Corporate Environmental Disclosure, Corporate Governance and Firm Characteristics: Evidence from Polluting and Non-Polluting Sectors in India

IntroductionThe issues of corporate governance and corporate sustainability practices are now regarded as an interrelated and integral part of business performance (Trireksani and Djajadikerta, 2016). Focusing on the aspect of environmental performances, it is found that disclosure of corporate environmental practices largely remains unregulated (Kolk, 2008) and voluntary. The managerial decisions about the extent of voluntary disclosure to be made by the firm are influenced by board of directors and shareholders (Millstein, 1991). This phenomenon of voluntary disclosure of corporate environmental information in annual reports and sustainability or environmental reports has resulted in substantial literature in this field of study (Campbell, 2004). Titenberg (1998) noted three waves on environmental practices: the first wave dealt with legal remedies in the form of prohibition or emission standards; the second wave was market-oriented, like charges for emission, permits, and subsidies; and the third or the most recent wave of environmental regulation has been the voluntary disclosure of corporate environmental information to the public. KPMG (2008) in its survey outlines that in order to meet the stakeholders' demand for accountability and transparency more and more firms are increasingly relying on voluntary disclosure of environmental practices.There has been extensive research on the determinants of corporate environmental disclosures in European and North American contexts (Aerts et al., 2008), but research on voluntary environmental disclosures in developing countries, though has been increasing, requires more intensive investigation (Elijido, 2011). The present study deals with voluntary environmental disclosure among polluting and non-polluting industries in the Indian context. To specify the model in the context of the developing country, the literature has been extensively referred mostly in the context of developed as well as developing countries.Literature ReviewEarlier corporate environmental disclosures comprised some pollution abatement related documents. Insignificant voluntary disclosures were part of the financial statements until it emerged as a communicative action that improves corporate accountability leading to stakeholders' empowerment to take part into discourse, dialogue and discussion (Cooper and Owen, 2007). The theoretical grounding of disclosure literature is primarily explained with stakeholder theory, legitimacy theory and political economy theory (Deegan and Gordon, 1996; Bewley and Li, 2000; and Huang and Kung, 2010). The initial phase of empirical study on voluntary environmental disclosures started in 1970s when the main question was whether it economically pays to be socially and environmentally responsible, and to find that, researchers have tried to associate voluntary disclosure with firm characteristics (King and Lenox, 2001; and Konar and Cohen, 2001). A broad category of studies have isolated the market-based measures of firm performances and studied the causality between voluntary environmental disclosures and accounting-based measures of firm performances (Margolis and Walsh, 2003). The results are inconclusive. A few studies on the causality between voluntary environmental disclosures and accounting-based measures of firm performances reported positive association (Clarkson, 1988; Hart and Ahuja, 1996; Judge and Douglas, 1998; Dowell et al., 2000; and Graves and Waddock, 2000), while a few others reported mixed results (Rockness et al., 1986; and Graves and Waddock, 1994) as well as no significant association (Ingram and Frazier, 1980). In comparison to this, the causality studies with market-based measures are more consistent. Using the US sample, Belkaoui (1976) reported positive association between pollution control information and stock price which is in line with the findings of Shane and Spicer (1983) and Cormier et al. (1993). On risk management perspective, higher environmental performance and disclosure led to the reduced volatility with stock market returns (Blacconiere and Patten, 1994; and Hamilton, 1995). …