Amsterdam Business School
The influence of fines and environmental reporting quality on online
environmental disclosures --- evidence from Chinese companies
listed on SSE
Name: WU Yishu
Student number: 11051434
Thesis supervisor: Dr. W.H.P. (Wim) Janssen and Brendan O'Dwyer Date: 21 August 2015
Word count: 12829
MSc Accountancy & Control, specialization Accountancy Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by student Yishu Wu who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
This paper extends the previous literature by investigating on the firms’ environmental disclosure based on Chinese listed firms in high-polluting industries. The environmental disclosure in China is still in the developing phase. Instead of publishing environmental reports, most firms tend to present their environmental reports in the social responsibility reports. Compared with the environmental disclosure in reports, fewer firms disclose environmental information online and the disclosure level various from the industries. Two main factors that influence on the firms’ online environmental disclosure are examined in this research. One is the factor whether the firm has been fined and the other is the quality of the environmental information in the reports. However, this research has failed to find a relationship between fines and firms’ online environmental disclosure. But the result has manifested a positive correlation between the quality of environmental disclosure in the reports and online disclosure. Besides, this paper also found that big firms are more likely to disclose environmental information online. In addition, the main regression result indicates a significant relationship between firms’ growth and the online environmental disclosure that firms which develop faster are more probable to disclose online environmental information.
KEY WORDS: environmental disclosure, environmental reports, fines, quality.
Acknowledgments
I would like to thank Dr. W.H.P. (Wim) Janssen and Brendan O'Dwyer for their helpful guidance on this paper and my Chinese schoolmate Yao Jiahui for his assistance in the collection of data.
Contents
1. Introduction ... 5
2. Hypotheses ... 11
2.1 Fines ... 11
2.2 The quality of environmental disclosure in annual report ... 14
3. Research methodology ... 17
3.1 Variables ... 17
3.2 Sample selection ... 20
4. Results ... 25
4.1 Current situation of Chinese environmental disclosure ... 25
4.2 Regression results and discussion ... 29
5. Conclusion ... 35
5
1. Introduction
During the recent years, China is experiencing the adverse effects raised from the environmental pollution. Especially in Beijing, the air pollution—haze is attacking people. The haze contains many harmful chemicals such as sulfur Dioxide (SO2) and carbon monoxide (CO) which will result in adverse diseases such as heart disease and cancer. According to Huo et al (2014), one of the reasons that induce Chinese severe air pollution is the high emission intensity by industrial companies. According to the 2014 statistical national environment report published by Chinese ministry of environmental protection1,
in 2014, the total emission of sulfur dioxide is 1.97 million tons among which the emission by factories is 1.74 million tons, taking part of 88.32%. And the total emission of nitric oxide is 20.78 million tons while 14.04 million tons (67.56%) of nitric oxide is emitted by factories. From these data, we can conclude that the factories in China, to a great extent, are responsible for Chinese severe pollution.
As the haze getting worse and worse, citizens are more and more concerned about the environment and more aware of the importance of the environmental protection. Stakeholders are increasingly paying attention to the environmental protection actions and the extent that firms care about the environment. (Monteiro and Aibar-Guzmán, 2010) To get the related information about firms’ environmental information, there are two of the main ways used by the stakeholders. One is to read the social responsibility reports which contain environmental information or the environmental reports published by the firms. The other, with the rapid development of the internet, is to search the information online. In China, some firms have the environmental disclosure while some don’t. Although there are some guidelines for the firms’ environmental disclosure, there are no specific laws or regulations that force the firms to publish the environmental disclosure report, not to mention to disclose information online. Therefore, firms can choose whether to disclose the environment information or not, such processes and the contents of the information which are to be disclosed depend on firms’ desire.
Borins(2002) has studied on electronic governance and he illustrates that with the 1. The report address is: http://zls.mep.gov.cn/hjtj/qghjtjgb/201510/t20151029_315798.htm
high-speed development of the technique, the price of the computers is decreasing and therefore computers are more accessible to people. Consequently, the internet has become the dominant information technology within the public sector. In other words, the internet has played an important role in the information transparency and allows greater access to information for all stakeholders. (Bolívar et all,2013) Bolívar et all (2013) evaluate the online disclosure about social responsibility at universities. In their finding, although universities could benefit from online disclosures, the universities only tend to disclose information to meet the requirements of the regulations. However, the authors emphasize the importance of the online disclosure of corporate social responsibility and conclude that the online disclosure of corporate social responsibility is very subject and requires special attention. Gandia and Archidona (2007) research on the website information of Spanish city councils. They mention that the internet has forced the public governance as well as the accountability and make the information more publicly available. However, they illustrate that in spite of the advantages taken from the online disclosures, the actual use of its website is mainly dependent on the will of the politicians and by the strategies of communication and information management introduced. Sommer et al (2015) have reviewed several prior literature and emphasize that the internet is becoming an important channel for corporate social responsibility communication. They illustrate that by disclosing on the website, the cost induced by the informational mediators is reduced. Lee et al. (2015) propose that social media has become a more and more important method for firms to directly and timely disclose information and communicate with the outside stakeholders. The authors use a background of product recalls and investigate the influence of firms’ social media on the capital costs after firms were announced a product recall. They find that by using social media, the harm created by the product recall was reduced. In other words, the damaged reputation and perceived legitimacy can somehow be repaired to an extent by publishing information through social media. Literature above has all emphasized the importance and benefits of online information disclosure. Within the internet booming era, brand-new and practical internet-based information disclosure emerges gradually. Compared with the paper-based reports, online information is more timely and flexible.
Firms can publish information online whenever they want. With the fast change of the market, timely disclosure is more and more required by the stakeholders. Besides, the cost to publish information online is less compared with the disclosure in the paper. (Gong, 2010) Nowadays, in China, almost every listed company has its own official website in China. However, there are very few literature investigate on the online disclosure of Chinese firm’s website. Most prior literature focus on the environmental disclosure in the annual reports. Thus, it is new and meaningful to investigate on the online environmental disclosure.
The aim of this paper is to get a general knowledge of the current situation of environmental disclosure in China including online disclosure and disclosure in the reports and investigate two factors that have impacts on the firms’ decision whether to disclose environmental information online.
