The impact of top management’s environmental responsibility audit on corporate environmental investment: evidence from China

Abstract

Purpose The purpose of this paper is to examine the effect of top management’s environmental responsibility audit (ERA) implementation on firms’ investment for environmental protection in China. Design/methodology/approach The sample comprises firms publicly traded on A-Share in China from 2011 to 2017. The authors used the ordinary least squares regression model to test the relation between ERA implementation and corporate environmental investment. Findings Firms’ environmental investment increases significantly after the ERA implementation. Compared to state-owned enterprises (SOEs), non-state-owned enterprises (non-SOEs) are more likely to increase their environmental investment after ERA implementation. Moreover, such change is more likely for non-heavily polluting enterprises (non-HPEs) compared to heavily polluting enterprises (HPEs). Practical implications This paper provides an in-depth analysis of the positive influence of environmental enforcement on corporate behavior, which could serve as reference for regulators on the latest environmental accounting practice in China and other emerging economies. Social implications This paper shows that clear assignment of environmental responsibility and subsequent assessment of environmental performance are contributing factors to effective and efficient implementation of an environmental management system. Originality/value Contributing to accounting and environmental management literature, this paper explains how mandated environmental audit incentivizes firms to deal with environmental issues. Because there is no prior research concerning the mandatory implementation of environmental audit in China, this paper is of high-innovatory value by providing a better understanding of environmental auditing and providing an economic explanation for government intervention as an effective means of mitigating environmental degradation in emerging economies.

Analysis of factors affecting environmental audit (EA) implementation with DEMATEL method

“…Wang et al (2016) identified the critical implementation barriers against GSCM in the packaging industry using DEMATEL. Yazdi et al (2020b) for effective safety management decision-making used the DEMATEL methodology. Maqbool and Khan (2020) have developed DEMATEL method for analyzing barriers for implementation of public health and social measures to prevent the transmission of COVID-19 disease.…”

“…The DEMATEL method includes the following steps (Fu et al , 2012; Yazdi et al , 2020a, 2020b; Awasthi and Grzybowska, 2014; Kaur et al , 2017). The conceptual framework of DEMATEL for this study is given in Figure 1.…”

“…In recent years, many researchers have analyzed factors to better implement EA, and each of these studies has provided a limited number of factors. For example, Zeng et al (2020) considered the increase of companies' environmental investment and management reputation to be effective in implementing EAs. Ruban and Ryde ´n (2018) address the factor to improve organization image, obtaining EMS certificates, preventing and reducing emissions and adding EA to the countries' main environmental policy documents as factors to EA.…”

Succession intention and environmental investment: The moderating role of social status

“…For most Chinese family firms, substantial discretion is enjoyed by the founder’s family because ownership and management are not separate; family management and decision procedures usually take the place of business decision procedures ( Cao et al, 2015 ). The controlling power of the family elevates its right to pursue SEW through substantive responses to environmental demands, which may not be of interest to professional managers who are responsible for profit maximization ( Zeng et al, 2020 ). Thus, founders’ expectations of having the next generation succeed to both ownership and management indicate that a firm’s environment-friendly policies are more likely to be consistent over a longer period of time.…”

“…Most environmental research focuses on listed firms and is concerned with the influence of environmental regulations and governance on a firm’s environmental investment. For example, Zeng et al (2020) demonstrated the influence of implementing environmental responsibility audits on firms’ environmental protection investments. Tian et al (2021) empirically tested the positive impact of cross-shareholding on corporate environmental investments.…”