Environmental Policy,Sustainable Development,Governance Mechanisms and Environmental Performance

We investigate the effects of environmental policy (Climate Change Act – CCA), sustainable development frameworks (Global Reporting Initiative – GRI; UN Global Compact – UNGC) and corporate governance (CG) mechanisms on environmental performance (carbon reduction initiatives – CRIs; actual carbon performance – GHG emissions) of UK listed firms. We use the generalized method of moments (GMM) estimation technique to analyse data consisting of 2245 UK firm‐year observations over the 2002–2014 period. First, we find that the CCA has a positive effect on CRIs, and this effect is stronger in better‐governed firms. Second, we find that the GRI‐based framework is positively associated with CRIs. Third, we find that firms with poor CG structures have lower actual carbon performance compared with their better‐governed counterparts. Overall, our evidence suggests that firms can symbolically conform to environmental policy (CCA) and sustainable development frameworks (GRI, UNGC) by engaging in CRIs without necessarily improving actual environmental performance (GHG emissions) substantively. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Climate change mitigation: Carbon assurance and reporting integrity

Concern about climate change has increased the pressure on firms to be accountable for social impact and to report on environmental, social and governance (ESG) performance. Focusing on the view that sustainability-oriented firms are likely to consider wider stakeholder interests and pursue high financial reporting integrity, this paper examines the association between carbon assurance and earnings management. Using a sample of firms listed on the New York Stock Exchange, we find voluntary adoption of carbon assurance (level), carbon disclosure and gender diverse boards are negatively associated with earnings management. Additional tests using different components of carbon assurance (percent and verification) confirm our main results. Our results suggest that firms that voluntarily invest in carbon assurance, carbon disclosure and gender diverse boards are less likely to engage in earnings management and thus have higher reporting integrity. This aligns with the view that firms' ethical concerns translate into higher quality reporting.     

Reputation and Corporate Social Responsibility Aberrations,Trends, and Hypocrisy: Reactions to Firm Choices in the Stock Option Backdating Scandal

Drawing on strategic corporate social responsibility (CSR) and reputation theory, this paper examines the market reaction to firm disclosures of involvement in the US stock option backdating scandal. We examine how a firm's prior signals regarding ethical behaviour and values, as demonstrated through CSR initiatives, may both ameliorate and exacerbate market reactions. CSR initiatives may buffer a firm against general wrong‐doing but expose it to greater scrutiny and sanction for related wrong‐doing. Our results show that firms with enhanced overall reputations for CSR are partially buffered from scandal revelations. However, we find that when firms possess an enhanced reputation for CSR associated with corporate governance, violations pertaining specifically to governance are viewed as hypocritical and more harshly sanctioned. We also find lower and negative market reactions for firms that delay but self‐disclose their involvement in the scandal. The study extends the emergent, related literatures on strategic CSR and reputation management, and documents dynamics in the relationship between corporate social and financial performance.     

Do Board's Corporate Social Responsibility Strategy and Orientation Influence Environmental Sustainability Disclosure? UK Evidence

The environmental implications of corporate economic activities have led to growing demands for firms and their boards to adopt sustainable strategies and to disseminate more useful information about their activities and impacts on environment. This paper investigates the impact of board's corporate social responsibility (CSR) strategy and orientation on the quantity and quality of environmental sustainability disclosure in UK listed firms. We find that effective board CSR strategy and CSR‐oriented directors have a positive and significant impact on the quality of environmental sustainability disclosure, but not on the quantity. Our findings also suggest that the existence of a CSR committee and issuance of a stand‐alone CSR report are positively and significantly related to environmental sustainability disclosure. When we distinguish between firms with high and low environmental risk, we find that the board CSR/sustainability practices that affect the quantity (quality) of environmental sustainability disclosure appear to be driven more by highly (lowly) environmentally sensitive firms. These results suggest that the board CSR/sustainability practices play an important role in ensuring a firm's legitimacy and accountability towards stakeholders. Our findings shed new light on this under‐researched area and could be of interest to companies, policy‐makers and other stakeholders. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

How does a firm's life cycle influence the relationship between carbon performance and financial debt?

