Research Article
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Year 2023, Volume: 12 Issue: 1, 15 - 24, 31.03.2023

Sheng Yao Yuan Hong Chen-miao Lın

https://doi.org/10.17261/Pressacademia.2023.1723

Abstract

References

  • Aerts, W., Cormier, D., & Magnan, M. (2008). Corporate environmental disclosure, financial markets and the media: an international perspective. Ecological Economics, 64(3), 643-659.
  • Al-Tuwaijri, S., Christensen, T., & Hughes, K., (2004). The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equation approach. Accounting, Organizations and Society, 29 (5-6), 447-471.
  • Amihud, Y., & Mendelson, H. (1986). Asset pricing and bid-ask spread. Journal of Financial Economics, 17(2), 223-249.
  • Baber, W.R., & Gore, A.K. (2008). Consequences of GAAP disclosure regulation: Evidence from municipal debt issues. The Accounting Review, 83(3), 565-592.
  • Barry, C.B., & Brown, S.J. (1984). Differential information and the small firm effect. Journal of Financial Economics, 13(2), 283-294.
  • Barry, C.B., & Brown, S.J. (1985). Differential information and security market equilibrium. Journal of Financial and Quantitative Analysis, 20(4), 407-422.
  • Bewley, K., & Li, Y. (2000). Disclosure of environmental information by Canadian manufacturing companies: a voluntary disclosure perspective. Advances in Environmental Accounting and Management, 1, 201–226.
  • Bhattacharya, U., Daouk, H., Welker, M. (2003). The world price of earnings opacity. Accounting Review, 78 (3), 641-679.
  • Blacconiere, W.G., & Patten, D. (1994). Environmental disclosures, regulatory costs and changes in share value. Journal of Accounting and Economics, 18(3), 357-377.
  • Botosan, C., (1997). Disclosure level and the cost of equity capital. Accounting Review, 72(3), 323-349.
  • Botosan, C., & Plumlee, M. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21-40.
  • Botosan, C., Plumlee, M., & Xie, Y. (2004). The role of private information precision in determining cost of equity capital. Review of Accounting Studies, 9(2-3), 233-259.
  • Brown, S., (1979). The effect of estimation risk on capital market equilibrium. Journal of Financial and Quantitative Analysis, 15(2), 215-220.
  • Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1-23.
  • Clarkson, P., Fang, X., Li, Y., & Richardson, G. (2013). The relevance of environmental disclosure: Are such disclosures incrementally informative? Journal of Accounting and Public Policy, 32(5), 410-431.
  • Clarkson, P., Guedes, J., & Thompson, R. (1996). On the diversification, observability, and measurement of estimation risk. Journal of Financial and Quantitative Analysis, 31(1), 69-84.
  • Cho, C.H., & Patten, D.M. (2007). The role of environmental disclosures as tools of legitimacy: a research note. Accounting, Organizations and Society, 32(7-8), 639-647.
  • Coles, J., & Loewenstein, W. (1988). Equilibrium pricing and portfolio composition in the presence of uncertain parameters. Journal of Financial Economics, 22(2), 279-303.
  • Coles, J., Loewenstein, U., & Suay, J. (1995). On equilibrium pricing under parameter uncertainty. The Journal of Financial and Quantitative Analysis, 30(3), 347-374.
  • Copeland, T., & Galai, D. (1983). Information effects on the bid-ask spread. Journal of Finance, 36(5), 1457-1469.
  • Cormier, D., & Magnan, M. (2007). The revisited contribution of environmental reporting to investors' valuation of a firm's earnings: an international perspective. Ecological Economics, 62(3-4), 613–626.
  • Cormier, D., & Magnan, M. (2013). The Economic relevance of environmental disclosure and its impact on corporate legitimacy: An empirical investigation. Business Strategy and the Environment, 24(6), 431-450.
  • Darrell, W., & Schwartz, B.N. (1997). Environmental disclosures and public policy pressure. Journal of Accounting and Public Policy, 16(2), 125-154.
  • Demsetz, H., (1968). The cost of transacting. Quarterly Journal of Economics, 82(1), 33-53.
  • Dhaliwal, D., Li, Q., Tsang, A., & Yang, G. (2011). Voluntary non-financial disclosure and the cost of equity capital: the initiation of corporate social responsibility reporting. Accounting Review, 86(1), 59-100.
  • Diamond, D., & Verrecchia, R. (1991). Disclosure, liquidity and the cost of equity capital. Journal of Finance, 46(4), 1325-1360.
  • Easley, D., Hvidkjaer, S., and O’Hara, M. (2002). Is information risk a determinant of asset returns? Journal of Finance, 57(5), 2185-221.
