Does environmental information disclosure contribute to improve firm financial performance? An examination of the underlying mechanism

Abstract

Given the widespread impacts of firm activities on the environment, firms are increasingly required to disclose environmental information. However, the relation between environmental information disclosure and firm financial performance is controversial and the mechanism through which environmental information disclosure affects financial performance is insufficiently investigated. This research examined the effect of environmental information disclosure on financial performance and explored the mediating effects of visibility (e.g., analyst coverage and institutional ownership) and liquidity. Panel data from 289 Chinese listed firms were analyzed with the assistance of STATA Software. The results revealed that environmental information disclosure positively (directly) affects financial performance. Further, environmental information disclosure also indirectly affects financial performance via analyst coverage (e.g., number of analysts and number of reports) and liquidity. Analyst coverage and liquidity mediate the relationship between environmental information disclosure and financial performance while institutional ownership has no mediating effect. According to the results, practical implications were discussed and future research directions were noted.