Effect of Environmental Disclosures on Dividend Payout of Firms in Nigeria

This work empirically investigated the effect of environmental disclosures on dividend payout of firms in Nigeria. The study is vital as it portrays the extent to which environmental disclosures influences firms’ dividend payout. In order to determine the relationship between environmental disclosures and firms dividend payout, some key proxy variables were used in the study, namely Employees Health and Safety Disclosure, Waste Management Disclosure, Pollution Control Disclosure and Environmental Remediation Disclosure; firms’ dividend payout is however represented by DPS/EPS. Four hypotheses were formulated to guide the investigation and the statistical test of parameter estimates was conducted using multiple regression model. The research design used is Ex Post Facto design and data for the study were obtained from the published annual financial reports of the entire 30 firms listed under consumer goods and industrial goods sector of NSE with data spanning from 2014-2018. The findings generally indicate that Employees Health and Safety Disclosure, Waste Management Disclosure, Pollution Control Disclosure and Environmental Remediation Disclosure have significantly influenced firms’ dividend payout at 5% level of significant. Based on this, the study concludes that environmental disclosures have positively improved firms dividend payout over the years. The study however suggests that firms should have positive disposition towards environmental cost friendly practices and also disclose more of these information in their annual reports as the level of disclosure of these information have exerted significant influence on dividend payout of firms over the years. Keyword: Employees Health and Safety Disclosure; Waste Management Disclosures; Pollution Control Disclosures; Environmental Remediation Disclosures; Dividend Payout 1.0 Introduction The increase in global environmental awareness and the campaign for sustainable economic development is redirecting the attention of corporate organizations towards environmental sensitivity. The need for sustainability has caused an emergence of many global institutions enunciating varying norms that guide human interaction with the environment (Ngwakwe 2018 as cited in Omaliko, Nweze & Nwadialor, 2020) In Nigeria, there are National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007, National-Environmental Standards and Regulations Enforcement IIARD International Journal of Banking and Finance Research E-ISSN 2695-186X P-ISSN 2672-4979, Vol 6. No. 3 2020 www.iiardpub. org IIARD – International Institute of Academic Research and Development Page 15 Agency (Establishment) Act 2008, Environmental Impact Assessment Act 2004, Harmful Waste (Special Criminal Provision) Act 2004, Nuclear Safety and Radiation Protection Act 2007 which centered on review of regulations on air and water quality, discharge of effluents and other harmful substances as well as control of other forms of environmental pollution. At international level, environmental disclosures have attracted considerable interest from a number of key stakeholders such as the United Nations Global Compact, the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TFCD) and European Commission Guidelines on Non-Financial Reporting Studies on environmental disclosures in the developed nations could not be over stressed or over emphasized. However, only fewer studies established the influences of level of environmental disclosures on dividend payout of firms with mixed and conflicting results. For instance; Royet (2016), Brockman (2015), Deume and Knechel (2016), Fouts (2014), showed that environmental disclosures have significant positive effect on dividend payout of firms. On the contrary, the studies of Brown (2015), Gelb (2017), Vaishya (2014) showed insignificant negative effect. Thus, there was no agreement on the effect of environmental disclosures on dividend payout of manufacturing firms in the developed nations which calls for further investigation and clarifications. To achieve this purpose, the present study adapted and modified the models of Royet (2016) and Gelb (2017) in order to capture the real effect of environmental disclosures on dividend payout of manufacturing firms. From the context of developing nations like Nigeria, studies done on environmental disclosures are as follows; Agbiogwu, Ihedinihu and Okafor (2016), environmental disclosures and firms’ earnings, Dibua and Onwuchekwa (2015), environmental disclosures and corporate leverage, Ezejiofor, Rachael and Chigbo (2016), environmental disclosures and corporate revenue, Emeakponuzo and Udih (2015), environmental accounting and return on equity, Ifurueze, Lydon and Bingilar (2013), environmental costs and corporate performance, Okafor (2018), environmental disclosures and firms liquidity, Ngwakwe (2018), environmental disclosures and firms liquidity etc. However, among the empirical studies reviewed by the researcher as shown above, none had concentrated on dividend payout of firms which would be worthwhile for the stakeholders of a firm to understand if environmental disclosures are one of the factors that influence company’s dividend payout decisions. Thus the study investigated the effect of environmental disclosures on dividend payout within Nigerian corporate environment. 