Huang and Kung (2010) has investigated on the relationship between fines and environmental disclosure in the reports based on the evidence from Taiwan listed firms. Though Taiwan is a part of China, the economic environments are entirely different between Taiwan and Chinese mainland. And in their research, just like most of the researches on environmental disclosures, the authors mainly focused on the environmental disclosure in the annual reports, the online disclosures was not mentioned and studied. Moreover, there are not much empirical research investigating on environment disclosure in recent years in China, little evidence is available concerning the relationship between environmental disclosure and firms that have been fined, not to mention the disclosures online. However, with the extensive use of the internet, people are getting used to searching the information on the internet. Hence, to investigate the influence of fines and penalties based on Chinese listed firms on online environmental disclosure is necessary and new.
Another factor that may influence on the online disclosure is the quality of the firms’ environmental information in the reports. I have searched for the related papers but found no research investigated on this relationship. But I have found a paper investigating the relationship between firms’ disclosure behavior and the reports quality and the result
shows that firms tend to disclose more information if their information has good quality and the disclosure is more timely. (Cao, 2015.) To put it from another angle, during the same period, firms that have a better quality of environmental information in the reports tend to present more environmental information. So it could be inferred that there is a relationship between quality of the environmental reports and online disclosure. Since there is no specific investigation on this relationship, it could be worthwhile to conduct a research.
Therefore, the paper mainly focuses on the following two research questions:
1. Based on current environmental disclosure situation, does environmental fines influence the online environmental disclosure of Chinese firms?
2. Does the quality of environmental information in the reports influence the online environmental disclosure of Chinese firms
Prior reports and literature investigating on the environmental disclosure (for example, Shu, 2014) have shown that the environmental disclosure in China is still in the developing phase. Most firms only report positive information and the negative information cannot be found in the environmental reports or social responsibility reports. In addition, instead of publishing environmental reports, most firms tend to present their environmental reports in the social responsibility reports. By analyzing data in my sample, I find that compared with the environmental disclosure in reports, fewer firms disclose environmental information online and the disclosure level various from the industries.
The regression results of my research have failed to find the correlation between firms’ fines and firms’ online environmental disclosure. And the possibility that firms tend to disclose more environmental information in the reports rather than disclose information online has been rejected by additional regression analysis which shows a significant negative relationship between firms’ that have been fined and the environmental disclosure in the reports. But I have found a significant positive relationship between the quality of environmental information in the reports and the online environmental disclosure. Firms that have published environmental information in the sustainability reports of better
quality are more likely to disclose environmental information on their official website. This paper has also found a positive relation between firm size and the environmental disclosure not only in the reports but also online. The larger the firm is the greater likelihood of the firm to disclose environmental information. In addition, the main regression result indicates a significant relationship between firms’ growth and the online environmental disclosure that firms which develop faster are more probable to disclose online environmental information.
This paper seeks to make the following contributions. First and foremost, this paper contributes to the existing literature by hand-collecting data of fines and online environmental disclosure and providing empirical evidence of Chinese listed firms. Several variables are examined in this paper and some prior results have been confirmed. Especially the two main factors that fines and the quality of environmental information in the reports are relatively new. Studying on factors that have an influence on the environmental information online not only provides investors better ideas to understand the behavior of firms’ disclosure but also help the firms to make a better decision on the disclosure not only the contents but also the form of the disclosure. Secondly, by introducing the current situation of environmental disclosure, this paper helps the regulation designers better understand the basic condition of firms’ environmental disclosure, especially the online disclosure. With these information, regulators are better able to develop suitable environmental regulations. Thirdly, this paper mainly focuses on the online environmental disclosure which is different from the prior literature that focuses on the environmental disclosure in the annual reports. So this paper combined the disclosure with the internet and provides a new angle about the environmental disclosure. The rest of the paper is organized as follows: the next section illustrates the two main hypotheses, the third section demonstrates the research methodology including variables and sample selection. The fourth section introduces the basic situation of Chinese environmental disclosure and the results of regression model as well as several analyses and discussion. The fifth section is the conclusion part and concludes the whole paper including the limitation of this paper and the suggestion for future study. The last section
2. Hypotheses
Based on the extant literature, my main plausible independent variables are the factor whether the firm has been fined and the quality of environmental information in the reports. While other factors such as firm size, state ownership, firm growth, profitability, financial leverage and stock concentration which have been tested by prior literature that may influence on the environmental disclosure will also be considered in my regression model as control variables.
The following are the discussions about the two main hypotheses. 2.1 Fines
Deegan and Blomquist (2005) defines the corporation legitimacy that corporations are legitimate if they are subject to the notion of the social contract. In order to survive, the corporation has to comply with the social contracts and therefore the demands and expectations of stakeholders. In addition, their paper has indicated that to increase the legitimacy, organizations must not only do what is expected but also inform the society about their activities by disclosure. Dowling and Pfeffer (1975) conducted an empirical study on the activities organizations take related to the environment to gain legitimacy. Their paper has illustrated the legitimacy theory that a firm is legitimate if it acts the same to the values and norms of the society. A difference between two value systems is a threat to the organizational legitimacy so that legitimacy has become a restriction on firms’ behaviors. To put it from another way, firms incline to act close to the norm of the social value and reduce the difference with social norms. Brown and Deegan (1998) have proposed that if the firm acts incongruence with the norms outside, this firm will be regarded as illegitimate. With the development of the society’s environmental awareness, running counter to the environmental laws and regulations is definitely disobedient to the norms of the society and is regarded as an illegitimate behavior. In other words, receiving environmental punishment from the government will lead to the reduction of firm’s legitimacy. Yan (2013) studies on the market reaction to environmental violation disclosure of listed companies. He proposes that with the increasing awareness of
environmental protection, investors in the capital market are starting to focus on the environmental issues of companies. The author used event study to test the stock reaction to the environmental violation disclosure from 2007 to the first half of 2012 and he finds that although the reaction is lagging behind, the negative market reaction could be observed after the disclosure of environmental violation events. Xu et al (2012) study on the stock market reaction to environmental violation events disclosure by using data from Chinese listed firms. They also find that compared with the reaction to the similar events in other countries, the average reduction on Chinese stock is much lower. So being fined due to the environmental violation can indeed affect the reputation of the firm and its stock value in China.
Brown and Deegan’s (1998) study, the sample of which covered an amount of time on the Australian firms in the high polluting industries, mainly focuses on the effects from the print media on the firms. In their paper, significant positive results have been found that firms under higher media attention are more probable to increase the level of their environmental disclosure. And the paper has claimed that disclosing environmental information is the action firms take as the response to the media attention. Scrutiny from the government and the high attention from the media do share the similarities. Both of them increase the legitimate pressure on the firm. Pellegrino and Lodhia (2012) has investigated the role of firms’ environmental disclosure not only on the firm level but also the industry level as a response to the climate change. The authors think the climate change has created a legitimacy threat to the firms, especially the firms in the mining industry. And they find that a common strategy to maintain the legitimacy is to disclose environmental information voluntarily. So in order to maintain the legitimacy and reduce the damage from the fines on the firm’s reputation, the firm can choose to disclose environmental information voluntarily. (O’Donovan et al. 2000) As illustrated in the introduction part, with the fast development of the internet, now publishing information online has become very common for the firms which can bring several benefits. Since there are no hard and fast rules requiring the online environmental disclosure, the online disclosure can be regarded as a voluntary behavior.
