The Relationship between Environmental Information Disclosure and Profitability: A Comparison between Different Disclosure Styles

Abstract

Combined with the existing research gap, this paper divides firms’ environmental information disclosure styles into two types: Substantive style and symbolic style. This paper elaborates on the relationship between environmental information disclosure and firms’ profitability of these two disclosure types and tests this relationship using the data from 676 firms employed from the heave-polluting industry. Considering the endogenous and heteroscedasticity problems, 2-stage least squares method and weighted least square method were adopted. The results showed that (1) positive relationships exist between environmental information disclosure and profitability for both types; and (2) the contribution of symbolic-style disclosure to profitability is larger than that of substantive-style disclosure. These findings are important for corporate managers and highlight some policy implications in developing countries.

The Impact of Environmental Information Disclosure on the Firm Value of Listed Manufacturing Firms: Evidence from China

“…Some scholars provide evidence that there is a positive link between EID and CFP. According to Porter's hypothesis, properly designed environmental regulation induces firms to break inefficient operational inertia and innovate, which lead to better productivity and profitability of the firms [6][7][8]. As a proxy for information transparency, EID avoids information asymmetry between managers and stakeholders.…”

Valuation Impacts of Environmental Protection Taxes and Regulatory Costs in Heavy-Polluting Industries

“…Based on previous studies [35,36], this study explores two types of environmental improvement information disclosure: symbolic environmental improvement information using a narrative language and substantive environmental improvement information using quantitative data.…”

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“…In addition, the researchers tested the effects of the disclosure of environmental improvement activities in the following ways. Yin et al classified environmental information disclosure into symbolic-style disclosure indicating a firm's environmental strategy and goals by a narrative language, and substantive-style disclosure reporting quantitative data [36]. Following the definition of Yin et al, this research continued to look at whether the symbolic and substantive disclosure of environmental improvement activities mitigate the market's concern with the increasing regulatory costs for the firm.…”

“Environmental Performance Reporting in Commercial Banks of India: Exploring Association with Financial Performance”

“…Al-Tuwaijiri et al [28] asserted that there is significant positive relationship between environmental performance and financial performance with comprehensive quantifiable environmental disclosure. Yin et al [29] analysed the relationship between environmental information disclosure and financial performance based on symbolic and substantive methods of disclosure of environmental information. Results evince positive relationship exist between environmental information disclosure and financial performance for both types of disclosures.…”