The Relationship between Corporate Governance, Environmental Disclosure, and Firm Value in Chinese Listed Companies

Abstract

In the last three decades, the rapid economic growth of China has attracted increasing research on its corporate governance and disclosure practices. However, there is, in general, a lack of understanding from the outside world due to the specific knowledge needed of the unique situation of China. In addition, previous studies lack research on the relationship between corporate governance and environmental disclosure in developing countries.
In this thesis, the roles of ownership structure and board composition on the extent of environmental disclosure in the annual reports are examined through evidence from the Chinese market. The sample of this research is collected from both the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SHSE). In this study, the quantity of environmental disclosure (measured by the mechanistic content analysis approach) and the quality of environmental disclosure (measured by the interpretative approach) are employed to estimate environmental disclosure variables. The results indicate that both qualitative and quantitative environmental disclosures increase with state ownership, greater blockholder ownership, and with a larger supervisory board. Environmental disclosures are not significantly associated with the proportion of independent directors on the board of directors. Furthermore, this study denotes that much less environmental information is disclosed in the annual reports of most Chinese listed companies compared to those of developed countries and so China is in a budding stage of development in disclosure practice. It suggests that firms should reveal more environmental information in the future for a win-win situation between themselves and their stakeholders under the stakeholder-agency framework.
This thesis also examines how the market reacts to qualitative and quantitative environmental disclosures from annual reports during relatively long periods, compared with the event study. Using two sets of databases (CCER and CSMAR) and annual reports from two Stock Exchanges, financial data and environmental disclosure information are collected to test the regressions using Chinese observations between 2009 and 2011. Voluntary environmental disclosure in the annual report is expected to provide value relevant information in the Chinese market based on signalling theory and the concept of information asymmetry. The findings indicate that quantitative environmental disclosure is positively value relevant in the market, and it also influences the firm value in the subsequent year; in contrast, qualitative environmental disclosure merely relates to the firm value in the same year, but it does not affect the subsequent year.
The uniqueness of China motivates the research on corporate governance in China, which would be a reference for countries processing similar mechanisms or attempting to advance their corporate governance. This research contributes to the existing literature on accounting about corporate governance, managerial structure, and disclosure practice in fast growing developing countries such as China. It enhances the understanding of influences from different corporate governance compositions on environmental disclosure. In addition, this research contributes to the knowledge about the association between market value and environmental information in fast developing countries such as China based on a large sample during consecutive years. Moreover, it is an up-to-date empirical research, which enhances the understanding in terms of qualitative and quantitative environmental disclosures and provides useful information for various stakeholders.