Huang and Kung (2010) has investigated the effects of fines on the environmental disclosure based on the evidence from Taiwan. They found that firms which have been punished by the government because of breaking environmental regulations are more likely to disclose environmental information. They interpret this result that firms that have violated the environmental rules are treated as emphasized objects by the government, so they receive stricter scrutiny from the related institutions as well as outside stakeholders. Such scrutiny has created strong pressure on these firms. As a reaction to this pressure, firms increasingly tend to disclose environmental information trying to show that they perform very well and to show their concerns on the environmental protection. Deegan et al (1996) have studied on the 20 Australian firms which have been accused of violating environment by the New South Wales, and Victorian Environmental Protection Authorities. They especially made their observation on these firms’ environmental reports before the accusations. Their research was conducted before 1996, the period during which Australia has no mandatory regulations of the contents of environmental information which is similar to the current situation of the mainland China. Their findings indicate that most firms tend to disclose positive environmental information and very few have disclosed negative information. This result is consistent with both firms with accusations and without accusations. But for the firms that have been accused, the finding is more distinct. This result has also indicated the influence of the accusation on the firms’ disclosure that firms which have been sued for violating environment tend to present more positive environmental information.
Leuz and Schrand (2009) analyzed 1868 US firms’ disclosures after the widely known Enron scandal which has led to a cost of a capital shock to a mass of firms. They propose that Enron’s collapse has increased the level of social concern on the transparency of the information of other firms. The specific forms they investigated about the information of firms are the financial statements and the disclosures. Their results bring out that firms expanded the pages of their annual reports, especially the financial parts and some firms released additional disclosure. In other words, firms disclosed more financial information as a response to the great financial scandal- Enron Scandal. This result is especially distinct
among the firms which experienced positive beta shocks. In addition, the authors have also found that by disclosing more information, the cost of capital reduced. To put it from another way, disclosing information can indeed bring firms several benefits. Though Leuz and Schrand’s (2009) finding is not specifically related to the environmental disclosure, it does have the reference value, since the fines for pollution is just like a piece of scandal that could affect firms’ reputation and perceived legitimacy at the same time increase the pressure from the public. Walden and Schwartz (1997) reviewed an amount of literature suggesting that firms react to the public pressure by presenting environmental information. The authors study on the firms’ reporting before and after the Alaska oil tanker leak. Alaska oil tanker leak is a terrible oil spill event that adversely polluted the environment. This event draws public attention on the importance of environmental protection. As a response to this event, firms increasingly disclosed environmental information.
So from these literature, I made my hypothesis on the relationship between fines and online environmental disclosures as follows:
H1：Firms that have been fined in recent five years because of environmental violations are more likely to disclose environmental information online.
2.2 The quality of environmental disclosure in annual reports
In China, since there are no compulsory rules requesting firms to disclose environmental information, both environmental disclosure in the reports and online can be regarded as voluntary disclosures. Though there are guidelines for constructing the environmental disclosure in the annual reports, firms are not forcibly required to follow the guidelines. Chen and Xie (2013) has investigated on the quality of Chinese listed firms’ disclosures and they find the quality of the environmental disclosure various from firm to firm. Cao (2015) investigate the relationship between firms’ disclosure behavior and the quality of the disclosure based on Chinese listed firms. He finds that firms’ disclosure behaviors are various among the firms with reports of different level of quality. The frequency of information disclosure that the firms with information of low quality are higher than the firms with information of high quality. To put it from another angle, firms that have a
better quality of the information are more inclined to disclose the information in the annual reports. Verrecchia (1990) has done a research on whether the information quality can influence the decisions on whether to disclose the information by the managers. The author has made an example to interpret his result that if an asset is priced exactly the same as the manager’s expectation, then the information is of high quality and the manager will be willing to disclose this information to the public and if the price is not precise then the manager will prefer to hold back the information. To make this result more general, the result can be simplified that managers are more prone to present information if the information is of better quality. Firms with good quality of environmental disclosure in the annual reports means that the information they disclosed is of good quality. Therefore, it is reasonable to assume that firms that have environmental disclosures in the annual reports of better quality would disclose more environmental information. Besides the information in the annual reports, they could present the information online.
Kuo and Chen (2013) reviewed a plenty of literature about environmental disclosures and legitimacy theory. They mention that investors tend to invest in the firms that behave responsibly to the environment. While according to Deegan and Blomquist (2005), firms not only need to act to the norms of outside but need to present the activities to the public. So the environmental disclosure is very important. By studying on Japanese listed firms Kuo and Chen (2013) have confirmed the positive function by environmental disclosure on the increase of firms’ legitimacy. And they have also found that firms with higher environmental legitimacy are more likely to disclose environmental disclosure in the following time. So based on their result, it could reasonably to suggest the following logical thinking: firms that have environmental disclosure in the reports of better quality have gained a level of the legitimacy, so they are active in the environmental disclosure and tend to disclose more information. The way the disclose information besides the annual reports is to publish the information online. Thus, there is a positive relationship between the quality of environmental disclosure in the reports and the online environmental disclosure.
requests the third parties to verify whether the firm is compliant with the law and regulations. To the firms and investors, auditors are the third party who are responsible for the verification of the annual reports. Thus, reports that have been verified by auditors are more compliant with the laws and regulations and namely are of better quality. Sam et al (2012) have also proposed that external audits enhance the reliability and fairness of firms’ financial statements. Ball et al (2011) proposed that audited financial reports are relatively complementary with voluntary information disclosure. To be more specific, their results show that investors respond increasingly when the information disclosed by the firms are verified by the auditors. That is to say, the investors will increasingly rely on the disclosure by the firm when the information is more reliable and of better quality. Accordingly, it could be inferred that the online environmental disclosures by firms whose quality of the environmental reports is higher are regarded as more reliable by the investors and as a result, they will response remarkably to these information. To put it from another angle, the disclosures online has more effects on, for example, enhancing the legitimacy of the firm. Therefore, the firms may be more willing to disclose information online.
