Governance Disclosure Research Articles

Mandatory environmental disclosure policy in the largest carbon emission country

Purpose This paper aims to examine the impact of corporate environmental transparency (CET) on corporate financial performance under a mandatory environmental disclosure policy in China, the largest carbon-emitting country. It aims to clarify the concept of CET and investigate its short-term financial implications for key pollutant-discharging entities (KPEs). Design/methodology/approach A multidimensional model is used to construct a comprehensive CET index for KPEs in China. Empirical tests are conducted to assess the relationship between CET and corporate financial performance. Findings The study finds a negative relationship between CET and corporate financial performance in the short term. Increased environmental transparency necessitates higher environmental resource allocation, adversely affecting profits. The results remain unchanged from a battery of robustness tests. Despite mandatory disclosure, companies tend to provide general and vague information rather than specific and meaningful environmental data. Research limitations/implications The findings provide rich practical implications for policymakers to improve a mandatory environmental disclosure policy. The paper also contributes to the existing knowledge by developing a measure of CET and presenting new evidence to the debate on whether corporate environmental disclosure can be regarded as transparency. Practical implications Policymakers are advised to refine mandatory environmental disclosure regulations to ensure genuine transparency and to implement policy measures that alleviate the financial burdens of companies with high CET levels, thereby encouraging sustainable practices. Originality/value This paper contributes to the existing knowledge by developing a measure of CET and providing new evidence on the debate over whether environmental, social and governance (ESG) disclosure equates to transparency. It emphasizes the complexity of transparency and the inadequacy of current environmental disclosure practices among KPEs. The study underscores the need for financial support for companies with high CET levels to alleviate short-term financial strains and promote long-term sustainability.

Unraveling the smokescreen of ESG disclosure debate: Shedding light on excessive ESG disclosure and economic risk

AbstractThis paper investigates the correlation between excessive ESG disclosure and economic risk, measured through the cost of capital. We analyze a sample comprising 430 S&P 500 US firms over 12 years, from 2011 to 2022. Our findings show that excessive ESG disclosure is associated with a reduction in the cost of capital. Specifically, the environmental and social dimensions of ESG disclosure exhibit explanatory power in decreasing the cost of capital, with the environmental dimension demonstrating particularly strong influence. Conversely, excessive governance disclosure shows no significant impact. Additionally, our study shows that CSR assurance serves as a negative moderator in the relationship between excessive ESG disclosure (including overall excessive ESG score, and environmental and social dimensions) and economic risk.

Moderating Role of ESG Disclosure on Minority Shareholders and Tax Avoidance

Objective - This study examined and analyzed the effect of minority shareholders on tax avoidance, which covers Environmental, Social, and Governance (ESG) disclosure as a moderating variable in manufacturing companies listed on the IDX for the 2018–2022. The minority shareholders consist of foreign ownership, institutional ownership, and managerial ownership.Design/Methodology - This study used secondary data taken from annual reports, sustainability reports, and the company’s OSIRIS database. Moreover, a total of 254 research sample companies were selected for this study using a purposive sampling technique. In addition, this study used a quantitative method using panel data regression analysis.Results - This study discovered that the higher the foreign and managerial ownership, the lower the tax avoidance actions within the company, while institutional ownership has no effect on tax avoidance. Furthermore, the results of the moderation regression analysis showed ESG disclosures can strengthen the effect of foreign and managerial ownership on tax avoidance, but cannot moderate institutional ownership on tax avoidance.Research limitations/implications - As a solution to tax avoidance in Indonesia, OJK may take into account and strengthen ESG disclosures made by companies.Novelty/Originality - This study discussed tax avoidance actions in Indonesia based on company ownership, with a focus on minority shareholders. Additionally, ESG disclosure was investigated to determine whether it could affect the relationship between minority shareholders and tax avoidance.

