INFLUENCE OF ENVIRONMENTAL ACCOUNTING ON THE PERFORMANCE OF PHARMACEUTICAL COMPANIES IN NIGERIA

Environmental accounting has the potential to provide key information that policymakers can use to understand the state of the environment. However, the haste to develop the Nigerian nation does not always incorporate pollution control and waste management into environmental management plan. Hence, this study primarily evaluated the influence of environmental accounting on the performance of pharmaceutical companies in Nigeria. The study specifically examined the determinants of environmental accounting in pharmaceutical companies in Nigeria as well as the effect of environmental accounting on the profitability of pharmaceutical companies in Nigeria. Finally, the study examined the effect of environmental accounting on shareholders’ wealth maximisation in pharmaceutical companies in Nigeria. The study employed secondary data which was obtained from the financial statements of all listed pharmaceutical companies in Nigeria. Panel data regression analysis was used to achieve the objectives of the study. Results of the study revealed that there was a positive relationship between measures of performance and environmental accounting reports (such as community development and expenses incurred on employees’ welfare). The study concluded that environmental accounting positively influenced the performance of pharmaceutical companies in Nigeria. The study thus recommended that pharmaceutical companies should ensure that they spend more on the welfare of their employees so as to encourage them in putting their best in the company which often lead to an enhanced performance. Introduction Financial statements are documents used by internal and external users for various purposes. They are priceless in the formulation of framework for achieving a holistic appraisal of firms’ performance. Recently, reporting environmental and societal concerns in the financial statements appear to be one of the expectations of stakeholders. Accounting for environment is a relatively new development to many organisations which is the purview of accounting disclosures. Environmental information provides the channel through which firms address the needs of stakeholders and the basis for dialogue between the stakeholders and the firm. Communicating effects of an organisation’s activities on the environment to stakeholders and members of the society cannot be over-emphasised. Increasing awareness and demands by the organisations to be socially responsible has led to divergent views from various scholars (Deegan& Ranking, 1996, Osemene, Kolawole&Oyelakun, 2016). Environmental accounting adopts a comprehensive approach which ensures transparent corporate governance related to the society. It is a means by which companies report all the Entrepreneurial Journal of Management Sciences Volume 6, Number 1, 2019 28 associated environmental costs and expenses incurred. Several countries (such as Nigeria, Ghana and Kenya) are yet to enforce environmental disclosures. Hence, in such countries practicing voluntary disclosure, companies can decide what to report in their financial statements (Ndukwe& John, 2015). Many organisations in Nigeria are driven by the quest for profits to the detriment of all the stakeholders. Some fail to respond to the needs of host communities, employees’ welfare needs (cheap labour often preferred), environmental protection and community development (Osemene, 2012). However, in recent times the expectation of social services from corporate firms has become very high in Nigeria, failure of which often results to severe destruction of companies’ properties by aggrieved firms’ stakeholders, civil unrest and disobedience to the law and order in Nigeria. Companies often implicated in pollution of the operational environment are manufacturing and mining companies. According to Osemene and Olaoye (2009), pollution from such companies are in form of noise, air, water and it so severe in Nigeria due to the inability of various government to fix the power problem. Aside the pollution from their business activities, fumes from generators contribute severe challenges to fresh air and arable land. Hence, this study examined the effect of environmental accounting on the performance of pharmaceutical companies in Nigeria. Specifically, the study examined the determinants of environmental accounting in pharmaceutical companies in Nigeria as well as the effect of environmental accounting on the profitability of pharmaceutical companies in Nigeria. Finally, the study examined the effect of environmental accounting on shareholders’ wealth maximization in pharmaceutical companies in Nigeria. The hypotheses for this study were stated in null forms as follows: (H01) No specific factors that determine environmental accounting in pharmaceutical companies in Nigeria; (H02) Environmental accounting does not have significant effect on the profitability of pharmaceutical companies in Nigeria; and (H03) environmental accounting does not have any significant effect on the shareholders’ wealth maximisation in Nigeria. Literature Review Environmental accounting entails the provision of appropriate information in the financial statements regarding the estimated social cost occasioned by the production externalities on the environment and how much deliberate intervention cost had been incurred to bridge the gap between the marginal social cost and the marginal private cost by a firm. Magara, Aming and Momanyi (2005) opined that environmental accounting involves the identification, measurement and allocation of environmental costs, and the integration of these costs into business. It also encompasses the means of communicating the information to the companies’ stakeholders. Enahoro (2009) averred that environmental cost does not only refer to costs paid to comply with regulatory standards, but are also costs incurred to reduce or eliminate releases of hazardous substances into the atmosphere. According to Weng, Chenand Chen (2015), environmental accounting is also referred to as green accounting and it measures (in economic terms) the performance of firms in respect to the environment. It involves the identification, measurement and reporting of environmental specific cost, for example liability cost and waste disposal cost. It covers more than reporting Entrepreneurial Journal of Management Sciences Volume 6, Number 1, 2019 29 or accounting for environmental cost and benefits. It is the accounting for any cost or benefit that occurs from changes in an organisation’s product or process, while the change can also have impact on the environment. It plays a major role in understanding the significant contribution of the natural environment to the economy and humanity survival (Baba, 2012; Boyd, 1998). Any organization that incorporates the improvement of quality of life of habitants into their operations, will most likely experience some improvements their financial performance due to enhanced image, increased company’s shares due to enhanced product image and environmental risk rating(Weng, Chen & Chen, 2015). Unethical business practices are no longer fashionable even in a country as poverty-ridden as Nigeria. Such practices only attract negative image to any organization on a result of undue media attention, in the print and electronic media (Osemene, 2012). Human rights cannot be infringed upon anyhow just in the same way business reputation must be guarded jealously due to quick information flow through various media such as mobile telephoning, newspapers and magazines, television, radio and the internet. Diffey (2007) stresed further that companies without ethical responsibilities most often fail sooner or later, and that big organisations appear to understand this. They thereby set up strategies to reveal their social responsibilities in their financial statement. Companies with ethical responsibility policies seem to have the best workers, shareholders, customers and a happier community and society. The economy and the capital market also recognise that sustainable companies are businesses of the future. A French poll on environmental accounting indicates that employees are seen as the most important stakeholders’ group towards whom corporation have to exercise their social responsibility (Humiere&Chanveau, 2001). Employees can act as agents for social change when they push corporations to adopt socially responsible behaviour (Aguilera, Rupp, Williams &Ganapathi, 2007). Buttressing the importance of employees on social responsible behaviour, Ramus and Steger (2000) pointed out that environmental policy demonstrates that employees’ support is necessary to secure effective development of communities. Environmental accounting is likely to influence employees’ attitude and behaviours of the customers in purchasing the goods of the firm which will in turn enhance the profitability of the companies only if they are aware of past social sensitivity actions. Also, communicating them inside the corporation influences employees’ perception. Long-term environmental programmes provide a more cost efficient alternative, especially to select more efficient production process and raw materials source usage that can be recycled as well as cheaper energy sources diversification. Company environmental programmes can improve performance and increase an investor’s interest. Therefore, environmental disclosure is intended to improve information usefulness that is based on management's evaluation which will help companies to deliver good news (Dillard, Jesse, Brown & Marshall, 2005). Disclosure of company image is expected to improve stakeholder’s perception which will in turn increase shareholder’s value. Entrepreneurial Journal of Management Sciences Volume 6, Number 1, 2019 30 Theoretical Framework This study is hinged on two theories. They are the utilitarian and the stakeholders’ theories. Utilitarian Theory Utilitarian theory was propounded by Smart in 1973. The theory pos