  • Easley, D., & O’Hara, M. 2004. Information and the cost of capital. Journal of Finance, 59(4), 1553-1583.
  • Fazzari, S.M., Hubbard, G., Petersen, B.C., Blinder, A.S., & Poterba, J.M., (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 33(4), 657-657.
  • Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2004). Cost of capital and earnings attributes. Accounting Review, 79(4), 967-1011.
  • Gietzmann, M. & Ireland, J. (2005). Cost of capital, strategic disclosures and accounting choice. Journal of Business Finance and Accounting, 32(3-4), 599-634.
  • Glosten, L., & Milgrom, P. (1985). Bid ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71-100.
  • Goss, A. & Roberts, G.S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35(7), 1794-1810.
  • Greenwald, B.C., Stiglitz, J.E., & Weiss, A. (1984). Information imperfections in the capital market and macroeconomic fluctuations. American Economic Review, 74(2), 194-199.
  • Handa, P., & Linn, S. (1993). Arbitrage pricing with estimation risk. Journal of Financial and Quantitative Analysis, 28(1), 81-100.
  • Hope, O., Kang, T., Thomas, W.B., & Vasvari, F. (2009). The effects of SFAS 131 geographic segment disclosures by U.S. multinational companies on the valuation of foreign earnings. Journal of International Business Studies, 40(3), 421-443.
  • Hughes, K., (2000). The value relevance of non-financial measure of air pollution in the electric industry. Accounting Review, 75(2), 209-228.
  • Hughes, J.S., Liu, J., & Liu, J. (2007). Information asymmetry, diversification, and cost of capital. The Accounting Review, 82(3), 705-729.
  • Iatridis, G.E., (2013). Environmental disclosure quality: evidence on environmental performance, corporate governance and value relevance. Emerging Markets Review, 14, 55-75.
  • Jones, M., (2010). Accounting for the environment: towards a theoretical perspective for environmental accounting and reporting. Accounting Forum, 34(2), 123-138.
  • Karolyi, G., (2012). Corporate governance, agency problems and international cross-listings: a defense of the bonding hypothesis. Emerging Markets Review, 13(4), 516–547.
  • Lambert, R., Leuz, C., & Verrecchia, R.E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 385-420.
  • Lamont, O., Polk, C., & Saa-Requejo, J. (2001). Financial constraints and stock returns. Review of Financial Studies, 14(2), 529-54.
  • Li, Y., Richardson, G.D., & Thornton, D. (1997). Corporate disclosure of environmental information; theory and evidence. Contemporary Accounting Research, 14(3), 435-474.
  • Myers, S.C., (1984). The capital structure puzzle. Journal of Finance, 39(3), 575-592.
  • Myers, S.C., & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
  • Patten, D.M., (1992). Intra-industry environmental disclosures in response to the Alaskan oil spill: A note on legitimacy theory. Accounting, Organizations and Society, 17(5), 471-475.
  • Plumlee, M., Brown, D., Hayes, R.H., & Marshall, R.S. (2015). Voluntary environmental disclosure quality and firm value: further evidence. Journal of Accounting and Public Policy, 34(4), 336-361.
  • Ragothaman, S. & Carr, D. (2008). The impact of environmental information disclosures on shareholder returns in a company: an empirical study. International Journal of Management, 25(4), 613-620.
  • Richardson, A., & Welker, M. (2001). Social disclosure, financial disclosure and the cost of equity capital. Accounting Organizations and Society, 26(7), 597-616.
  • Richardson, A., Welker, M., & Hutchinson, I. (1999). Managing capital market reactions to corporate social responsibility. International Journal of Management Reviews, 1(1), 17-43.
  • Rikhardsson, P., & Holm, C. (2008). The effect of environmental information on investment allocation decisions-an experimental study. Business Strategy and the Environment, 17(6), 382-397.
  • Sanders, W.G., Boivie, S. (2004). Sorting things out: Valuation of new firms in uncertain markets. Strategic Management Journal, 25(2), 167-186.
  • Sengupta, P., (1998). Corporate disclosure quality and the cost of debt. The Accounting Review, 73(4), 459-474.
  • Surma, J.P., (1992). Tacking corporate America's environmental challenge. Review, 36 (2), 10-23.
  • Wiseman, J., (1982.) An evaluation of environmental disclosures made in corporate annual reports. Accounting, Organizations and Society, 7(1), 53-63.

