**3.1. Board size and environmental reporting**

listing provides investors with opportunities to invest and earn economic gains originating

"Environmental reporting" has been described broadly as reporting by corporations regarding the environmental implications of their activities [38]. Environmental disclosure expands the responsibility of the firms beyond the conventional role of imparting financial information assuming the broad environmental responsibilities of the firms [39]. Manifesting effective corporate governance practices and maintaining sound environmental performance are among the key challenges faced by the organization to ensure its sustainability. In this context, environmental reporting can be reckoned as means of ascertaining effective corporate governance practices that incorporate transparency in its environmental practices. This rigorous operationalization of information disclosure in the environmental sphere is also attributed as "governance-by-disclosure" [40]. Companies in Pakistan and globally are under more public scrutiny than ever before and are obliged to disclose information regarding their environmental operations. Disclosure on environmental performance helps firms to gain stakeholder's confidence, to evaluate potential risks involved in performing such activities and to moderate the impact of these activities on the environment. It considers impact of their operations on the surrounding environment and to reveal the results to multiple stakeholders such as employees, consumers, community, regulators, the media and shareholders which become

Despite the variations in theoretical frameworks being endorsed, pertinent former literature from a broader spectrum has recognized that sound corporate governance is affiliated with enhanced level of transparency and plausible reporting [4]. Therefore, sound corporate governance practices are considered as accountability catalysts, reducing information asymmetry by ascertaining the disclosure needed for meeting the informational requirements of diverse stakeholders. The existing literature on disclosure of information provides evidence of number of theories supporting the disclosure of information by corporations. However, agency theory [42] and stakeholder theory [43] have dominated the explanation of corporate governance. Jensen and Meckling [42] described agency relationship as an agreement where one person (the agent) renders some services on behalf of the other party (the principal) and safeguards their interest. Certain decision making power may be delegated to agent as a reward

Stakeholder theory has a comprehensive dimension as compared to agency theory as it broadens the notion of principal to all concerned parties rather than just shareholders. This theory basically deals with the identification and appreciation of the association between the firm's actions and its influence on various stakeholders [44]. With respect to stakeholder theory, the authors in [19, 45] argued that good corporate governance practices enhanced firm–stakeholder relationship by fostering corporate sustainability. Consistent with the stakeholder concept, environmental disclosure serves as a part of the discourse between the company and its stakeholders concerning various environmental dimensions [8, 44]. On the basis of above discussion and in the context of agency and stakeholder theory, the study asserts that level of satisfaction of stakeholders regarding environmental information is associated with greater

from versatile interactions because of higher level of brain storming skills [37].

critical for the long-lasting sustainability of the organizations [41].

accountability and transparency of the top management.

of these services.

148 Globalization

Board size plays a significant role in monitoring firm performance and is taken into consideration mainly from the perspective of agency theory. Agency theory advocates for the smaller board size and it is anticipated that smaller board enhances efficiency, results in better coordination and effectively monitors the management decisions concerning the information disclosure [46]. Prado-Lorenzo and Garcia-Sanchez [47]asserted that larger board is detrimental to governance efficiency. The literature also shows contrary school of thought regarding association between board size and information disclosure. According to Xie et al. [48] larger board is characterized by more qualified and knowledgeable individuals and acquires a more effective reporting procedure and enhanced level of voluntary disclosure including the environmental disclosure.

