Carbon Emission Disclosures and Financial Reporting Quality: Does Ownership Structure and Economic Development Matter?

Bilal, Tan, Duojiao, Komal, Bushra, Ezeani, Ernest ORCID: https://orcid.org/0000-0003-0401-9000, Usman, Muhammad and Salem, Rami (2022) Carbon Emission Disclosures and Financial Reporting Quality: Does Ownership Structure and Economic Development Matter? Environmental Science and Policy, 137. pp. 109-119. ISSN 1462-9011

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Abstract

Carbon emission disclosures have lately gained considerable attention from investors, public companies, and regulators due to their adverse impact on global warming. Our study examines the implication of the extent of carbon emission disclosures on financial reporting quality. Using a sample of the Chinese high polluting companies from 2012 to 2018, we found a negative relationship between carbon emission disclosures and discretionary accruals, indicating that companies with more carbon disclosures have better financial reporting quality. In addition, we find that state-owned Chinese companies with more carbon disclosures experienced better financial reporting quality. Furthermore, we find that companies from more developed regions that engage in carbon emission disclosure are also associated with higher financial reporting quality than companies from less developed regions. Our findings are robust using alternative methodologies. Our study has implications for companies' managers since it helps them legitimize their actions to stakeholders by providing carbon emission disclosures and higher financial reporting quality. It will assist the Chinese regulators and policymakers encourage high-polluting companies to disclose more carbon-related matters for different stakeholders voluntarily.