ENVIRONMENTAL INFORMATION DISCLOSURE AND THE INVESTMENT-CASH FLOW SENSITIVITY

Year 2023, Volume: 12 Issue: 1, 15 - 24, 31.03.2023

Sheng Yao Yuan Hong Chen-miao Lın

https://doi.org/10.17261/Pressacademia.2023.1723

Abstract

Purpose- In 2008 China issued the Measures for the Disclosure of Environmental Information. Using the introduction of this environmental policy, this paper examines how the environmental information disclosure quality affects a firm's access to capital markets. In particular, the relationship is investigated between the environmental disclosure quality and the investment-cash flow sensitivity, a measure of a firm's financial constraints, before and after the implementation of the policy.
Methodology- The content analysis is used to construct the measure of environmental disclosure quality. First of all, the contents of both qualitative and quantitative environmental disclosures are analyzed with respect to the following ten areas reported in firms' annual reports: (1) corporate investment in environmental protection, (2) government financial support related to environmental control, (3) tax reductions related to environmental programs, (4) lawsuits, settlements, penalties, and rewards related to environmental protection, (5) emissions and pollution reduction implementation, (6) certifications of environmental programs, (7) firm environmental protection missions and goals, (8) firm environmental protection plans and strategies, (9) bank loans related to environmental protection, and (10) other environmental-related information. And then, different points are assigned based on the disclosure quality for each of the ten disclosure areas and aggregated to obtain an overall disclosure score. Univariate and regression tests are used to examine the relationship between environmental information disclosures and investment-cash flow sensitivity.
Findings- A negative association is found between a firm's environmental disclosure quality and the investment-cash flow sensitivity after the policy was implemented, while no such association is found before the policy implementation. Furthermore, the observed reduction in investment-cash flow sensitivity tends to be stronger for firms in high-polluting industries.
Conclusion- Given the environmental policies in emerging markets are often viewed with great doubts, our findings suggest that government environmental policy plays an important role in firm's access to capital markets.

Keywords

Environmental information disclosure investment-cash flow sensitivity government policy asymmetric information financial constraints