In a progressively more stringent regulatory context concerning greenhouse gas emissions derived from a growing awareness of how economic activity affects our environment, this study analyzes how the firm's life cycle affects the relationship between carbon performance and financial debt. Using panel data on a sample of European listed firms during the 2005–2018 period, we find evidence suggesting that firms with better carbon performance have greater access to external financing during their growth stages and lesser access during maturity, although it has no effect during the shake-out stage. Furthermore, carbon performance has a strong positive effect during growth, maturity, and shake-out when firms need to finance additional tangible investments. We also find that the negative relationship between liquidity and debt is reversed during innovative stages for firms with better carbon performance. Our results are robust to the use of alternative measures of life cycle stages and to the consideration of industrial, legal, and cultural contexts.     

A true and fair view on a harmonious and well-balanced alliance: EAA and EIASM

Allegations of creative accounting by management of listed corporations in the UK do not abate. To the extent that these practices distort the underlying reported financial performance of firms, they conflict with the basic aims of accounting regulation – to provide consistent and comparable financial information to users. Studies have shown that accounting choices are influenced by a range of contracting, financing and operational factors. However, we still know little about what constraints exist against the practice of creative accounting and how effective these are. Issues such as the extent to which the press and analysts are successful in restraining creative accounting, and the role the ‘true and fair view’ principle and auditors play in the prevention of such practices still remain unresolved. This article explores these themes by examining the accounting practices of two UK companies which issued a creative financing instrument. Using a combination of interview, documentary, and financial statement information, the analysis shows that management took advantage of gaps in accounting standards to present a biased picture of financial performance. Auditors did not appear to restrain such practices, and the true and fair view principle, rather than unifying accounting practice, appears to tolerate a range of interpretations. Adverse media publicity appears to be a successful deterrent in the medium term, but since the press are not regulators, their reporting is not necessarily consistent or predictable. UK analysts at the time did not evaluate accounting practices in any significant detail, and thus this potential restraint was not effective. Overall, the influences and constraints on creative accounting are illuminated in this study in a way which provides new insights into our understanding of financial reporting.     

Strategic stakeholder management,environmental corporate social responsibility engagement,and financial performance of stigmatized firms derived from Chinese special environmental policy

We draw upon the stigma literature and strategic stakeholder management model to develop a framework capable of explaining the link between environmental corporate social responsibility (ECSR) engagement and financial performance of stigmatized firms, taking stakeholder‐oriented governance and density of local stigmatized firms into consideration. Using a uniquely compiled dataset of Chinese firms specifically monitored by the Ministry of Environmental Protection of China, we conducted propensity score matching analysis to estimate the impact of stigma on corporate financial performance and corporate environmental responsibility. The result shows that the financial performance of stigmatized firms is negatively affected by the stigma label, spurring them to engage in more ECSR than their peers to improve their legitimacy. Though ECSR engagement of stigmatized firms is found to be negatively associated with their financial performance in current study. Our results also confirm that (a) the financial performance of stigmatized firms is positively affected by two proxies for corporate stakeholder‐oriented governance (i.e., institutional ownership and corporate transparency) and negatively affected by the density of local stigmatized firms; (b) corporate stakeholder‐oriented governance compensates for the negative effect of ECSR engagement; (c) high intensity of local stigmatized firms provides focal firms with an opportunity to improve their financial performance through ECSR engagement; and (d) the positive effects of corporate stakeholder‐oriented governance are diminished by the density of local stigmatized firms.     

