting by the listed oil and gas firms in Nigeria
... Hai Yap Teoh, Foo Wan Pin et al, (1997) found a weak positive link between firm performance and environment disclosures. Whereas, Wu, Liu and Sulkowski (2010) explained that environmental disclosure and firm performance are negatively related. The results suggested that an increase in the firm's environmental disclosure may show probable environmental problems within the firm and may lower firm's monetary performance. ...
... Palmer et al. (1995) believed that strict environmental supervision and environmental investment have increased corporate costs, resulting in companies having no incentive to assume environmental responsibilities. The study by Wu et al. (2010) found that fulfilling environmental responsibilities and disclosing environmental information would cause a decline in company performance, and pointed out that companies that disclose more environmental information may have more potential problems, leading to a decline in company performance. Li et al. (2014) believed that the company's performance of environmental responsibility had a "crowding out" effect on other investments, and the increase in product production costs led to a decrease in corporate profit margins. ...
Article
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In recent years, environmental protection issues have come under the spotlight. This paper constructs a corporate environmental responsibility evaluation index and examines the impact of environmental responsibility performance on financial performance in China based on the information of A-share listed companies disclosed in the “Company Annual Report” and “Social Responsibility Report” from 2008 to 2017. The empirical results show that: (1) without considering the quality of environmental information, fulfilling environmental responsibility can significantly improve the corporate financial performance; (2) after incorporating the quality of environmental responsibility performance and classifying corporations into subgroups by region and attribute, the fulfillment of environmental responsibility has a significant positive impact on the corporate financial performance in the sample of eastern region and non-state-holding companies, with a lag effect, while it has a negative impact in the sample of central region. The research above politically suggests that the Chinese government should establish a long-term management mechanism to encourage companies to fulfill their environmental responsibilities, improve the evaluation system of corporate environmental responsibility performance quality, as well as provide matching financial support or other compensation, thereby realize the sound and sustainable development of companies and the society.
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