References

  • Aerts, W., Cormier, D., & Magnan, M. (2008). Corporate environmental disclosure, financial markets and the media: an international perspective. Ecological Economics, 64(3), 643-659.
  • Al-Tuwaijri, S., Christensen, T., & Hughes, K., (2004). The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equation approach. Accounting, Organizations and Society, 29 (5-6), 447-471.
  • Amihud, Y., & Mendelson, H. (1986). Asset pricing and bid-ask spread. Journal of Financial Economics, 17(2), 223-249.
  • Baber, W.R., & Gore, A.K. (2008). Consequences of GAAP disclosure regulation: Evidence from municipal debt issues. The Accounting Review, 83(3), 565-592.
  • Barry, C.B., & Brown, S.J. (1984). Differential information and the small firm effect. Journal of Financial Economics, 13(2), 283-294.
  • Barry, C.B., & Brown, S.J. (1985). Differential information and security market equilibrium. Journal of Financial and Quantitative Analysis, 20(4), 407-422.
  • Bewley, K., & Li, Y. (2000). Disclosure of environmental information by Canadian manufacturing companies: a voluntary disclosure perspective. Advances in Environmental Accounting and Management, 1, 201–226.
  • Bhattacharya, U., Daouk, H., Welker, M. (2003). The world price of earnings opacity. Accounting Review, 78 (3), 641-679.
  • Blacconiere, W.G., & Patten, D. (1994). Environmental disclosures, regulatory costs and changes in share value. Journal of Accounting and Economics, 18(3), 357-377.
  • Botosan, C., (1997). Disclosure level and the cost of equity capital. Accounting Review, 72(3), 323-349.
  • Botosan, C., & Plumlee, M. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21-40.
  • Botosan, C., Plumlee, M., & Xie, Y. (2004). The role of private information precision in determining cost of equity capital. Review of Accounting Studies, 9(2-3), 233-259.
  • Brown, S., (1979). The effect of estimation risk on capital market equilibrium. Journal of Financial and Quantitative Analysis, 15(2), 215-220.
  • Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1-23.
  • Clarkson, P., Fang, X., Li, Y., & Richardson, G. (2013). The relevance of environmental disclosure: Are such disclosures incrementally informative? Journal of Accounting and Public Policy, 32(5), 410-431.
  • Clarkson, P., Guedes, J., & Thompson, R. (1996). On the diversification, observability, and measurement of estimation risk. Journal of Financial and Quantitative Analysis, 31(1), 69-84.
  • Cho, C.H., & Patten, D.M. (2007). The role of environmental disclosures as tools of legitimacy: a research note. Accounting, Organizations and Society, 32(7-8), 639-647.
  • Coles, J., & Loewenstein, W. (1988). Equilibrium pricing and portfolio composition in the presence of uncertain parameters. Journal of Financial Economics, 22(2), 279-303.
  • Coles, J., Loewenstein, U., & Suay, J. (1995). On equilibrium pricing under parameter uncertainty. The Journal of Financial and Quantitative Analysis, 30(3), 347-374.
  • Copeland, T., & Galai, D. (1983). Information effects on the bid-ask spread. Journal of Finance, 36(5), 1457-1469.
  • Cormier, D., & Magnan, M. (2007). The revisited contribution of environmental reporting to investors' valuation of a firm's earnings: an international perspective. Ecological Economics, 62(3-4), 613–626.
  • Cormier, D., & Magnan, M. (2013). The Economic relevance of environmental disclosure and its impact on corporate legitimacy: An empirical investigation. Business Strategy and the Environment, 24(6), 431-450.
  • Darrell, W., & Schwartz, B.N. (1997). Environmental disclosures and public policy pressure. Journal of Accounting and Public Policy, 16(2), 125-154.
  • Demsetz, H., (1968). The cost of transacting. Quarterly Journal of Economics, 82(1), 33-53.
  • Dhaliwal, D., Li, Q., Tsang, A., & Yang, G. (2011). Voluntary non-financial disclosure and the cost of equity capital: the initiation of corporate social responsibility reporting. Accounting Review, 86(1), 59-100.
  • Diamond, D., & Verrecchia, R. (1991). Disclosure, liquidity and the cost of equity capital. Journal of Finance, 46(4), 1325-1360.
  • Easley, D., Hvidkjaer, S., and O’Hara, M. (2002). Is information risk a determinant of asset returns? Journal of Finance, 57(5), 2185-221.
  • Easley, D., & O’Hara, M. 2004. Information and the cost of capital. Journal of Finance, 59(4), 1553-1583.
  • Fazzari, S.M., Hubbard, G., Petersen, B.C., Blinder, A.S., & Poterba, J.M., (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 33(4), 657-657.
  • Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2004). Cost of capital and earnings attributes. Accounting Review, 79(4), 967-1011.