Effects of Environment, Social, and Governance (ESG) Disclosures on ESG Scores: Investigating the Role of Corporate Governance for Publicly Traded Turkish Companies

The world has experienced climate-related issues, which increase the importance of ESG disclosures and corporate governance (CG) of companies, which take place at the heart of economies. Therefore, improving ESG disclosures and CG practices becomes significant to combat climate change at the company level. Considering that Türkiye restructured ESG disclosures in 2022, this study investigates the role of CG on the nexus between ESG scores of publicly traded companies (PTC) and ESG reports. So, the study analyzes 102 PTC (full sample), 51 PTC in Borsa Istanbul Corporate Governance Index (in-sample), and the remaining 51 PTC (out-sample) using ESG disclosures of 2022 and applying novel super learner (SL) algorithm. Our results show that (i) SL has a higher prediction performance reaching ∼94.3%; (ii) the environment (governance) layer has the highest (lowest) total relative importance (contribution) to ESG scores in all samples; (iii) C8, S6, and E5 are the most important ESG principles in the full sample, in-sample, and out-sample, respectively; (iv) the contribution of each ESG principles to the total ESG scores varies by sample; (v) CG plays a smoothing role for the relative importance of each ESG principle, while the relative importance in the out-sample shows much higher volatility. Overall, the study reveals the non-linear contributions of ESG principles on ESG scores and suggests that PTC should prioritize highly important ESG principles, consider the moderating role of CG on the link between ESG scores and ESG disclosures, and use ESG disclosures as a strategic tool to develop ESG scores and disclosures.

The interplay of cash flow uncertainty and firm life cycle on sustainability disclosure

AbstractThis study investigates the role of cash flow uncertainty and firm life cycle on sustainability disclosures using environmental, social and governance (ESG) disclosure score data. We conduct our analysis on a sample of 190 Indian firms for a period of 12 years from 2010 to 2021. Drawing upon the real‐option theory and organisational‐inertia theory, we document a negative impact of cash flow uncertainty and firm life cycle on a firm's commitment to disclose sustainability information. We also find a significant impact of managerial risk inclination and risk tolerance at the firm level in moderating the above relationships. Our findings can help managers equip themselves to meet the challenges of sustainability commitments during cash flow constraints and firm life‐cycle transitions. Moreover, our results can also help policymakers in assessing the need to enforce sustainability disclosures depending on the hurdles confronted by a firm.

CDP (carbon disclosure project) emissions of CO2 and environmental disclosure quality: the mediating role of media legitimacy and governance

ABSTRACT The paper assesses the relation between firms’ CO2 emissions as per the CDP (formerly known as Carbon Disclosure Project) platform and their environmental disclosure quality, as mediated by two monitoring mechanisms: media legitimacy (external) and firm governance (internal). Legitimacy theory as well as the monitoring dimension of agency theory underlie the empirical investigation. The sample comprises Canadian and U.S. firms, for which a governance disclosure score and media legitimacy information are available from Bloomberg. Relying on structural equations modelling, results are the following. First, CDP disclosing firms exhibit an environmental disclosure score that is twice as high as non-disclosing firms. Second, media legitimacy, expressed by the Janis-Fadner index, is significantly lower for CDP disclosing firms. This may explain why high CO2 emission firms are less inclined to disclose CDP emission data. Third, the direct effect of the decision to disclose CDP emissions of CO2 (full sample) on environmental disclosure quality is positive and significant. Consistent with our hypotheses, we observe an indirect (mediating) effect on this relationship of media legitimacy (external monitoring) and corporate governance (internal monitoring). This suggests that media legitimacy and corporate governance enhance the positive impact of the decision to disclose CDP emissions of CO2 on environmental disclosure quality. Fourth, the direct effect of CDP emissions of CO2 (reduced sample) and environmental disclosure quality is positive and significant. Also consistent with our hypotheses, we observe an indirect effect on this relationship from media legitimacy and corporate governance.

Estrutura de propriedade, divulgação social, ambiental e de governança, e assimetria de informação: o caso brasileiro

This research aimed to analyze the moderating effects of ownership structure on the relationship between environmental, social, and governance (ESG) disclosure and information asymmetry in Brazilian companies. A quantitative, descriptive, and documentary study was conducted with data from 68 companies listed on the Bolsa Brasil Balcão (B3) between 2015 and 2022, tested using the one-step GMM dynamic panel system. The main findings indicate that ESG disclosure can reduce information asymmetry, while ownership concentration and institutional ownership have a positive moderating effect on this relationship. The study emphasizes the need for regulatory actions to address potential issues faced by less informed investors and improve the disclosure of ESG practices.