The authors in [49, 50] argued that larger boards are expected to be dominated by the CEO, result in poor communication, ineffective coordination and less decision-making. They suggested that boards having more than seven or eight representatives are likely to be ineffective. Yoshikawa and Phan [51] also emphasized that numerous hidden interactions and divergence of interest among board members made the larger boards less cohesive resulting in weak coordination. In addition, they elaborated that sometimes larger boards are purposely formed by CEOs to disperse the power in the boardroom by making the CEO a dominant figure and thus reduces the likelihood of integrated actions by board members. Parallel to the theoretical expectations the study conducted by Byard et al. [52] using a sample of 1279 firms over the years 2000–2002 found a negative association between board size and environmental reporting. Hence, from the perspective of agency theory it is hypothesized that the relationship between board size and environmental disclosure would be negative:

**H1** :*The level of environmental reporting is negatively related to the board size.*

#### **3.2. Board independence and environmental reporting**

According to the agency theory [53] the presence of independent non-executive directors on the board effectively monitors the activities of company, stimulating objectivity and autonomy within the board. Furthermore, the board independence reduces the conflicts of interests among the multiple shareholders and the management thus leading to the minimization of agency costs [19]. From the perspective of stakeholder theory, independent directors are seen as accountability mechanism [18], as they have responsibility for a wider variety of stakeholders [45, 47]. The 2013 Corporate Governance Code issued by Securities & Exchange Commission of Pakistan (SECP) requires all listed companies to have majority of independent non-executive directors on their board, thus facilitating the board to discharge its duties and responsibilities appropriately. Regarding the association between independence of board and CSR reporting [13–15, 21, 22, 54] empirically found a significant impact of the existence of non-executive independent managers on CSR disclosure.

**H3**

ronmental reporting:

mitigating agency costs.

**H4**

*board.*

:*The level of environmental reporting is positively related to the practice of separation between the* 

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

http://dx.doi.org/10.5772/intechopen.75228

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Board diversity in terms of proportion of women on the board has been documented as having a substantial effect on firm performance and disclosure of both financial and nonfinancial matters [62]. Female directors are more diligent, committed, philanthropically driven and make effective contribution to the firm performance [25]. Ballesteros et al. [63] also documented a positive relationship between the proportion of female directors and level of CSR disclosure. Female directors exhibit more philanthropic concern as compared to men [22, 64]

In line with stakeholder theory, the authors in [66, 67] endorsed the view that women are socially oriented than men, develop effective stakeholder management and increase the board independence and thus social responsible behavior [45]. Furthermore, higher percentage of female directors on the board leads to the board independence and thus increases the probability of providing enhanced corporate environmental reporting [25]. On the basis of the above arguments about the monitoring potential of female directors and rationale offered by stakeholder theory, it can be asserted that female director's commitment, independence, thoughtfulness and other attributes enable them to actively participate in corporate decision making concerning disclosure practices. Therefore, we hypothesized a significant positive relationship between the proportion of female directors on the board and the level of envi-

:*The level of environmental reporting is positively related to the proportion of female directors on the* 

The main purpose of board committees is to monitor the audit process, the auditor's independence, the internal control and accounting system, the nomination and remuneration of the board directors, thus ensuring a continuous communication between the external auditor and the company's board [68]. Agency theory advocates the audit committee as an instrument of

According to Ref. [69], the existence of an audit committee offers an ancillary internal control mechanism, likely to enhance the performance of a firm. More appreciably, audit committee with independent members empowers the committee to discharge its responsibilities impartially and thus substantially contribute to the committee's effectiveness [9]. According to the 2013 Corporate Governance Code issued by the SECP, all listed companies in Pakistan are required to have an independent director as the chairman of board audit committee. There is dearth of empirical support regarding the relationship between environmental reporting

**3.4. Proportion of female directors on the board and environmental reporting**

*Chief Executive Officer (CEO) and chairman of the board.*

enhancing information transparency and accountability [65].

**3.5. Audit committee independence and environmental reporting**

practices of firms and independence of audit committee.

According to Refs. [24, 25, 55] boards having more independent non-executive directors compel managers to take favorable decisions regarding the firm's environmental performance. Moreover, the firms demonstrating active environmental concern proved to have more independent directors on their boards. Therefore, we hypothesize a significant positive relationship between the proportion of independent non-executive directors on the board and the extent of environmental reporting:

**H2** :*The level of environmental reporting is positively associated with the proportion of independent non-executive directors on the board.*