Sustainable environmental practices and financial performance: Evidence from listed small and medium‐sized enterprise in the United Kingdom

In this article, we investigate the financial implication of sustainable environmental practices on UK small and medium‐sized enterprises (SMEs)–traded firms. Existing literature indicates that there is a direct relationship between sustainable environmental practices and financial performance. However, studies looking at this relationship have focused mainly on large firms with little attention paid to SMEs. Further, those looking at environmental and financial performance relationships have often used a single measure of performance in their studies. This study bridges these research gaps by focusing on listed SMEs in the United Kingdom using multiple measures of sustainable environmental policy indices on a panel of 201 SMEs on the Alternative Investment Market from 2011 to 2016. Evidence from our panel data analysis suggests significant and a nonlinear (concave) relationship between sustainable environmental practices and firms' financial performance. Specifically, energy efficiency practices, greenhouse gases, material, and resource efficiency revealed an inverted U‐shaped relationship with financial performance. The results will offer guidance to management in terms of allocating resources to sustainable environmental practices investment.     

Corporate Carbon and Financial Performance: The Role of Emission Reductions

This article uses econometric techniques to examine the effect of corporate carbon performance on corporate financial performance. I extend the existing literature in this research field by differentiating between two measurement perspectives: carbon performance expressed as annually reported carbon dioxide (CO₂) emission equivalents and improvements in carbon performance over time. Thereby, the article re‐addresses the research question ‘when and how does it pay to be green?’ in the context of carbon emissions and climate change mitigation. Using a nonlinear modeling technique, the findings indicate that it pays to be green for companies with superior carbon performance but not for companies with inferior carbon performance. The results also show that carbon emission mitigation is linearly and significantly positive related to return on sales (ROS) but negatively related to Tobin's q . These contradictory findings help us to understand why – in spite of growing regulatory pressure – companies have been slow to respond with effective action to tackle climate change beyond marginal efficiency improvements that correspond to ‘low‐hanging fruits’. The empirical analysis is based on an unbalanced sample of 7625 firm‐year observations covering carbon emission data (Scope 1 and Scope 2) for 1640 international firms from 2003 to 2015. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Environmental reporting by the Fortune Global 250: exploring the influence of nationality and sector

While research on environmental reporting frequently includes large multinational enterprises, the number of surveys that systematically analyses a whole set of such firms, including the non‐reporters, is limited – and mainly focuses on the United States. This article presents the state of environmental reporting by the Fortune Global 250, all large multinationals with a potentially large impact on other firms. Of these 250 firms, 35% has a recent environmental report, with another 32% publishing other types of environmental information. Reporting frequencies between the financial and non‐financial sector differed considerably, at 15 and 44% respectively. Besides an analysis of the number and contents of environmental reports, the importance of sectoral differences and firms' nationality is also considered. A framework is developed that posits the existence of reporting legislation in firms' home countries (some in place/pending, or none) against the direct environmental impact of the sector (large or small). The results of the analysis fit partially in this framework. Only a small number of reporting firms originates from countries with some kind of legislation (particularly The Netherlands), but national societal pressure seems to play a large role (especially in the UK, The Netherlands and Germany). Many operate in sectors with a substantial direct environmental impact (chemicals, pharmaceuticals, oil and motor vehicles and parts); reporting in sectors with more indirect effects is getting off the ground. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment     

Institutional investors' corporate site visits and aggressive financial reporting

This paper investigates the impact of institutional investors' corporate site visits on financial reporting aggressiveness. While prior research has shed light on the monitoring impact of institutional shareholding on firms' financial reporting practices, institutional investors' preference regarding financial reporting remains unclear. Using a sample of Chinese firms listed on the Shenzhen Stock Exchange from 2012 to 2019, we find that institutional investors' on-site visits significantly increase financial reporting aggressiveness of hosting firms. The on-site visit effect is more salient in firms that are more sensitive to the influence of institutional investors, for example, firms with a less powerful chief executive officer, financially constrained firms, and firms operating in competitive industries. Our study highlights that under a setting of weak minority shareholder protection such as in China, managers are likely to recognize revenue aggressively to please powerful shareholders who paid intensive attention to them.     