From the illustrations above, my hypothesis can be concluded as follows:
H2: Firms with the environmental disclosure in the reports of better quality are more likely to disclose environmental information online.
17
3. Research methodology
3.1 Variables
As illustrated in the hypotheses part, my two main factors are fines and the quality of environmental reports. These two factors are all set as the dummy variables: EDIonline and
QUALITY. EDIonline is used to measure the online environmental disclosure. If the firm
discloses related environmental information on the homepage of its official website. To be more specific, if the firm has at least one column about the environment, the EDIonline can
get one score. If the firm doesn’t have an environmental column or the firm has no official website, then EDIonline of this firm gets a score of zero. QUALITY is used to measure the
quality of firms’ environmental reports. It consists an additive calculation: QUALITY = GRI + CERTIFIED. GRI is The Global Reporting Initiative. It is an international independent institution concerning about social sustainability.2 GRI has published G4
sustainability reporting guidelines to guide the firms to construct sustainability reports and disclose sustainability information to the stakeholders. G4 guidelines not only provide companies with the reporting principles and the structures of standard disclosures but also show detailed advice and recommendations for companies’ sustainability reports. And these guidelines are now widely adopted by firms around the world. So here I can assume that G4 guidelines improve the quality of the sustainability reports, which mains the environmental information in companies’ sustainability reports has been improved with the consideration of G4 guidelines. In my research, if a firm’s social responsibility report has taken G4 guidelines into considering, the GRI can get one score otherwise zero. Sam et al (2012) proposed that external audits enhance the quality of firms’ financial statements. McAllister (2012) has illustrated the function of third-party verification that a firm is more compliant to the law and regulations if it is verified by a third party. So I assume that if a firm’s report has been verified by a third party, the quality of this firm’s report will be better. Thus, if a firm’s social responsibility report has been certified by a third party, then CERTIFIED can get one score. By adding GRI and CERTIFIED, I got
2. The official website of GRI provides a definition of GRI: GRI is an international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others.
the score of QUALITY.
There are seven control variables in my research: a variable whether the firm disclosed environmental information in the annual report, the firm size, the state ownership, firm growth, profitability, financial leverage and ownership concentration. As to test the relationship between the online environmental disclosure and the quality of the environmental report, whether the firm disclosed environmental information in the annual report should be taken into consideration and controlled, since only if the firm has published the social responsibility report can we measure the GRI and CERTIFIED. Many prior papers (for example, Monterio, et al,2009) have investigated on whether the firm size will influence the environmental disclosure of the firms, and as the results of the papers, firm size does have a positive correlation with the environmental disclosure. He and Ren (2009) investigate the relationship between asset size in the firm and the level of environmental information based on Chinese listed firms. They propose that big firms are more easily receiving concern from the public and the government, therefore, big firms are bearing more pressure from outside than small firms and they may need to disclose more information to meet the demand of outside stockholders, investors, and supervisors. In addition, one of the functions of environmental disclosure is to reduce information asymmetries between firms and the outside stakeholders. (Rüdiger and Regina. 2014). To reduce the agent costs result from the misunderstanding of the public and enhance the legitimacy, bigger firms have more motivation to disclose environmental information. (He and Ren.2009) Thus, taking the firm size as a control variable is necessary.
In the research of Luo and Lai (2015), the authors find a positive correlation between environmental disclosure and whether the firm is state-owned. The government is always regarded to be responsible for the environment protection. Compared with private enterprises, state-owned companies have more views and focuses on social responsibility, the attention and inspection are also higher from outside. (Li, 2014) Hence, it could be possible that state-owned companies have more motivation to disclose environmental information. So in my research, I set this factor as a control variable.
growth. The results show that firms that strive to expand themselves disclose more information about the environment. Li (2014) illustrate that in order to expand, the firms care more about their reputation, and environmental disclosure may bring them benefits to a higher reputation. So, it is truly meaningful to control the relationship between online environmental disclosure and the firm growth.
Li (2014) has also investigated the profitability in the topic of environmental disclosure, however, his results are not consistent with the most of the Chinese research, but it is consistent with the results of Freedman (2005). According to signal theory, firms with better financial performance are willing to disclose more information to let the market make the right judgments. (Rüdiger and Regina. 2014) Contract theory also agrees that firms with high profitability are willing to disclose information to maintain the position and reputation of the firms. In sum, firms with high profitability care more about the image and reputation. (Chou, 2012) Such firms are more likely to disclose information to show their ability to develop and their good prospect in order to acquire the trust from creditors, stakeholders, and potential investors. So firms’ profitability should be taken into consider. (Roberts,1992) argues that creditors have more effects on companies’ policies if these companies have higher financial leverage because creditors have the rights to withdraw their money back from the companies and decide whether to lend money in the future. Hence, companies with high financial leverage have more incentives to disclose information to accommodate creditors. (Huang and Kung, 2010) Therefore, I controlled the financial leverage.
I also controlled the ownership centralization. Huang and Kung (2010) have found the negative relationship between the ownership centralization and the environmental disclosures. They suggested that lower centralized companies demand a wider range of companies’ information. Therefore, it could be inferred that the ownership centralization influences the online environmental disclosure of the firm which should be controlled in the regression test.
Table 1 Name, proxies and specific calculation of control variables
Variables Name proxies Specific calculation
Disclosure of environmental information in the annual report
EDIreport Dummy variable
If a firm disclosed environmental information in the annual report, then the firm can get one score, otherwise zero.
Fines and penalties FINES Dummy variable
If the firm was penalized for environmental violations, then the firm can get one score, otherwise zero.
Firm size SIZE Total Assets Ln(Total assets)
State-run STATE Dummy variable
If the firm is mainly run by the country, then the firm can get one score.
Growth GROWTH Increase rate of
revenue
(Revenue in 2014 - revenue in 2013)/revenue in 2013
Financial leverage LEV Financial leverage Total liabilities/total assets
profitability PROF Return on net assets Net profit /net assets
Ownership
centralization SHARE
Proportion of the company's largest shareholder
Proportion of the company's largest shareholder
From the illustration above, my basic regression model is shown as follows:
EDIonline = a0 + b1 FINES + b2 QUALITY + b3 EDIreport + b4 SIZE +b5 STATE + b6
GROWTH+ b7 LEV + b8 PROF + b9 SHARE +ei
In the regression model, a0 is the constant and ei is the residual. 3.2 Sample selection
The sample I used is collected from firms listed on the Shanghai Stock Exchange (SSE)3.