ESG practices disclosure and initial performance of Malaysian IPOS

Companies’ decision to go public is risky because of the high uncertainty level from the companies’ unknown history prior to their listing. Recent studies in the Malaysian market reported the declining trend of companies’ initial performance, relating it to investors’ current demand for higher information transparency that can reflect companies’ sustainable evolution as a means to attract their demand in subscribing newly issued shares. Thus, this study aims to investigate the impact of disclosing ESG practices on companies’ initial performance. Using a linear regression with maximum likelihood (ML) estimation, this study examines 171 initial public offerings (IPOs) issued in the Malaysian market from 2015 to 2023. By using two ways of measuring companies’ initial performance (offer-to-open and offer-to-close), the findings show that higher information disclosure on ESG practices will only be reflective and positively affect companies’ performance by the end of the day. Further examination of individual ESG pillars indicates that environmental disclosures negatively influence companies’ initial performance, while social and governance disclosures positively influence companies’ initial performance. A large investment in maintaining a high level of environmental practice can be costly, negatively influencing companies’ performances. Higher social and governance disclosure attracts socially conscious investors and reflects good internal governance, increasing demand for the companies’ shares during the IPO and positively influencing companies’ performances. This study contributes to the growing literature concerning ESG and post-IPO performances specific to the Malaysian market and proposes recommendations on the importance of disclosing ESG practices prior to their IPO. AcknowledgmentsThe authors would like to acknowledge that this article is part of a research project funded by Universiti Teknologi MARA (UiTM) for the MyRA Grant Scheme, file no: 600-RMC 5/3/GPM (118/2022).

Does the chairman’s political and royal authority matter? Evidence from ESG disclosure in Gulf Cooperation Council

Purpose This study aims to explore the influence of the chairman’s political and royal authority on environmental, social and governance (ESG) disclosure within the context of nonfinancial companies listed in the Gulf Cooperation Council (GCC). Design/methodology/approach The authors adopt a mixed-methods approach, analyzing a data set of 262 nonfinancial GCC companies from 2016 to 2021. The authors use content analysis to collect the ESG disclosure data based on the ESG Disclosure Guidance provided by the GCC Financial Markets Committee. Quantitative methods are applied to investigate the effect of the chairman’s political and royal authority on ESG disclosure. The credibility of the findings is fortified through rigorous robustness and endogeneity tests. Findings Consistent with the resource-based view and servant leadership theory, the authors found a positive impact of the chairman’s political and royal authority on ESG disclosure. Practical implications The findings of this study insight investors to consider the complex relationship between political affiliations and governance practices to align investments with sustainability and ethical criteria, thereby improving investment strategies in these contexts. This research offers a solid foundation for regulatory craft governance frameworks that acknowledge and incorporate the unique influence of royal family members and politically connected individuals within corporate boards. Originality/value This study enhances the discourse on ESG disclosure by focusing on the underrepresented GCC region. This research breaks new ground by focusing on the impact of the chairman’s political and royal authority on ESG disclosure. In addition, it addresses previous methodological limitations by incorporating more comprehensive ESG data for the GCC market.

Do Diversity in Board Drive Environmental, Social and Governance Disclosure? ASEAN Banking Sector Evidence

The study examines the impact of board of director on Environmental, Social and Governance disclosure and each pillar (E,S,G) practice of ASEAN bank companies. The board diversity variabels such as age, tenure and gender were used. The sample consists of 58 companies listed in stock exchanges of each country for 2022 and panel data regressions is used for analysis. The study finds that the board diversity variabels age improve ESG disclosure and each pillar E S G. Variabel tenure dan gender tidak berpengaruh terhadap semua variabel dependen. This study is important due to following reasons, firstly ESG issues are important and global, the lack of ESG disclosure makes the increasing factors even more important. Secondly this study uses a more advanced Bloomberg ESG scores as well as individual environment, social and governance scores to measure the ESG disclosure and each pillar. Finally the research results support the Upper Echelons Theory that strategies to focus organizational efforts on specific areas such as ESG disclosure deployment originate and are reinforced by the organization's board.

Blockchain‐based incentive mechanism for environmental, social, and governance disclosure: A principal‐agent perspective

Blockchain‐based incentive mechanism for environmental, social, and governance disclosure: A principal‐agent perspective

Do Financial Analysts See through the Cloud of Carbon Emissions?

SYNOPSIS Carbon risk management plays a crucial role in global environmental development, increasing the demand from environmentally conscious investors and stakeholders for carbon disclosure and control. In parallel with the U.S. Securities and Exchange Commission’s (SEC) release of climate rules in 2024 for enhanced carbon disclosure, this study investigates the effect of voluntary carbon disclosure on analyst forecast accuracy. Using a sample of S&P 500 firms from 2009 to 2020, we find that high-quality carbon disclosure and performance is positively associated with earnings forecast accuracy. Superior disclosures reduce firm-level uncertainties and result in more accurate forecasts. The positive effect is strong in firms that voluntarily disclose climate risks because analysts better comprehend the financial implications of firms’ integrated climate-control strategies. This study contributes to environmental, social, and governance (ESG) disclosure practices and offers implications through specific carbon disclosures. Our evidence supports the SEC in validating its move toward enhanced reporting guidelines. Data Availability: The data for this study are collected from subscription-based databases like Compustat-Capital IQ, I/B/E/S, and Bloomberg and manually from various publicly available sources identified. JEL Classifications: C36; G32; M14; M41; M48; Q51.

