**4.1. Variables relevant for the study**

#### *4.1.1. Dependent variable (environmental reporting index (ERI))*

The dependent variable, environmental reporting is computed by employing content analysis of the annual reports of the firms listed at PSX. Content analysis of environmental disclosure requires the development of categorization pattern and then deciding a set of rules for coding process, estimating and documenting the information being analyzed. First, a preliminary checklist containing anticipated environmental information items is organized. The checklist is then attuned to fit with the operational measures as documented by the guiding principles on environmental performance indicators and implication of the Global Reporting Initiative (GRI) that assist ascertaining environmental reporting in the annual reports.

Consequently, the final checklist is reckoned viable and rigorous in portraying environmental reporting practices in the annual and sustainability reports of Pakistani firms. The final checklist comprises of 60 environmental information items classified into seven broadly identified categories, namely: (1) Environmental philosophy and strategy (7 items); (2) Environmental summary (6 items); (3) Initiatives concerning environmental reporting (6 items); (4) Governance structure and management system (6 item); (5) Credibility (9 items); (6) Environmental performance Indicators (16 items) and (7) Environmental spending (10 items). Then, a coding method is used to allocate environmental information items in the annual reports to that of the scoring sheet/checklist employing premeditated decision rules.

Unweighted disclosure index technique is employed to compute the level of environmental reporting where the reporting of an item in the annual reports is coded (1) and non-disclosure is coded as (0). The disclosure model (unweighted environmental disclosure) thus computes the total disclosure (TD) score for a company as additive as follows:

$$\text{ERI} = \sum\_{i=1}^{60} di/nj\,\tag{1}$$

**5. Results and discussion**

*Independent variables*

Audit committee independence

*Control variables*

The details of these tests are presented as follows.

**5.1. Descriptive statistics and the correlation matrix**

To test the nature of the relationships proposed in this study, following sets of analyses are performed. These include descriptive statistics, correlation analyses, multiple regression analyses, robustness tests including multicollinearity test and incremental regression analysis.

**Variables Operational definitions Symbol Expected sign**

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

BI +ive

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

155

DUAL −ive

ACI +ive

INSINV +ive

Board size Total number of directors on the board BS −ive

Proportion of independent non-executive directors on

Female directors Proportion of female directors on the board FEMDIR +ive

Firm size Natural logarithm of total assets SIZE +ive Leverage Ratio of total debt to total equity LEV +ive Profitability Return on asset ROA +ive

Board independence Percentage of independent non-executive directors to the total directors

CEO duality Dummy variable equal to 1 if CEO is also the chairman, 0 if not

the audit committee

Institutional ownership Percentage of total shares held by institutional investors

**Table 1.** Details relevant for the independent variables used in this study.

**Table 2** depicts the descriptive statistics of different corporate governance attributes along with control variables investigated to analyze their impact on corporate environmental reporting system. The mean value for board independence which is computed by the percentage of independent non-executive directors to total number of directors on the board is 40%, demonstrating that 40% of the total board members are independent non-executive, aligned with the SECP Corporate Governance Code (2013). The mean value for board size is 8.58 reflecting that larger board has been a conventional practice among Pakistani firms. Moreover, the mean value for independence is 91.2% for the audit committee, imparting the relatively high degree of independence in audit committee. Meanwhile, the mean value for women representation on the board is only 6% with the maximum representation of around 33%. This shows that the firm's board does not comprise of many female members. Concerning the structure of ownership, it can be observed that the mean value for institutional ownership is 58% exhibiting the fact that institutional ownership represents the major form of block holdings. On the other

hand, mean value for leverage and profitability ratio is 2.16 and 4.58% respectively.

where di is 1 if item is disclosed and 0 if item is not disclosed and nj is the maximum number of items for firms (nj ≤ 60). To compute specific firm score, total score awarded to a firm is divided by the highest possible score and then multiplied by 100 to get the percentage scores. The maximum possible score that a firm could get is 60 because the numbers of reporting items incorporating all the seven broad categories form a total score of 60. The average score is calculated as the percentage of the number of firms reporting a specific item to the total number of items.

#### *4.1.2. Independent variables*

**Table 1** represents the details about the independent and control variables employed in the current study and techniques used for their operationalization.


**Table 1.** Details relevant for the independent variables used in this study.