SSE divides the companies by using classification of industry published by China Securities Regulatory Commission. The low-polluting industries, including wholesale and retail trade industry; transportation, warehousing and postal service industry; hotels and catering services industry; information transmission, software and information technology services industry; finance industry; real estate industry; leasing and commercial service industry; water resources, environment and public facilities management industry; residents service,
21 repair and other services industry; education industry; health and social work industry; culture, sports and entertainment industry are excluded from the sample. The rest industries including agriculture, forestry, animal husbandry, and fishery industry; mining industry; manufacturing industry; electricity, heat, gas and water production and supply industry; construction industry; scientific research and technical services industry and comprehensive industry are the main high-polluting industries and are mainly focused during the research. This classification is according to Chinese environmental protection agency4. Table 2 below clearly shows the specific classification of industries. And there are
742 firms in the high-polluting industries on SSE.
The data of the environmental disclosure online are hand-collected from the homepages of firms’ official websites. Since under the current laws and regulations, firms have no regulatory pressure to disclose their environmental fines in their annual reports, and according to Rüdiger and Regina (2014), most of the firms only report their positive environmental information in the annual reports, very few report the negative information. So the data of fines cannot be collected by reading annual reports. Consequently, the data of fines are hand-collected by 2 steps by using the notices of administrative penalty published on the website of Ministry of Environmental Protection of China5 and the
Chinese searching engine-Baidu. Firstly, I matched all the names of the firms having been fined from 2011 to 2016 from the notices of administrative penalty published on the website of Ministry of Environmental Protection of China. Secondly, I typed each name of the firms with a keyword “fines” onto Baidu and searched for the news from 2011 to 2016, to see whether the firm was fined because of environmental violations. For the total 742 firms, I used the same approaches to get the final data of the fines.
Financial data including total assets, liabilities, revenues and profits and the information of relative environmental information were collected from CSMAR database. Since most annual reports of 2015 were published on 30 March 2016, the data in CSMAR has not been
4. There are 13 high polluting industries: metallurgy industry, chemical industry, petrochemical industry, coal industry, thermal power industry, building materials industry, paper industry, brewing industry, pharmaceutical industry, fermentation industry, textile industry, tanning industry and mining industry.
5. Ministry of Environmental Protection of China is the official department being responsible for Chinese environmental issues, the right of which is delegated directly by the country. The website is: http://www.mep.gov.cn/zwgk/hjtj/
updated so timely, therefore, in order to maintain the integrity, financial data and data of environmental information were all collected from the annual reports and social responsibility reports of 2014 in CSMAR. In addition, data of firms that were not matched with CSMAR were hand-collected from the annual reports published by firms on SSE. All the samples are carefully selected according to data integrity. For example, firms that are newly listed were not included since the growth rate of these firm cannot be calculated because of lacking data. After doing this step, there are 698 firms remaining in the sample.
Table 2 Detailed Classification of high and low-polluting industries
Low-polluting industries High-polluting industries
Wholesale and retail trade industry Agriculture, forestry, animal husbandry, and
fishery industry Transportation, warehousing and Postal service
industry Mining industry
Culture, sports and entertainment industry Manufacturing industry
Hotels and catering Services industry Construction industry
Information transmission, software and information technology services industry
Electricity, heat, gas and water production and supply industry
Finance industry Scientific research and technical services
industry
Real estate industry Comprehensive
Leasing and commercial service industry -
Water resources, environment and public facilities
management industry -
Residents service, repair and other services industry -
Health and social work industry -
I did a descriptive test of the data used in this research through SPSS after primary selection. Table 3 presents the result. The range of the PROF is very high, so I checked back the data, it is mainly because of two firms. The PROF of one firm (stock number: 600179) is -50.08 and the PROF of the other firm (stock number: 600879) are -46.51, both of which are very low so that the range of the PROF is very large. In addition, there is also
a very large range of the LEV. Actually, it is because there is a firm (stock number: 600145) with an LEV of 46.16 which is not common. In order to make the sample data more comparable and representative, these extreme firms should be deleted, so I used SPSS to distribute each variable including SIZE, GROWTH, LEV, PROF and SHARE a standardized Z-value. Using Z-score method, I got rid of the firms which have at least one absolute Z-score greater than 3. Finally, in total, there are 678 firms in my sample.
Table 3 Descriptive result before selecting companies using Z-score method
Mean Minimum Maximum Range Std. Deviation
EDIonline 0.470 0.000 1.000 1.000 0.499 FINES 0.130 0.000 1.000 1.000 0.337 EDIreport 0.880 0.000 1.000 1.000 0.329 QUALITY 0.840 0.000 2.000 2.000 0.877 SIZE 22.431 17.277 28.509 11.232 1.526 STATE 0.640 0.000 1.000 1.000 0.479 GROWTH 0.122 -0.811 12.558 13.370 0.754 LEV 0.579 0.035 46.159 46.124 1.741 PROF -0.108 -50.082 1.473 51.555 2.620 SHARE 0.371 0.022 0.863 0.842 0.164
Table 4 Descriptive result after selecting companies by using Z-score method
Mean Minimum Maximum Range Std. Deviation
EDIonline 0.465 0.000 1.000 1.000 0.499 FINES 0.127 0.000 1.000 1.000 0.333 EDIreport 0.881 0.000 1.000 1.000 0.325 QUALITY 0.841 0.000 2.000 2.000 0.879 SIZE 22.417 18.160 27.001 8.841 1.413 STATE 0.643 0.000 1.000 1.000 0.479 GROWTH 0.050 (0.801) 2.376 3.178 0.268 LEV 0.508 0.035 1.226 1.191 0.212 PROF 0.027 (7.556) 1.473 9.029 0.417 SHARE 0.369 0.022 0.825 0.803 0.161
Table 4 presents the descriptive characteristics of the final sample. Since data are selected by Z-score method, the ranges, and the standard deviations are all acceptable. The average
score of FINES is 0.127 since FINES is a dummy variable, this average number means that 12.7% of firms in the sample have been fined in recent 5 years. Similarly, 64.3% which is more than half of the firms in the sample are mainly owned by the state.
Table 5 shows the numbers and proportions of the firms before and after selecting according to the industries, the integrity, and Z-score method. 91.37% firms have remained in the sample. Manufacturing industries have taken the biggest part the rate of which is 76.55% in the sample which also consistent with the current situation in China that there are many firms majoring in the manufacturing industries. Firms in scientific research and technical services industry are very few that there are only 7 firms taking part of 0.94% of the sample.
