Impact of Carbon Emission Trading System Participation and Level of Internal Control on Quality of Carbon Emission Disclosures: Insights from Chinese State-Owned Electricity Companies

Abstract

In recent years, the quality of carbon emission disclosures has become a central area of concern for different stakeholders of companies. Specifically, stakeholders of state-owned enterprises (SOEs) want these companies to legitimize their actions regarding carbon emissions reductions reporting. The current study aims to explore the impact of carbon emission trading system participation and the level of internal control on the quality of carbon emission disclosures. Using a sample of Chinese state-owned electricity companies from 2012 to 2018 and employing the difference-in-differences (DID) method, we find a positive impact of the carbon emission trading system participation on the quality of carbon emission disclosures, which suggests that the state-owned electricity companies' participation in the carbon emission trading system leads to the higher quality of carbon emission disclosures. Likewise, we find a positive relationship between the level of internal control and the quality of carbon emission disclosures, which suggests that the state-owned electricity companies with stronger internal control provide the higher quality of carbon emission disclosures. In addition, we find that the findings are only significant in the case of central SOEs as compared to local SOEs. Our findings contribute to the practical, policy, and research implications as the quality of carbon disclosures is the primary concern from a variety of stakeholders.

Carbon Emissions and Firm Performance: Evidence from Financial and Non-Financial Firms from Selected Emerging Economies

“…We found that the coefficient for a state-owned firm dummy was negative (β = −0.071), indicating that state-owned financial firms in emerging markets emit less carbon. Our results conform to the findings of Tan, Gao, and Komal [53] in that state-owned firms have a higher level of internal control, which leads to a lower level of carbon emissions.…”

Firm governance structures, earnings management, and carbon emission disclosures in Chinese high‐polluting firms

“…Table 1 depicts a summary of the descriptive statistics of the study. The dependent variable carbon emission disclosures' average value is approximately 14 per cent, which represents a lower level of carbon emission disclosures by Chinese high‐polluting firms in line with prior research (Bilal et al, 2022; Tan et al, 2020). The variable of interest, firm governance structures, related to the average value of board size (BS), is 8.89, with a standard deviation of 1.65.…”

“…Climate change represents the greatest global environmental challenge facing organizations today (Chen, 2021). In particular, carbon emissions from industrial processes are accelerating climate change at such an alarming rate (Jamali et al, 2022; Liao et al, 2015); that continued stakeholders' demands and pressure have led firms to release a more integrated level of emission disclosures reports related to its climate change mitigation efforts (Baranova & Meadows, 2017; Gerged, Beddewela, et al, 2021; Hysa et al, 2020; Lee et al, 2023; Tan et al, 2020). Whether around the corner or globally, institutional investors are concerned about the environmental information regarding a firm's carbon emission mitigation strategies deployed to evaluate investment risks and opportunities (Döring et al, 2023; Einig, 2022; Jiang et al, 2023).…”

“…To ensure continued progress forward, in 2019 China introduced a national emission trading system to lower carbon emissions (Fang et al, 2021; Li et al, 2019; Liu et al, 2022). The Chinese government implemented the national trading system to limit carbon emissions which reflected performance data from seven pilot regional emission trading systems (Shen, Tang, et al, 2020; Tan et al, 2020). In support of its goal of carbon emission reduction, China has also supported industrial firms with innovative green technologies (Huang et al, 2023), using a carbon emission accounting system (Hong‐Shuo et al, 2023), and carbon emissions reporting guidelines (Schaltegger & Csutora, 2012).…”

Study of Chinese carbon emission trading market mechanism based on the game theory

“…According to the report on the global climate state released by the World Meteorological Organization, the global concentration of major greenhouse gases continued to rise in the half year of 2020, and the global average temperature was about 1.2°C higher than the pre-industrial level. The last period of 2015 to 2020 was the six warmest years for the world since the meteorological records began (Tan et al, 2020;Gong and Zhou, 2019). In order to deal with the climate change, the international community reached the Paris Climate Agreement in 2015, which put forward to control the global temperature rise less than 2°C and strive for the goal of 1.5°C compared with the industrial revolution.…”