  • Gietzmann, M. & Ireland, J. (2005). Cost of capital, strategic disclosures and accounting choice. Journal of Business Finance and Accounting, 32(3-4), 599-634.
  • Glosten, L., & Milgrom, P. (1985). Bid ask and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14(1), 71-100.
  • Goss, A. & Roberts, G.S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35(7), 1794-1810.
  • Greenwald, B.C., Stiglitz, J.E., & Weiss, A. (1984). Information imperfections in the capital market and macroeconomic fluctuations. American Economic Review, 74(2), 194-199.
  • Handa, P., & Linn, S. (1993). Arbitrage pricing with estimation risk. Journal of Financial and Quantitative Analysis, 28(1), 81-100.
  • Hope, O., Kang, T., Thomas, W.B., & Vasvari, F. (2009). The effects of SFAS 131 geographic segment disclosures by U.S. multinational companies on the valuation of foreign earnings. Journal of International Business Studies, 40(3), 421-443.
  • Hughes, K., (2000). The value relevance of non-financial measure of air pollution in the electric industry. Accounting Review, 75(2), 209-228.
  • Hughes, J.S., Liu, J., & Liu, J. (2007). Information asymmetry, diversification, and cost of capital. The Accounting Review, 82(3), 705-729.
  • Iatridis, G.E., (2013). Environmental disclosure quality: evidence on environmental performance, corporate governance and value relevance. Emerging Markets Review, 14, 55-75.
  • Jones, M., (2010). Accounting for the environment: towards a theoretical perspective for environmental accounting and reporting. Accounting Forum, 34(2), 123-138.
  • Karolyi, G., (2012). Corporate governance, agency problems and international cross-listings: a defense of the bonding hypothesis. Emerging Markets Review, 13(4), 516–547.
  • Lambert, R., Leuz, C., & Verrecchia, R.E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 385-420.
  • Lamont, O., Polk, C., & Saa-Requejo, J. (2001). Financial constraints and stock returns. Review of Financial Studies, 14(2), 529-54.
  • Li, Y., Richardson, G.D., & Thornton, D. (1997). Corporate disclosure of environmental information; theory and evidence. Contemporary Accounting Research, 14(3), 435-474.
  • Myers, S.C., (1984). The capital structure puzzle. Journal of Finance, 39(3), 575-592.
  • Myers, S.C., & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
  • Patten, D.M., (1992). Intra-industry environmental disclosures in response to the Alaskan oil spill: A note on legitimacy theory. Accounting, Organizations and Society, 17(5), 471-475.
  • Plumlee, M., Brown, D., Hayes, R.H., & Marshall, R.S. (2015). Voluntary environmental disclosure quality and firm value: further evidence. Journal of Accounting and Public Policy, 34(4), 336-361.
  • Ragothaman, S. & Carr, D. (2008). The impact of environmental information disclosures on shareholder returns in a company: an empirical study. International Journal of Management, 25(4), 613-620.
  • Richardson, A., & Welker, M. (2001). Social disclosure, financial disclosure and the cost of equity capital. Accounting Organizations and Society, 26(7), 597-616.
  • Richardson, A., Welker, M., & Hutchinson, I. (1999). Managing capital market reactions to corporate social responsibility. International Journal of Management Reviews, 1(1), 17-43.
  • Rikhardsson, P., & Holm, C. (2008). The effect of environmental information on investment allocation decisions-an experimental study. Business Strategy and the Environment, 17(6), 382-397.
  • Sanders, W.G., Boivie, S. (2004). Sorting things out: Valuation of new firms in uncertain markets. Strategic Management Journal, 25(2), 167-186.
  • Sengupta, P., (1998). Corporate disclosure quality and the cost of debt. The Accounting Review, 73(4), 459-474.
  • Surma, J.P., (1992). Tacking corporate America's environmental challenge. Review, 36 (2), 10-23.
  • Wiseman, J., (1982.) An evaluation of environmental disclosures made in corporate annual reports. Accounting, Organizations and Society, 7(1), 53-63.
There are 56 citations in total.

Details

Primary Language English
Subjects Economics, Finance, Business Administration
Journal Section Articles
Authors

Sheng Yao This is me 0000-0002-8927-7983

Yuan Hong This is me 0000-0003-2399-4178

Chen-miao Lın This is me 0000-0002-4525-4405

Publication Date March 31, 2023
Published in Issue Year 2023 Volume: 12 Issue: 1

Cite

APA Yao, S., Hong, Y., & Lın, C.-m. (2023). ENVIRONMENTAL INFORMATION DISCLOSURE AND THE INVESTMENT-CASH FLOW SENSITIVITY. Journal of Business Economics and Finance, 12(1), 15-24. https://doi.org/10.17261/Pressacademia.2023.1723

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