ABSTRACT:
The studys purpose is to recognize the drivers of Environmental Information Disclosure (EID) for stimulating listed firms on the Ho Chi Minh City Stock Exchange to report environmental information voluntarily in their reports. The correlation testing and the logistic regression analysis method were employed to find out the incentive and disincentive factors of voluntary disclosure. As a result, the outcomes indicate a positive relationship between environmental sensitivity industry, profitability, the firms size and EID while a relationship between revenue growth, financial leverage, and EID indicate negatively. Besides, the study also fails to find the impact of the firms age and ownership type on the disclosing of environmental information.
Keywords: Corporate social responsibility; environmental information disclosure; stakeholder theory; legitimacy theory, Vietnam.
1. Background
Environmental Information Disclosure (EID) refers to the reporting of information about materials, energy, and water usage, and on biodiversity, emission, environmental grievance mechanisms, etc. (Global Sustainability Standards Board, 2013) in annual report. Nowadays, stakeholders expect to not only get information on economic and social issues but also to obtain environmental information that facilitates the evaluation of the firms performance in three different aspects. Many studies have examined this issue in developed countries such as Australia, Germany, Korea, and China to identify incentive factors, which can stimulate companies to disclose environmental information voluntarily. While some studies have examined the issue of voluntary disclosure of environmental information in annual reports in developing country context, there are a few practical types of research on the disclosing of non-financial information in Vietnamese listed companies. However, there is a lack of proofs for examining the only specific content of environmental information. The Vietnamese Government whereas has been issuing policies and regulations, which require business entities to show their activities for environmental responsibility. However, several firms have reported environmental information without care or just on a voluntary basis. These current circumstances stimulated the empirical studies related to EID in practice to fill this gap in Viet Nam condition. Therefore, this study aims to identify the factors affecting the decision whether or not to disclose environmental information by the listed enterprises on the Ho Chi Minh City Stock Exchange (HOSE).
2. Literature Review and research methodology
2.1. Theoretical background and hypotheses
This study will adopt the stakeholder theory and the legitimacy theory in forming a conceptual research framework as social and environmental disclosures seem to be based on self-regulated social obligation and satisfy powerful stakeholders in the context of developing countries. Accordingly, the stakeholder theory outlines a conception in which company concerns social and environmental issues because of their operations and their relationship with stakeholders whereas the legitimacy theory highlights the societal acknowledgment of their behavior (As Wilsons 2001 study cited in Djajadikerta & Trireksani 2012 study). Integrating of these two theories will facilitate for clearly explaining a concern on social and environmental disclosure (Djajadikerta & Trireksani, 2012).
There are some previous studies which have the same purpose in the identification of factors affecting the decision to make a voluntary disclosure of CSR in the context of listed company in foreign countries. Most studies point out the positive relationship between profitability, firm size and age, ownership structure type, level of environmental sensitivity of the industry of the firm and the level of EID in annual reports (Choi, 1999; Gallego-Ãlvarez & Quina-Custodio, 2016; Luo et al., 2013; Nurhayati et al., 2015; Zeng et al., 2012). Also, a negative relationship between financial risk and the level of EID also is shown (Ahmad et al., 2003; Choi, 1999; Cormier and Magnan, 2007; Gallego-Ãlvarez & Quina-Custodio, 2016; Luo et al., 2013). The study forms some hypotheses below.
H1: In the circumstance of other variables remain unchanged; there is a positive association between government – owned corporation and the decision of EID by Vietnamese listed company.
H2: In the circumstance of other variables remain unchanged; there is a positive relationship between the amount of age after IPO and the decision of voluntary EID by Vietnamese listed company.
H3: In the circumstance of other variables remain unchanged; the more listed firms in Viet Nam do business in an environmentally sensitive industry environment, the more firms to decide to disclose environmental information
H4: In the circumstance of other variables remain unchanged; there is a positive relationship between revenue growth and the decision of voluntary EID by Vietnamese listed company
H5: In the circumstance of other variables remain unchanged; there is a negative relationship between leverage and decision of voluntary EID by Vietnamese listed company
H6: In the circumstance of other variables remain unchanged; there is a positive relationship between profitability and the decision of voluntary EID by Vietnamese listed company
H7: In the circumstance of other variables remain unchanged; there is a positive association between firm size and the decision of EID by Vietnamese listed company
2.2. Methodology
The study initially selected data of 210 listed firms that belong to eleven industry sectors on HOSE by using a propitious sampling approach. However, the final sample consists of 189 listed firms were selected because they are fulfilled with the selection criteria on listed time and the completed financial data.
This research constructed a dependent variable focusing on whether a company discloses or not which is equal to zero when it did not disclose in its report in 2015, otherwise equal to one. Besides, this research applied a below logistic specification to find the probability of firms to decide whether to disclose or not to disclose environmental information:
This study also chose independent
variables, which refer as in the model
(1) stemmed from the constructed research hypotheses. Principally, these
variables include the interval – scaled variables (AGE, REVG, LEV, ROA and
SIZE) and the ordinary-scaled variables (GOV, ENVSENS). Table 2.1 specifies
measures of these variables. The study used correlation testing and logistic
regression analysis in order to test hypotheses. The correlation testing was
used for identifying any multicollinearity among independent variables in the
suggested model. In the next step, the logistic regression analysis was used to
exam the odds of reporting of environmental information by the listed
companies, based on the findings of studies by Ahmad et al., 2003.
