What is the impact of industrial environmental events on the quality of environmental disclosure in corporate annual reports? : A longitudinal study

Abstract: Environmental accounting, as a newly developed cross-field subject, has been received increasing attentions in recent years. With public awareness of corporate social responsibility and sustainability, corporate environmental performance also has been aroused among social public, stakeholders, and internal management. Environmental disclosure, as an effective link between corporate management and social responsibility, is becoming a valuable research topic.   One unsolved problem of the environmental disclosure is the corporate behavior of listed companies in terms of environmental reporting in the post environmental events period, from 2005 to 2009. Those corporation environmental events, exposed by media, include over pollution, over emissions and illegal environmental activities. According to legitimacy theory, negative social perception and “legitimacy gaps” of the community result from illegitimate corporate activities, like environmental events, and corporations are therefore been threatened in its existence. In this case, enhanced environmental disclosure in annual reports is supposed to be an appropriate way to eliminate threats for corporations and ameliorate negative social perceptions. It imply that corporations with lower level of environmental performance are required to have more environmental disclosure for sustainability.   Some prior studies provided evidences that in the period from 1980 to 2002, after some incidents, corporations involved in these incidents indicate a higher level of environmental disclosure in the year when the environmental incidents happened, which align with legitimacy theory. Furthermore, there were incongruence previous results of the relationships between environmental disclosure and firm size and industry characters. We aim to find that whether the corporation environmental disclosure is in a relation with firm size and industry characters or not. And we are to revisit the association between corporate environmental performance and environmental disclosure.   This study took the quantitative method statistical technology was used for analysis. In order to get the answer for the research question, four hypotheses were set in this research. Finally, firm size and industry characters have no significant relationship with the level of environmental disclosure. The results indicate that the level of environmental information disclosure in annual reports of 2008 is higher than those of 2005. However, environmental events could not be deemed as a determinant of environmental disclosure, and the results partially support the legitimacy theory. The quality of environmental disclosure of 21 sample companies did not improve significantly in the year when the environmental events happened, but only the environmental disclosure sample companies with environmental events which happened in the year of 2008 improved significantly, compared with the previous year.