CEOs family on the boardroom and environmental, social, and governance disclosure: Exploring from economic crisis during COVID‐19

<scp>CEOs</scp> family on the boardroom and environmental, social, and governance disclosure: Exploring from economic crisis during <scp>COVID</scp>‐19

Unveiling the influence of ESG disclosures on corporate profitability: Insights from Thailand’s publicly listed companies

This study investigates the influence of Environmental, Social, and Governance Disclosures (ESGD) on the profitability of firms, using a sample of 385 publicly listed companies on the Thai Stock Exchange. Data from 2018 to 2022 is sourced from the Bloomberg database, focusing on ESGD scores as indicators of companies’ ESG commitments. The study utilizes a structural equation model to examine the relationships between independent variables; ESGD, Earnings Per Share (EPS), Debt to Assets ratio (DA), Return on Investment Capital (ROIC), Total Assets (TA), and dependent variables Tobin’s Q (TBQ) and Return on Assets (ROA). The analysis reveals a positive relationship between ESGD and TBQ, but not with ROA. Further exploration is conducted to determine if different ESGD levels (high, medium, low) yield consistent effects on TBQ. The findings indicate discrepancies: high and medium ESGD levels are associated with a negative impact on TBQ when EPS increased, whereas low ESGD levels correlate with an increase in TBQ with rising EPS. This nuanced approach challenges the conventional uniform treatment of ESGD in previous research and provides a deeper understanding of how varying commitments to ESG practices affect a firm’s market valuation and profitability. These insights are crucial for firm management, highlighting the importance of ESGD in relation to other financial variables and their effects on market value. This study offers a new perspective on ESGD’s impact, emphasizing the need for differentiated strategies based on ESG commitment levels.

Analisis Pengungkapan Tata Kelola Syariah pada Perbankan Syariah Indonesia, Malaysia dan Bahrain

Objectives: This study aims to test and analyze the effect of sharia supervisory board size, sharia supervisory board expertise, sharia supervisory board meetings, audit committee size, audit committee expertise, audit committee meetings, and CEO duality on shari'ah corporate governance in 15 Islamic banks in Indonesia, Malaysia and Bahrain during the period 2013-2022.Design/method/approach: The analysis technique in this study is quantitative with multiple regression analysis tools with a panel data approach Results/findings: The results of this study are (1) supervisory board expertise and meetings have a significant effect on shari'ah corporate governance disclosure (2) supervisory board size, audit committee size, meetings. expertise and CEO duality have an insignificant effect on shari'ah corporate governance disclosureTheoretical contribution: The application of Stewardship Theory to the disclosure of Shari'ah Corporate Governance as well as expanding insight and literature on Shari'ah Corporate Governance, Shari'ah Corporate Governance regulations, and the application of standards used by Islamic banking in several countries.Practical contribution: As a reference for regulators related to Shari'ah Corporate Governance to improve the quality of the standards that have been set.Limitations: The research object is only carried out in three countries, namely Indonesia, Malaysia and Bahrain so that the sample studied is still small

Does Business Ethics Disclosure Contribute to ESG Disclosure and ESG Performance on Firm Value?

Purpose: This study investigates whether Business Ethics Disclosure (BED) contributes to Environmental, Social, and Governance (ESG) disclosure and ESG performance, and how these factors influence firm value.Methods: Using data from publicly traded companies listed on the Indonesia Stock Exchange (IDX), we employ multiple regression analysis to examine the relationships between BED, ESG disclosure, ESG performance, and firm value.Findings: Our results indicate that BED significantly moderates the relationship between ESG disclosure and firm value. While ESG disclosure alone does not consistently impact firm value, the inclusion of BED enhances the positive effects of ESG practices on firm valuation.Novelty: This study contributes to the literature by highlighting the moderating role of business ethics in the ESG performance-firm value nexus, offering new insights into the interplay between ethical disclosures and ESG outcomes.Research Implications: The findings suggest that companies should integrate ethical disclosures into their ESG strategies to improve firm valuation. Policymakers and regulators are encouraged to establish comprehensive reporting standards that include ethical practices to enhance transparency and investor confidence.