Financial participation and performance in Europe

This article assesses whether financial participation (profit‐sharing and employee share ownership plans) is associated with positive performance outcomes, and whether direct and indirect employee participation complement financial participation in this respect. It also examines whether employee involvement in the design of financial participation afects performance outcomes. The article uses data from a survey of listed firms in Finland, Germany, the Netherlands and the UK. Several outcome measures are used, based on respondents' assessments of the effects of financial participation. Higher participation in equity‐based plans, but not in profit‐sharing, is found to be associated with more successfil outcomes. None of fhe other forms of employe? pnrticipafion uins found to contribute to the success of financial participation. The results therefore cast some doubt on complementarity between financial and other forms of participation.     

Determinants of monetary penalties for environmental violations

This research investigates the likely determinants of monetary penalties for poor environmental performance. We retrieve data from Bloomberg on the monetary penalties imposed on companies in the European Union (EU) found to have performed poorly in corporate social responsibility (CSR), and particularly in the environmental aspects of CSR. Our primary findings reveal that firms with high levels of greenhouse gas and hazardous waste emissions are more likely to receive monetary penalties. On the other hand, firms that invest in green supply chain practices and disclose environment‐related matters avoid monetary penalties more. We also find that firms having executive compensation linked with environmental compliance face more monetary penalties. This finding adds a new dimension to the voluminous research on executive compensation that has investigated primarily the effects of cash and stock option‐based compensation schemes on pay–performance sensitivities. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Sustainability reporting quality and post‐audit financial reporting quality: Empirical evidence from the UK

This study examines whether firms that appear to exhibit high sustainability reporting quality are less likely to engage in earnings management activities, thereby delivering financial information that is more transparent and reliable than that delivered by firms that do not produce high‐quality sustainability reports. I also investigate whether the association between sustainability reporting quality and post‐audit financial reporting quality is conditional on audit effort. Analysis of data drawn from FTSE 350 companies covering 2007 to 2018 indicates that firms that produce high‐quality sustainability reports are significantly and negatively associated with earnings management metrics. More importantly, this association is moderated by audit effort, measured by audit fees, suggesting that sustainability reporting quality reflects factors considered by auditors in their audit risk assessment practices. These results remain robust after several sensitivity analyses. I conclude that firms that devote more resources to producing high‐quality sustainability reports are likely to demonstrate an overall commitment to quality that alleviates auditors' concerns about the opportunistic use of sustainability reporting and reduces business risk, thereby reducing the effort auditors expend to verify financial reports.     

Sustainable Development,Sustainability Leadership and Firm Valuation: Differences across Europe

Sustainable development is nowadays a high priority for firms all over the world. Consequently, numerous firms have increased their social responsibility initiatives, reinforcing the credibility and trust of their stakeholders. However, prior research about the relevance of sustainability leadership for the European investment community is scarce. In this context, the aim of this study is to examine whether sustainability leadership – proxied by membership of the Dow Jones Sustainability Index Europe – is value relevant for investors on the 10 major European stock markets over the 2001–2013 period. Our overall results reveal that there exist significant differences across markets. These findings are relevant especially for investors, but also for the managers of listed firms, market regulators and policymakers. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Small businesses and the environment: turning over a new leaf?

Previous studies on the environmental practices of small and medium‐sized enterprises (SMEs) in the UK and beyond have portrayed owner‐managers as laggards who underplay their firm's environmental impacts and resist environmental management due to its perceived cost. Yet a recent cross‐sector survey of 220 UK SMEs suggests that this intransigent stance may be slowly changing. Responses indicate a high percentage of owner‐managers actively involved in recycling, energy efficiency, responsible buying and selling, and efforts to reduce their carbon emissions. Owner‐managers saw it as their responsibility to help solve environmental problems and were reportedly willing to accept the costs of tougher environmental regulations and taxation. Business owners were motivated not just by the ‘push’ of legislation and environmental concern but by the ‘pull’ of potential cost savings, new customers, higher staff retention and good publicity for their firms. The survey also found that owner‐managers had resonance with the Stern Review's (2006) conclusions that the benefits of strong early action on climate change outweigh the costs, and that a transition to a low‐carbon economy will bring opportunities for business growth. This indicates that SMEs may be coming round to the idea that there is a business case for sustainability, although there is still some scepticism on the overall profitability of environmental action. Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment.     