Table 2.1. Explanation of variables
3. Results
Table 3.1 shows the Pearsons correlation coefficients value among independent variables. The result exhibits serious multicollinearity among these independent variables is absent. Besides, table 3.2 indicates the regression model result that there are five out seven independent variables, which are statistical significance at the 10% level.
Table 3.1. Pearson correlation of variables
Table 3.2. Logistic regression result
Firstly, the results of logistic regression model reveal that the coefficients for the variable GOV and AGE are not statistically significant at the 10% level. These results imply that government-owned organizations and age of firms have no significant impact on their decision of EID. Therefore, the finding rejected hypothesis 1 and hypothesis 2 for that reason.
Secondly, the studys findings reveal three incentive variables influencing the decision of EID making by the corporation in which they are similar to the initial prediction. Firstly, hypothesis 3 is strongly supported. Particularly, ENVSENS is positively and significantly associated with the decision to operate EID that indicates that firms in the environmentally sensitive industry will make the decision to disclose environmental information. This study characterized environmentally sensitive industries in two categories: environmentally sensitive industries that The Ho Chi Minh Science and Technology Agency has reported in 2009 (appendix, table 3.3) and non-environmentally sensitive ones. This is consistent with previous studies (Choi, 1999; Dawkins & Fraas, 2011; Zeng et al., 2012). The underlined reason can be clarified as the firms in the environmentally sensitive industry are supposed to generate more than chemical wastes through their manufacturing activities. Therefore, they have to treat waste rigorously in order to protect the environment, then dragging higher environmental expenditure. The similarity with the variable of ENVSENS, the study also shows the positive effect of profitability which measured by ROA on the voluntary decision of making EID. As a result, hypothesis 6 is also supported. It indicates that the higher ROA the firm has, the more EID the firm makes. Principally, it can be explained under shareholders viewpoint in which they are motivated when firms enhance good financial performance, which proves firms efforts in linking social and environmental reporting, and firm performance. This is in line with the results of previous studies in the identification of profitability measured by ROA (Dawkins & Fraas, 2011; Luo et al., 2013; Nurhayati et al., 2015). Besides, hypothesis 7 is strongly supported with a p-value at 1%. The result reveals a positive relationship between firms size and the decision of EID making. This is consistent with previous research (Choi, 1999; Gallego-Ãlvarez & Quina-Custodio, 2016; Nurhayati et al., 2015; Zeng et al., 2012). It implies that a firm has a larger size of total assets will be motivated to decide to report environmental information. The possibility can be explained that an organization may invest in innovation such as environmentally friendly manufacturing assets that are not a reasonable response to the managers goals, but it is seen to imitate the same technology of other competitions.
While the study shows there are three variables that linked positively to EID, the finding explores the relationship between variables of REVG and LEV and corporate EID is constraints. Especially, the coefficient of REVG and LEV are negative but significant at the 10% level and the 5% level, respectively. This evidence reflects firms that have more revenue growth are less likely to make a decision of EID. In case of firms have higher revenue growth rate, they are possibly employing an expansion strategy. Consequently, they need to have more financial resource to fund activities. That leads to firms have to spend fewer resources for environmental management. Although this finding contradicts with Chois study (1999), it is consistent with the outcome presenting an inverse relationship between sales growth and EID (Luo et al., 2013). Therefore, the finding rejects hypothesis 4 that is different from the initial prediction. Particularly, it is understood that a higher leverage the firms have, a fewer disclosing of environmental information the firms create. As a result, the finding also explores a disincentive relationship between LEV and the decision of operating EID that is similar to the initial prediction. The result supports hypothesis 5 finally. It may be explained that a firm incur a higher cost of equity capital would restrict a firms ability to undertake strategies for environmental strategy due to higher liability to the debt and interest payment (Luo et al., 2013). This is constant with outcome of some studies (Ahmad et al., 2003, Luo et al., 2013, Nurhayati et al., 2015, Meng et al., 2013) whereas this result is contrary to the result of Chang (2013) in conclusion that listed firms with an increase in leverage would disclose voluntarily more environmental information.
4. Conclusion
In brief, the empirical study explores the incentive and disincentive factors affecting on voluntarily disclose information of environmental aspect by listing companies on the Ho Chi Minh City Stock Exchange for the year 2015. Overall, the relationship between firms financial performance, characteristics of the environmentally sensitive industry that the firms operate in and EID is recognized. Predominantly, the research highlights the positive relationship between environmentally sensitive industry, profitability, the firms size and EID whereas the negative relationship between revenue growth, leverage and EID also is explored. Moreover, the study validates the importance of the legitimacy theory and the stakeholder theory, which are suitable for investigation of EID. Although the study has pointed out firm size and profitability that are similar to Tas study (2014) which examines in Vietnam and to other research in developed countries and developing countries, this studys findings can contribute to the literature of EID in developing countries and motivate for further studies related to CSR reporting in Viet Nam.
There are some limitations arising in this study. Particularly, this study did not analyze in depth the content of environmental disclosure in the annual reports based on EID index. Another limitation relates to sample size. Actually, we collected data of the companies on HOSE. Therefore, we encourage for further research in widening the sample size in both the Stock Exchanges in Ha Noi and Ho Chi Minh City.
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Appendix
Table 3.3. Categories of environmentally sensitive industry
