Corporate environmental disclosure and local government environmental oversight in China

Abstract

Purpose Recent research has drawn attention to the tension between the Central and local governments in China regarding their roles in environmental protection. This paper aims to explore this tension and examine the extent to which local/provincial government’s environmental oversight has influenced the quality of corporate environmental disclosure in China. Design/methodology/approach A sample of 198 listed companies in heavily polluting industries were selected to examine the relationship between their environmental disclosure quality and the respective local government’s environmental oversight level. Findings The results provide evidence that local/provincial government’s environmental oversight significantly influences environmental disclosure in China. Despite the coercive pressure from the powerful Central government on corporate environmental disclosure, local/provincial governments are able to buffer the pressure and adjust the intensity of their environmental oversight on companies during the implementation of central policies to retain local economic and political interests. This may partially explain the persistent issue of low environmental disclosure quality in China. Research limitations/implications This study enriches our understanding of the significant role of local governments in China in enhancing or sometimes discounting the regulatory enforcement of the Central government on corporate environmental disclosure, pointing to the need for concerted efforts by both local and Central governments to advance environmental disclosure development. Originality/value Research on environmental disclosure in developed countries has been well established in the literature. However, such research in developing nations is still limited, especially in China, the world largest developing country. The existing literature on environmental disclosure in China links it with either market demands, or regulatory enforcement from the Central government. The importance of local/provincial governments and their environmental oversight has long been ignored, which motivates this research.

Corporate governance perspective on environmental reporting: Literature review and future research agenda

“…The results suggest that, at least in this specific institutional environment, despite the evident political agenda towards sustainability, governmental regulation and shareholding influences trigger merely symbolic corporate actions. Moreover, the positive effect of a pro‐environmental agenda may be undermined by tensions between central and local government agencies (Qian et al, 2022).…”

The power of culture: Does Confucian culture contribute to corporate environmental information disclosure?

“…Formal system plays a very important role in the face of environmental information disclosure, and the importance of environmental issues paid by the government where the firm is located directly affects the motivation of firms to make environmental disclosures (Qian et al, 2022). Confucian culture, as an informal institution, influences the environmental behavior of firms mainly through the subtle influence on the behavior of executives and the monitoring of social opinion.…”

Sustainability, non-financial, integrated, and value reporting (extended external reporting): a conceptual framework and an agenda for future research

“…The need to secure “legitimacy” also affects “accountability”. Stakeholder demand, pressure and scrutiny are primary influences of non-financial reporting practices (Adler et al , 2017; Clune and O’Dwyer, 2020; Thorne et al , 2014), and government oversight and regulatory requirements are means to influence disclosure quality (Arif et al , 2022; Kansal et al , 2022; Qian et al , 2022). The need to secure “legitimacy” also affects “proactivity”, as studies have reported stakeholder pressure shapes sustainability systems and practices (Abdalla and A.K, 2015; Johnstone and Hallberg, 2020; Vilchez et al , 2017).…”