Table 5 Numbers and percentages of the firms sorted by industries in the sample Industries
Population Final sample
Sample/Population
No. % No. %
Construction industry 34 4.58% 28 4.13% 3.77%
Mining industry 44 5.93% 39 5.75% 5.26%
Electricity, heat, gas and water production
and supply industry 56 7.55% 53 7.82% 7.14%
Scientific research and technical services
industry 7 0.94% 7 1.03% 0.94%
Agriculture, forestry, animal husbandry,
and fishery industry 14 1.89% 14 2.06% 1.89%
Manufacturing industry 568 76.55% 518 76.40% 69.81%
Comprehensive 19 2.56% 19 2.80% 2.56%
4. Results
4.1 Current situation of Chinese environmental disclosure
In March 1989, China firstly proposed the topic of environmental information disclosure. For the following years, although China published some related environmental laws and regulations. Most are about the specific environmental protection and firm management, environmental information disclosure was hardly mentioned. (Zhao, 2014) In 2007, Chinese ministry of environmental protection issued environmental disclosure rules. However, in these rules, firms’ environmental disclosure are encouraged but not mandatory. Shanghai Stock Exchange has also issued several guidelines for firms’ information disclosure, but their focus is mainly on firm’s stockholders and transactions. Only one guideline is for environmental disclosure and was issued in 2008 which has no mandatory requirement. Therefore, under this legal environment, most environmental disclosures in China are on the voluntary basis.
Shu (2014) did a research on the current situation of Chinese environmental disclosure by using the data of Chinese listed firms in high-polluting industries on SSE from 2008 to 2012. The data in the following table 6 are exacted from the report of Shu (2014: 41). From 2008 to 2012, the rate of firms in the high-polluting industries that disclose the environmental information in the social responsibility reports is increasing indicating that more and more firms disclose the environmental information which also show the increasing level of concern on the environment. Shu (2014) has also made the specific investigation on the content of the environmental reporting. She designs a scoring system and distributes scores to evaluate each firm’s environmental disclosure. The average content scores are also shown in table 6. The total score is 96, however, we can see from the results that from 2008 to 2012, the average scores are all quite low. So it can be concluded that the level of the environmental disclosure is not high.
Table 6 Data of firms’ disclosure level from Shu (2014:41)
Year 2008 2009 2010 2011 2012
26 information
Average Content Score 14.19 14.63 15.89 15.59 14.47
Figure 1 and figure 2 are exacted from a report published by People’s Daily on 23, Jan, 20157. The report investigated on the firms’ basic environmental disclosure situation of
2013. Figure 1 shows that only 26% of listed companies (including low-polluting industries) in the mainland of China published environmental information in 2013. And the quality of these environmental information is not high.
Figure 2 shows the result of 665 listed companies on Shenzhen stock exchange and Shanghai stock exchange that have disclosed environmental information. The authors found that most firms disclosed environmental information in the social responsibility reports. Firms rarely publish sustainability reports or environmental reports. Although compared with 2012, there is an increase in the number of firms that disclose environmental information, the rate is still not high. The report also exposes that the total level of the qualification by the ministry of environmental protection is high among the firms that have published social responsibility reports. However, among these firms, only 16 firms are listed firms. In addition, in 2013, there are 287 listed firms which are significantly monitored by the country. However, only 61 firms disclosed environmental information through reports which are only 21.3% and only 4 firms published environmental reports, taking part of 1.4%.
Most importantly, the report has manifested that most companies are tended to disclose good environmental information rather than bad information. This result has also been found by many prior types of research, for example, the research by Rüdiger and Regina (2014). It could say that almost no bad environmental information are voluntarily disclosed by the Chinese firms in 2013. So current Chinese environmental disclosure is still in the developing phase.
The data collected in the sample also somehow show the current situation of firms’ environmental disclosure. Table 7 presents the number and the percentage of firms that disclosed environmental information online and in the reports respectively. I also documented the number and the percentage of firms that only disclose online
environmental information or only disclose environmental information in the reports. In addition, firms that disclose both online and environmental information are documented and presented in table 7. Only 88.05% of the high polluting firms disclosed environmental information through social responsibility reports. The performances of the environmental disclosure various through industries. Firms in mining industry performed best that 92.86% disclosed environmental information in 2014 whereas the scientific research and technical services industry is the worst, only 85.71%. As for the online environmental disclosure, compared with the environmental disclosure in the reports (88.05%), only 46.46% of firms in the sample have presented environmental information online. Firms in construction industry performed best that 67.86% published environmental information online and firms in the comprehensive industry are the worst, only 36.84%. Among total 678 firms, there are only 305 firms disclosed environmental information both online and in the reports takes 43.7%. 287 firms (41.12%) disclosed environmental information in the reports but they didn’t disclose the environmental information online. Only 14 firms disclosed information online but didn’t publish environmental information in the reports. This result shows that more firms prefer to disclose environmental information in the annual reports than online and the online environmental disclosure is just in the primary phase.
Table 7 No. and % of firms’ environmental disclosure sorted by industries and the disclosure methods in the sample
Industries EDIonline EDIreport
Both EDIonline
and EDIreport
Only EDIonline Only EDIreport
No. % No. % No. % No. % No. %
Construction industry 19 67.86% 25 89.29% 17 60.71% 2 7.14% 8 28.57% Mining industry 23 57.14% 36 92.86% 18 46.15% 0 0.00% 16 41.03% Electricity, heat, gas and
water production and supply industry
32 42.66% 47 87.45% 26 49.06% 1 1.89% 19 35.85%
Scientific research and
technical services industry 5 60.38% 6 88.68% 3 42.86% 1 14.29% 3 42.86% Agriculture, forestry,
animal husbandry, and fishery industry
8 71.43% 13 85.71% 5 35.71% 1 7.14% 5 35.71%
Manufacturing industry 221 36.84% 453 89.47% 228 44.02% 9 1.74% 230 44.40% Comprehensive 7 58.97% 17 92.31% 8 42.11% 0 0.00% 6 31.58% Total 315 46.46% 597 88.05% 305 43.70% 14 2.01% 287 41.12% Table 8 displays the quality of the environmental information in firm’s social sustainability reports according to the industries. The data shows that not every report has considered G4 guidelines or verified by a third party. Especially the third party item, in total, only 33.48% of the reports are verified by a third part. 84.21% of the reports in the manufacturing industry have been verified by a third party while only 28.57% of the reports in the mining industry have been verified. Compared to the third part, more than half of the firms considered G4 guidelines when writing a social responsibility report, the percentage is 50.59% in total. For this variable, firms in construction industry performed best that 67.86% of the firms’ reports have considered G4 guidelines followed by scientific research and technical services industry the rate of which is 58.49%. The manufacturing industry has performed worst that only 42.11% of the reports have considered G4 guidelines. From a primary analysis, though most of the firms of the mining industry have disclosed environmental information in the social responsibility reports, the quality is not really high.
