Corporate governance, compensation mechanisms, and voluntary disclosure of carbon emissions: Evidence from Korea

Abstract

We investigate the effects of incentive-alignment mechanisms on voluntary disclosure of carbon emissions in Korea, a latecomer in incorporating environmental practices into business operations. We consider in particular the effects of corporate governance and compensation mechanisms. We find that international aspects of governance mechanisms, measured by foreign ownership and foreign subsidiaries, are positively associated with the likelihood that a firm discloses carbon emissions voluntarily as well as with the extent of the details included in such disclosures. Similarly, strong internal governance, measured by board independence and gender diversity, makes voluntary, detailed carbon emissions disclosures more likely. Moreover, firms that employ compensation schemes that explicitly align corporate social responsibility (CSR) with CEO pay and those that set carbon emissions targets, which may be used to define thresholds for CEO bonuses, are more likely to voluntarily disclose carbon emissions information and to do so more extensively. As such, both international influence and internal factors that affect corporate governance and compensation structures, all of which are well-known incentive-alignment mechanisms, play important roles in voluntary carbon emissions disclosure decisions in emerging markets.