Environmental disclosures and corporate attributes, from the lens of legitimacy theory: a longitudinal analysis on a developing country

Abstract

PurposeThe study seeks to evaluate the extent and quality of environmental reporting following a longitudinal analysis and covering a wide spectrum of industries in a single frame. The study also attempts to identify the set of most favored environmental reporting items by firms and items which are least disclosed. Furthermore, the study attempts to test whether certain corporate attributes such as firm size, age of the firm, leverage ratio, profitability, presence of independent directors in the board and gender diversity have any influencing power over environmental disclosure practices. The whole study has been carried out from legitimacy theory setting.Design/methodology/approachThe study follows longitudinal analysis to identify the extent and quality of environmental disclosures. A self-constructed checklist of 12 environmental reporting items has been developed analyzing the annual report and content analysis method is followed to measure the extent and quality of environmental disclosures and identify environmental reporting items which are mostly disclosed and which are least disclosed. The study further uses panel data regression analysis to investigate whether certain corporate attributes have any impact on environmental disclosures using multiple linear regression. Total of 345 annual reports of listed financial and nonfinancial institutions have been observed in this study ranging from 2015 to 2019.FindingsThe key finding suggests that strict enforcement of Green Banking Rules 2011 fosters country’s commercial banks to invest more to protect the environment and commercial banks encourage nonfinancial institutions for environmental performance and related disclosures through finance. Therefore, almost 50% of sample firms disclose their environmental performance through reporting in either narrative, quantitative or monetary format which was only 2.23% in the last decade. Findings also reveal that tree plantation is the most reported environment disclosure followed by investment in renewable energy and green infrastructural projects and the least reported items are fund allocation for climatic changes and carbon management policy. Further analysis shows that firm size and leverage ratio both have positive impact on environmental reporting.Research limitations/implicationsAn in-depth analysis may be conducted to identify why certain environmental items are least disclosed such as fund allotment for climatic changes, carbon management policy, etc. and how corporations may earn social appreciation and motivation by investing in those least preferred items in legitimacy theory setting. Future research may also take into consideration other corporate attributes which are not considered in the study.Originality/valueThe study conducted an in-depth analysis to understand the most favored form of environmental disclosures (narrative/quantitative/monetary) and their extent after incorporation of regulatory guidelines, which is the first of its kind in the research of environmental disclosures. The study indeed contributes to the documentation of environmental reporting in the context of a developing country where there is a lack of longitudinal analysis from the lens of legitimacy theory. Moreover, a wide spectrum of industries has been taken into consideration which facilitates the generalized findings on the environmental disclosure practices of corporations in Bangladesh.

The Effect of Environmental Performance, Company Characteristics and Media Exposure on Environmental Disclosures (Study of Manufacturing Companies listed on the Indonesia Stock Exchange for the Period 2010-2021)

“…This means that the level of debt or leverage in the company does not influence the high or low level of corporate environmental disclosure. The results of this study support the research of Aulia& Agustina (2015) and Purnama (2018) but do not support the research of Gerged (2020) and Akhter et al (2022).…”

“…One of the reasons is that companies with high profitability are more profitoriented, so they do not necessarily carry out more environmental activities to be presented in their annual reports (Ciriyani& Putra, 2016). This research supports the research of Akhter et al (2022) and Junita &Yulianto (2018) but is not in line with the research of Ahmadi &Bouri (2017) and Putra et al (2021).…”

“…The result is that the pressure received by companies will be even greater because companies must make objective and quality voluntary disclosures to gain legitimacy or recognition (Ratmono, 2019). The results of this study are in line with Akhter et al (2022) and Siregar&Deswanto (2018) but not in line with Maulana et al (2021) and Terry &Asrori (2021).…”

Islamic governance, sharia supervisory board, environmental performance, and Islamic social reporting: Evidence from Indonesia

“…The results of the research on the cross-membership of the sharia supervisory board are not in line with the Resources Dependence Theory which explains that the cross-membership of the sharia supervisory board creates an interlock between directors that can bridge management with the external environment. thus, cross-membership can leak information about the company's activities and policies in the disclosure of social responsibility (Akhter et al, 2022).…”

“…Strategies in environmental management will produce good environmental performance and will have an impact on increasing company performance (Klassen & McLauglin, 1996). According to Akhter (2022), based on the legitimacy theory, companies with good environmental performance will disclose more information on environmental quantity and quality than companies with poor environmental performance. Where this can convince the community that the company is able to manage the environment properly and in accordance with the values that apply in the surrounding community.…”