Table 8 No. and % of firms according to the GRI and Third party items sorted by industries in the sample
Industries
GRI Third party
No. % No. %
Construction industry 17 67.86% 14 50.00%
Mining industry 17 42.86% 9 28.57%
Electricity, heat, gas and water production and supply industry 31 49.81% 22 30.31%
Scientific research and technical services industry 4 58.49% 5 41.51%
Agriculture, forestry, animal husbandry, and fishery industry 6 57.14% 4 71.43%
Manufacturing industry 258 42.11% 157 84.21%
Comprehensive 8 43.59% 16 23.08%
Total 343 50.59% 227 33.48%
4.2 Regression results and discussion
Table 9 Result of main regression
The influence of fines and external environmental reporting quality on online environmental disclosure
Model Unstandardized Coefficients
Standardized Coefficients t Sig. B Std. Error Beta (Constant) (2.289) 0.279 (8.218) 0.000 FIINES 0.088 0.065 0.059 1.358 0.175 EDIreport 0.296 0.063 0.193 4.684 0.000 QUALITY 0.162 0.020 0.286 8.192 0.000 SIZE 0.108 0.014 0.304 7.908 0.000 STATE (0.013) 0.036 (0.013) (0.370) 0.712 GROWTH 0.515 0.062 0.277 8.244 0.000 LEV (0.072) 0.083 (0.030) (0.860) 0.390 PROF 0.017 0.040 0.014 0.424 0.672
SHARE (0.126) 0.112 (0.041) (1.126) 0.260
Model ANOVA Sum of Squares Mean Square F Sig.
R square=0.538 Regression 48.825 5.425 30.243 0.000
Adjusted R Square=0.290 Residual 119.826 0.179
Std. error of Estimate=0.424 Total 168.650
Table 9 displays the result of the regression. From the result, we can see the coefficient of FINES is 0.088 but the significant number is 0.175 which is larger than 0.05 so the relationship is regarded as insignificant. The coefficient of EDIreport is 0.296 and the
significant number is 0.000 which means the correlation is significant. The coefficient of the QUALITY is 0.162 indicating the result is positive and the significant number is 0.000 which means the result is significant. The significant numbers of STATE, LEV, PROF, and SHARE are all larger than 0.05, so these linear relationships have been rejected by the result. From the result, my final model can be shown as follows:
EDIonline = -2.298+ 0.162 QUALITY + 0.296 EDIreport + 0.108 SIZE + 0.515 GROWTH
Although, Huang and Kung (2010) have found the positive relationship between penalties and companies’ environmental disclosure, in my result, unexpectedly, the relationship between online environmental disclosure and fines is not significant. In other words, there is no linear relationship between firms which have been fined in recent years and the behavior that these firms disclose environmental information online. The result indicates that having been fined will not lead to more online environmental disclosure, so hypothesis 1 has been rejected. To explain this result I have come up with three possible reasons. Firstly, just as the current situation of environmental disclosure that firms tend to avoid disclosing any adverse information, data of environmental fines are very hard to find. And the ministry of environmental protection just discloses several fines, some fines are not shown on the official website of the ministry of environmental protection. Since the information related to environmental fines are not transparent and data are not easily gettable, it is possible that some fines are not included in the sample which has led to the insignificant result of the regression. In my opinion, the existing association between fines and online environmental disclosure will change if every environmental fine is disclosed. Secondly, fines may do exist a positive relationship with
environmental disclosure, but firms react to fines by other methods instead of disclosing environmental information on their official websites. For example, firms may react to the fines by publishing environmental reports or making an announcement through Weibo.8
To examine this possibility, I used SPSS to test the relationship between EDIreport and
FINES using the regression model: EDIreport = a0 + b1 FINES + b2 QUALITY + b3
EDIonline + b4 SIZE +b5 STATE + b6 GROWTH+ b7 LEV + b8 PROF + b9 SHARE
+ei. Table 10 shows the result of this test. However although the result is significant, the coefficient is -0.574 indicating that there is a negative relationship between fines and environmental disclosure in reports. In other words, firms that have been fined are less likely to disclose their environmental information in the reports. This result is opposite to what I expect which means that the insignificant relationship between fines and online environmental disclosure is not due to the reason that firms choose to disclose in the reports instead of an official website. But the possibility of other methods still needs further research. Thirdly, the regression test is based on the assumption that the relation is linear, so if the relationship is not linear, for example, is curvilinear, the test by linear regression is not useful. So besides the two possibilities mentioned above, it is possible that there does exist a correlation but the correlation is not linear.
Table 10 The influence of fines on environmental disclosure in the reports Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta (Constant) 0.371 0.171 2 0.030 EDIonline 0.098 0.022 0.151 4.489 0.000 Fines (0.574) 0.030 (0.589) (18.877) 0.000 SIZE 0.022 0.008 0.098 2.671 0.008 STATE 0.020 0.022 0.030 0.919 0.359 GROWTH (0.072) 0.039 (0.059) (1.822) 0.069 LEV (0.033) 0.050 (0.022) (0.660) 0.510 PROF (0.015) 0.024 (0.019) (0.602) 0.547 SHARE 0.111 0.067 0.055 1.656 0.098
Model ANOVA Sum of
Squares Mean Square F Sig.
R Square=0.389 Regression 27.726 3.466 53.181 0.000
Adjusted R Square=0.381 Residual 43.597 0.065
Std. error of Estimate=0.255 Total 71.323
In Table 10, it is notable that there is a significant negative relationship between environmental disclosure in the reports and fines which means that firms have been fined are less likely to disclose their environmental information in the reports and is opposite to the finding of Huang and Kung (2010) that showed a significant positive relationship. The separation of the management and the ownership has led to the delegation of rights to the managers who specifically perform the activities. (Ishibashi, 2010) When performing, managers have their own private information which is not often observable by the owners. Similarly, a firm may have its private superior information about the environment to the investors. These information are not observable and investors could only know by reading the disclosures from the firm. As there is no specific rules and regulations requiring the specific content of firms’ environmental disclosure, firms can choose the information to disclose. Once a firm has been fined, it is highly possible that its environmental strategy or related information is defective, so in order to avoid further adverse effects, the firm may choose to conceal the information. The result in table 9 of QUALITY has confirmed my hypothesis 2 that the firms with better quality of environmental disclosure in the reports are more likely to disclose environmental information online. As expected, the result is significant and positive. This result is consistent with the finding of Cao (2015) and Verrecchia (1990). Kuo and Chen (2013) have confirmed that environmental disclosure can help increase firms’ legitimacy and firms with higher environmental legitimacy are more likely to disclose environmental disclosure in the following time. This finding can be used to explain the result of my regression that firms that have environmental disclosure in the reports of better quality have gained a good level of the legitimacy, so they are more active in the online environmental disclosure. From another angle, results of Ball et al (2011) show that investors respond increasingly when the information disclosed by the firms are verified
by the auditors, in other words, are more reliable and of better quality. So firms with better quality of environmental reporting find more useful by publishing environmental information and as a result, they have more motivation to present environmental information. A way of the increasing information disclosure is to disclose online.