Sustainability reporting and market performance of listed Insurance Firms in Nigeria

Purpose: This study examines the effect of sustainability reporting on the market performance of listed insurance firms in Nigeria. Methodology/approach: The study employed an ex-post facto research methodology, using pre-existing, unaltered data from 22 listed Nigerian insurance companies, selected through census sampling. Conducted from 2013 to 2023, the study period covers the transition from the Nigerian Stock Exchange (NSE) to the Nigerian Exchange Group (NGX). Panel regression analysis and the FGLS regression model were used to investigate the relationship between the variables. Findings: This study found that sustainability reporting which includes social, environmental, and governance disclosures positively affects market performance. This shows that the market views a company's comprehensive commitment to sustainability favorably, likely interpreting it as a sign of long-term viability, ethical conduct, and effective risk management. Practical implications: Insurance companies in Nigeria should focus on enhancing and clearly communicating their sustainability reporting initiatives, as these positively impact market performance. Firms should strategically manage and communicate these aspects to better align with investor expectations and highlight their long-term benefits. A balanced and integrated approach to sustainability reporting is essential, as it positively influences market perception and supports long-term growth and stability. Originality/value: This study contributes to the understanding of sustainability reporting within the Nigerian insurance sector. It provides empirical evidence on how different aspects of sustainability reporting: social, environmental, and governance affect market performance. The research fills a critical gap in the literature regarding African insurance markets, offering insights that can inform both academic discourse and practical applications and financial performance.

THE MODERATING ROLES OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE DISCLOSURES ON COMPANY OWNERSHIP STRUCTURE AND TAX AVOIDANCE

Purpose: The aim of this study is to investigate the moderating roles of environmental, social, and governance disclosures in the relationship between company ownership structure and tax avoidance was investigated. The company ownership structure consist of family ownership, foreign ownership, and institutional ownership. Methodology/approach: Quantitative is the type of this research with using secondary data. Data collected from company reports that is annual reports, sustainability reports, and OSIRIS database. The data was analysed using hypothesis tests. Findings: The results of this study demonstrated that family ownership has a positive influence and foreign ownership has a negative influence, while institutional ownership has no influence on tax avoidance. Furthermore, this study revealed that environmental, social, and governance disclosures can weaken the influence of family ownership relationships, strengthen the influence of foreign ownership relationships, and prevent tax avoidance. In addition, environmental, social, and governance disclosures cannot moderating roles the influence of the relationship between institutional ownership and tax avoidance. Practical implications: The tax authority can improve the regulations about procedures for implementing transfer price agreements in special company relationships by considering environmental, social, and governance disclosures, so as to prevent an increase in tax avoidance. Originality/value: This study adds environmental, social, and governance disclosures to classify the inconsistency previous research which are thought to have a combined influence on the relationship between company ownership structure and tax avoidance.

Corporate governance disclosure by Italian universities: an empirical analysis of the determinants

Corporate governance disclosure by Italian universities: an empirical analysis of the determinants

Does ESG disclosure enhance firm performance during COVID-19? Evidence from Nifty 500 firms

Market turmoil caused by COVID-19 has weakened firms’ financial performance, highlighting the prominence of sustainable business practices by incorporating Environmental, Social, and Governance performance and their disclosure. Though past studies investigated COVID-19’s impact on firm performance, there is consensus on the role of firms’ Environmental, Social, and Governance disclosures between firm performance and the pandemic. With this view, the study aims to examine the impact of COVID-19 on firms’ financial performance with the moderating role of Environmental, Social, and Governance performance disclosure. To do so, the study retrieved data of Nifty 500 index companies from the Bloomberg database for a sample period ranging from 2016 to 2022. To this end, the study performed the fixed-effect regression and GMM model. The findings reveal a significant negative impact of the pandemic on Return on Assets (β =-4.812), Return on Equity (β =–.675), and Earnings Per Share (β = –2.875), highlighting the unfavorable effect of the pandemic on firm performance. Further results showed that firms’ Environmental, Social, and Governance performance disclosure positively moderates the connection between COVID-19 and Return on Assets (β = 3.231), Return on Equity (β = 0.032), and Earnings Per Share (β = 1.523), respectively. This indicates that companies actively involved in Environmental, Social, and Governance disclosure are less likely to suffer during the pandemic in terms of financial performance due to their ESG disclosures.