1.1 Objective of the Study The main objective of this study is to examine the effect of Environmental Disclosures on Dividend Payout of manufacturing firms in Nigeria. Sub objectives are: 1 To examine the effect of Employee health and safety disclosure on dividend payout of firms 2 To determine the effect of Waste management disclosure on dividend payout of firms 3 To ascertain the effect of Pollution Control disclosure on dividend payout of firms 4 To examine the effect of Environmental Remediation disclosure on dividend payout of firms In order to direct the flow of this study, the following hypotheses were formulated H01: Employee health and safety disclosure have no significant effect on dividend payout of firms H02: Waste management disclosure has no significant effect on dividend payout of firms H03: Pollution Control disclosure has no significant effect on dividend payout of firms IIARD International Journal of Banking and Finance Research E-ISSN 2695-186X P-ISSN 2672-4979, Vol 6. No. 3 2020 www.iiardpub. org IIARD – International Institute of Academic Research and Development Page 16 H04: Environmental Remediation disclosure has no significant effect on dividend payout of firms 2 . 0 Review of Related Literature 2.1.1 The Concept of Environmental Disclosure Environmental disclosure is a disclosure related to company's policies, attitudes or actions toward environmental impact, emissions, pollution, cleaning, planting, or energy efficiency. Environmental accounting serves as a provider of environmental information to internal and external parties. Environmental accounting functions internally (Environment Management Accounting or EMA) to provide information to assist management in improving environmental performance of company, while function of external environmental accounting (Environment Financial Accounting or EFAs) is present information to external parties or company stakeholders. Environmental disclosure is generated by environment accounting system which is part of overall environmental information that is disclosed by company (Ngwakwe, 2018). Environmental disclosure may be defined as any information that a firm makes public, typically within or alongside its annual accounts or in a stand-alone report that relates to its performance, standards or activities under the corporate social responsibility umbrella. Such documents are most commonly known as sustainability reports, but they are also variously known as corporate social responsibility reports, eco-reports, and corporate accountability reports. The documents are believed to convey important information regarding the extent to which a firm's activities are sustainable, defined as one which can service the needs of all its stakeholders without limiting its ability to meet the needs of any potential future stakeholders by maintaining its base of environmental, social and economic capital (Dyllick and Hockerts, 2016). The study of Royet (2016) measured environmental disclosure using the index of Employees’ Health and Safety Disclosure (EHSD), Waste Management Disclosure (WMD) was also proxied for environmental disclosure by Prattern and Mashat (2014), Ijeoma (2015) measured environmental disclosure using the index of Community Development Disclosure (CDD), Gelb (2017) measured environmental disclosure using Pollution Control Disclosure (PCD) and Brown (2015) measured environmental disclosure using the index of Environmental Remediation Disclosure (ERD) For the purpose of this research, the following Environmental Disclosure Indexes were used. Thus refers to the information on Employees health and safety disclosure (EHSD), Waste management disclosure (WMD), Pollution Control disclosure (PCD) and Environmental Remediation disclosure (ERD). 2.1.1.1 Employees Health and Safety Disclosure According to Adedilan and Alade (2013), employees health and safety disclosure is one of the key disclosures relevant for environment accounting for stakeholders’ consumption. It is a disclosure on occupational injury and illness which is a matter of health, but they are also matters of economics, since they stem from work, and work is an economic activity. The economic perspective on employees’ safety and health encompasses both causes and consequences: the role of economic factors in the etiology of workplace ill-health and the effects this has on the economic prospects for workers, enterprises, nations, and the world as a whole. It is therefore a very broa