Environmental Information Disclosure, Cost Of Equity Capital And Growth Of Firm Value

As persistent environmental degradation in the world, environmental problems which become an acute and complex contradiction of modernization construction, have brought a profound impact on the enterprise strategy, government policy and consumer behavior. In the past decade, we viewed the enterprises gradually take environmental elements in some important position, but such efforts still are not enough. There are some fierce conflicts between enterprise benefits and environmental protection, therefore environmental management become a mere formality which the situation is particularly significant in China. Comparing to the behavior of enterprises, the government sets higher and higher threshold for the enterprises environment management to keep the social security benefits. The latest Environmental Protection Law of the People’s Republic of China has clearly defined that heavy polluting industries must disclosure pollutant discharge and the implement of environmental protection in time to the public since 2015. Environmental violations will be published at any time, and environmental departments will gradually weed out the laggard pollution production processes and products. At the same time, Notice of Environmental Verification System on Listed Companies released in 2014 also states that, the supervision of environmental behavior will depends on the enterprises announcing environmental information to public timely and accurately. Obviously, environmental information disclosure has become the key of theoretical research and practical application in China.Environmental accounting has become the optimal carrier to connect the enterprise and the environment, and also is the critical route to achieve environmental information disclosure. But there are two remarkable steps need to break, the first one is environmental information disclosure which is the urgency of the application domain, and the second one is the relationship between environment and economy. Understanding the actual relationship which is compromised or synergic between investment in environmental protection and economic output can really instruct enterprise to reveal real and high-quality environmental information. On this context, this paper bases on the logical framework structures which is constituted by internal and external factors, environmental management and firm value from these correlation theories, such as legitimacy theory, asymmetric theory, principal-agent theory, game theory and sustainable development theory. Specifically, we analyze how the external factors affect environmental information disclosure according to the literature review, and what the stock financing is going to react through multi-regression. The next part states the relation between corporate governance and environmental performance, and discusses the role of political connections in the relationship between internal factors and environmental performance through empirical test combined with China’s specific national conditions. The following part studies the influence of the ISO14001 awarded to the enterprises on their financial information to prove the conflictive conclusions of environmental performance and economic performance in detail. Finally, we focus on the enterprises environmental behavior, investigate the contradictory relation between environmental information disclosure and environmental performance, and contrast the different mechanism of political connections in restraining environmental transparency and environmental performance. SSE has published independently Environmental Information Disclosure Guidelines of Shanghai Stock Exchange in 2008, and there is already some evidence proved that the environmental transparency in Shanghai Stock Exchange is much better than Shenzhen Stock Exchange, therefore this paper limits the object of study in heavy polluting industries listed in Shanghai Stock Exchange in 2009-2013, and conclusions are drawn as follows:Firstly, environmental information disclosure is more likely driven by external pressure, and brings a financing cost reduction. Compared to the non-monetary environmental information, external governance which represented by government regulation, media scrutiny and industrial competition, can promote the negative correlation between monetary environmental information and the cost of equity capital. Part of the reason is that non-monetary environmental information is easily manipulated and has lower reference value. This conclusion has a strong practical significance for the ministry of environmental protection to improve the environmental information disclosure standards and develop standard templates of environmental reports.Secondly, the nature of equity, director board size and CEO duality all have significant effect on environmental performance, and there are no clear correlation between executive compensation and the proportion of the independent directors from empirical results, which indicates an embarrassing situation of independent directors and management salary less depends on environmental-performance-related in China. Of course, political connections play an entirely negative role in the environmental management roles, which induce enterprises to escape environmental investment and reduce market efficiency in the environmental scale. More seriously is political connections reduce the efficiency and level of corporate governance; weaken the positive effect of green performance from internal governance.Thirdly, firms state their environmental efforts to the outside world through publishing environmental information. There is positive correlation between environmental performance and environmental transparency, but political connections have a negative correlation with the company’s disclosure, and also inhibit the positive effect of environmental performance bringing to environmental information disclosure, in which the influence of political connections to monetary environment information is much higher than the influence to the non-monetary environment information. This conclusion shows that enterprises try to avoid monetary environmental information which is harder to manipulate and higher for reference. Unlike monetary environmental information, firms have no incentive to hide non-monetary information which tends to win by “quantity”.Fourthly, the certification of the ISO14001 has significantly increased their prime operating revenues and their net assets, promoted the growth of firm value. That is, ISO14001 standard certification provides effective mode of environmental management, and encourages firms actively to implement patterns of low carbon economy and circular economy, therefore environmental performance does not contradict with the increase of financial performance.This article has achieved several innovations in the following three aspects: first, we focus on the full range of external pressure to investigate the influence path of external governance, environmental information and financing costs. Next, this paper enriched the environmental performance appraises through Janis-Fadner coefficient method to calculate three dimensions including environmental regulations, environmental objectives, reward and punishment of the government. Finally, for the first time, we contrast the different mechanism of political connections in restraining environmental transparency and environmental performance, and draw the practical difference between monetary and non-monetary environmental information, which can help governments make more meaningful decisions.Overall, environmental management are implemented actively for confident enterprises, and the environmental performance will impact the firm value through financial performance. The mechanism of the environmental information disclosure may influence the expected prices of investors which can change the firm value in capital markets. It is undeniable that environmental problem is a long and complicated process, and environmental accounting is still a very young field in China, so this paper can just cast a brick to attract jade for the research between environmental information disclosure and environmental performance.