In table 9, the coefficient of SIZE is 0.108 and the result if significant that large firms are more likely to disclose online environmental information. Gong (2010) has investigated on the relationship between information on the website and firms’ size. He found a positive and significant relationship that large firms disclose more information online. Sommer et al (2015) have also researched on the determinants of web-based corporate social responsibilities. Their findings indicate that larger firms provide more relative corporate social responsibility disclosure on the websites, especially the information about the environmental aspects. In table 10, the coefficient of SIZE is 0.022, both of which are significant. So combining the results from table 9 and table 10, we can get a conclusion that there is a positive and significant relationship between firm size and environmental disclosure. The combination of these two outcomes has confirmed the results by prior researchers (for example, Monteiro and Aibar-Guzmán, 2010) that larger firms are more prone to disclose environmental information. There are several reasons that could explain this result. Firstly, compared with small firms, large firms make disclosures at lower costs. The internal control systems in large firms are more integrated. During the routine work, the controllers need to collect and analyze not only the financial information but also other information including environmental information. Therefore, these daily work helps reduce the disclosure costs of environmental information in large firms. (Eugenio et al, 2016) Secondly, big firms have a wider range and more complex types of stakeholders. (Roberts, 1992) He and Ren (2009) also propose that big firms are more easily receiving concern from the public and the government. Different stakeholders demand different information. Therefore, to meet these demands and enhance the legitimacy large firms need to disclose more environmental information. (Huang and Kung, 2010) In addition, there more information in the large firms compared with small firms which result in more information asymmetries and can lead to misunderstanding by
outside stakeholders. So with a purpose of reducing the information asymmetries, large firms tend to disclose more information. (Monteiro and Aibar-Guzmán, 2010)
The main regression result also indicates a significant relationship between firms’ growth and the online environmental disclosure. This result is consistent with the finding of Li (2014) that firms which strive to expand themselves disclose more environmental information. As a developing company, many processes are not integrated and still in the developing phase, such as the disclosure process. Therefore, there could be more information asymmetry in developing firms and to reduce the asymmetry, firms need to disclose more information. (Monteiro and Aibar-Guzmán, 2010) In addition, to attract the investing, firms need to show their potential value and ability to earn the future benefits which also requires plenty of disclosures. And Li (2014) illustrates that reputation plays a key role in the development of a firm. In order to expand, the firms care more about their reputation. While environmental disclosure could help contribute to a higher reputation, developing firms may tend to disclose more environmental information.
5. Conclusion
As the haze in China, especially in Beijing, getting worse and worse, more and more people aware the importance of the environmental protection. Li (2015) have investigated on the causes of haze in Beijing and he finds that the haze in Beijing is mainly attributed to the hundreds of factories in and around the city. These factories have dismissed a good deal of waste gas that pollutes the air and result in a haze. However, it is very hard to find specific environmental information related to these firms since, in China, the environmental disclosure is still in the developing phase. Although there is guidance on firms’ environmental disclosure in the reports, no specific mandatory regulations requiring firms to disclose environmental information, neither in the reports nor online. Thus, firms disclose environmental information voluntarily.
With the high-speed development of the internet, more and more people tend to get information online. Prior authors, for example, Borins (2002) and Bolívar et all (2013), have illustrated the broader use of online disclosure and the benefits especially the timeliness and the flexibility of the online disclosure. Lee et al. (2015) have found that social media has become a more and more important method for firms to directly and timely disclose information and communicate with the outside stakeholders. By using the internet, the harm created by the product recall was reduced. In other words, the damaged reputation and perceived legitimacy can somehow be repaired to an extent by publishing information through the internet. Therefore, online disclosure has played an important role in firms’ information disclosure. This paper empirically studies on the firms’ online environmental disclosure.
Based on the prior research that studied on the environmental disclosure in the annual reports, I selected my two main independent variables and seven control variables. Huang and Kung (2010) have found that firms that have been punished by the government because of the violation of the environmental rules tend to disclose more environmental information in their reports. Their research is based on Taiwan listed firms. Although Taiwan is part of China, there is a mass of differences between Taiwan and the mainland
China, especially the economic situation. I searched for the papers investigating on the fines and online environmental disclosure, I found no specific papers studying on this relationship. And actually, there are very few papers studying on the environmental fines and firms’ environmental disclosure in China. So I picked fines as my first main independent variable. The second independent variable is the quality of the environmental reports, as well as the social responsibility reports since most companies in China disclose environmental information in social responsibility reports. No empirical research has investigated on this relationship. Cao (2015) has found that firms are more likely to disclose information timely in the reports if their information has good quality. So from this relationship, it could be inferred that firms with environmental reports with good quality are more probable to disclose environmental information online. In my paper, the seven control variables are the factor whether firm disclosed environmental information in the reports, the size of the firm, the growth rate of the firm, factor whether firm is mainly owned by the state, the concentration of the stocks, the leverage of the firm and the profitability of the firm.
By firstly reviewing prior reports and literature, I analyzed the current situation of Chinese environmental disclosure and concluded that Chinese environmental disclosure is still in the developing phase. Most firms only report positive information and negative information cannot be found in the related environmental reports or social responsibility reports. In addition, most environmental information is presented in the social responsibility reports, very few firms published environmental reports. By analyzing data in my sample, I find that compared with the environmental disclosure in reports, fewer firms disclose environmental information online and the disclosure level various from the industries.
By giving dummy score to develop EDIonine, unexpectedly, I found no significant
relationship between fines and firms’ online environmental disclosure. It cannot be concluded from the data that firms having been fined tend to present environmental information online. I have suggested three probable reasons to explain this result. Firstly, due to the low transparency of the environmental fines, the fines included in the sample