The objectivity of corporate environmental reporting: a study of Finnish listed firms' environmental disclosures

This study examines the objectivity of Finnish listed companies' environmental reporting in their ordinary annual reports during the period 1985–1996. We study the firms' practice to disclose negative versus positive environmental events that are ex ante publicly known. As regards the entire research period, the results show that the environmental reporting of the sample firms cannot be considered objective, since the proportional share of negative events reported was negligible compared to the respective percentage for positive events. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment     

Chief executive officer attributes,sustainable performance,environmental performance,and environmental reporting: New insights from upper echelons perspective

This study examines the impact of chief executive officer (CEO) attributes on sustainable performance, environmental performance, and environmental reporting, which are motivated by institutionally driven environmental policies, regulations, and management in the context of Chinese listed firms. With the use of a comprehensive dataset of 2,854 Chinese listed firms over the 2010–2017 period (i.e., making over 16,000 individual firm‐year observations), our findings are fourfold. First, our overall findings reveal that CEOs with research background tend to engage more in activities that improve sustainable performance, environmental performance, and environmental reporting than do those without research background. Second, CEOs with financial expertise are positively linked with increased sustainable performance and environmental reporting. Third, CEOs with foreign exposure are more eager to engage in activities that enhance sustainable and environmental performance than do those without foreign exposure. Fourth, young CEOs tend to take actions that reduce both sustainable and environmental performance than do their older counterparts. We interpret our results within upper echelons theoretical perspective. The results are robust to alternative measures, potential endogeneities, and sample selection problems.     

Playing on Two Chessboards: Reputation Effects between Corporate Social Responsibility (CSR) and Corporate Political Activity (CPA)

It has recently been argued that corporate social responsibility (CSR) is ‘political’. It has been neglected however, that firms also operate politically in a traditional sense, in seeking to secure favourable political conditions for their businesses. We argue that there are potential synergies between CSR and corporate political activity (CPA) that are often overlooked by firms and that recognition of these synergies will stimulate firms to align their CSR and CPA. We develop a conceptual model that specifies how various configurations of a firm's CSR and CPA – alignment, misalignment, and non‐alignment – affect the firm's reputation beyond the separate reputation effects of CSR and CPA. This model has important implications for understanding how and why firms should pay attention to their CPA and CSR configurations, and thereby contributes to the broader issue of why firms should make sure that they are consistent in terms of responding to stakeholder concerns.     

Corporate Incentives to Disclose Carbon Information: Evidence from the CDP Global 500 Report

We investigate how the Global 500 companies respond to the challenge of climate change with regard to their carbon disclosure strategies. This paper is motivated by a growing body of research that examines the role of large companies in carbon disclosure responsibility and practices. We consider the impact of social, financial market, economic, regulatory, and institutional factors on the motivation to voluntarily participate in the 2009 Carbon Disclosure Project. We find that economic pressure is significantly associated with the decision. That is, companies facing direct economic consequence are more likely to disclose. Companies in greenhouse gas (GHG) intensive sectors show the same tendency. In addition, big companies have a higher propensity for disclosing, suggesting that social pressure plays an important role. We also provide possible explanations as to why a large proportion of our sample firms refuse to disclose. Furthermore, our results suggest that the proxies for information needs of investors are not associated with a higher propensity to disclose the amount of their emission footprints. In sum, it appears that the major driving force for climate change disclosure comes from the general public and government rather than from the other major stakeholders such as shareholders and debtholders. Our results are robust after controlling for other influences.