Relations between corporate economic performance, environmental disclosure and greenhouse gas emissions: New insights

Abstract

This study examines the associations and causations between corporate economic performance, environmental disclosure and greenhouse gas emissions, utilizing a large, longitudinal, multicountry dataset disaggregated between developed and developing countries. The methodology uses a simultaneous equation model with system estimation to deal with endogeneity between the variables, and Granger causality tests to indicate their direction of causation. A robust result is that lower emissions are strongly associated with better economic performance. After pretesting for stationarity, we find evidence of a one‐way causation from emissions and environmental disclosure to economic performance, but no evidence of reverse causation. We also find strong evidence of a one‐way causation from emissions to disclosure, but no evidence of reverse causation. The overarching policy implication is that environmental performance, as measured by greenhouse gas emissions, plays a crucial role in the formulation of business strategy at the firm level and government environmental policy at national and international levels.

The impact of voluntary environmental disclosure on firm value: Does organizational visibility play a mediation role?

“…While Clarkson et al () used prior environmental disclosure and performance in their research model, Plumlee et al () relied on the concurrent values of these variables. Thus, theoretically, this stream of literature suggests that voluntary environmental disclosure is value relevant through its direct impact on a firm's cost of capital and/or its value; however, the empirical evidence is inconclusive and difficult to generalize because of the variety of metrics used for the constructs of interest (Hassan & Romilly, ). Consequently, the third research hypothesis is stated in terms of a nondirectional null hypothesis as follows:H3 Prior environmental disclosure does not impact current firm value.…”

“…However, organizational visibility (NOA and INST) and firm value (MCAP) can have a contemporaneous association with environmental response (CED and GHG). Furthermore, it assumes environmental disclosure to be made some months after greenhouse gas emissions have occurred and after the financial year end (Hassan & Romilly, ). This, in turn, implies that environmental disclosure cannot have a simultaneous association with environmental performance, but it could have a lagged association with it, although it is assumed that environmental performance can have a contemporaneous association with environmental disclosure.…”

“…CED, a proprietary Bloomberg score that has been used in several recent related academic studies (e.g., Bernardi & Stark, ; Hassan & Romilly, ; Qiu, Shaukat, & Tharyan, ). The environmental disclosure score is weighted to emphasize the most commonly disclosed fields such as greenhouse gas emissions and normalized to range from zero for companies that do not disclose environmental information to 100 for those which disclose every data point collected.…”

“…Country‐level controls include country income measured by the gross domestic product per capita (GDP) and corporate governance (e.g., Hassan & Romilly, ). CCGP is the first principal component of corporate governance indicators at the country level.…”

“…The current study also adds to the growing literature on environmental policies and organizational visibility by exploring the dynamics of the relationship between CED and organizational visibility after controlling for GHG. It also extends the relatively thin literature on the determinants of GHG where it considers the impact of organizational visibility separated from firm size, in addition to prior CED (Bowen, ; Hassan & Romilly, ). It employs structural equation modeling (SEM) to address the interrelationships between the variables of interest for a sample of S&P Global 1200 companies from 2010 to 2015 with 2,365 firm‐year observations.…”