**5. Results and discussion**

factors) and no major economic event took place during this period. The reports have been used as the fundamental medium of reporting social and environmental activities of firms as

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

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

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

> *i*=1 60

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

**Table 1** represents the details about the independent and control variables employed in the

*di*/*nj* (1)

evident from prior studies performed by the authors in [54, 61, 73].

(GRI) that assist ascertaining environmental reporting in the annual reports.

the scoring sheet/checklist employing premeditated decision rules.

the total disclosure (TD) score for a company as additive as follows:

current study and techniques used for their operationalization.

ERI = ∑

number of items.

*4.1.2. Independent variables*

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

**4.1. Variables relevant for the study**

154 Globalization

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. The details of these tests are presented as follows.

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

**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.

#### 156 Globalization


**Table 2.** Descriptive statistics.


**5.3. Multiple regressions analysis**

F-statistics 7.7963 & p = 0.000002

The first hypothesis (H1

R<sup>2</sup> 0.6369 Adjusted R2 0.5552 D-W statistics 2.0229

reporting. Contrary to H1

The second hypothesis (H2

*5.3.1. Environmental reporting and board size*

of companies leading to higher globalization.

*5.3.2. Environmental reporting and board independence*

reporting and the size of a board (p = 0.070). Hence H1

**Table 4.** Multiple regression results using (ERI) as the dependent variable.

The results by using multiple regression analysis presented in **Table 4** are explained as follows.

**Variables Predicted sign Coefficients t-statistics Probability VIF**

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

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

157

BS — 0.0324 1.8593 0.0703 1.34 BI + 0.8537 2.6796 0.0106 1.13 DUAL — −0.1811 −1.8038 0.0788 1.13 ACI + −0.0401 −0.2231 0.8245 1.11 FEMDIR + 0.1144 0.3795 0.7063 1.11 INSINV — 0.3612 4.3243 0.0001 1.12 SIZE + 0.0414 0.9315 0.3572 1.29 LEV + 0.0334 2.2527 0.0298 1.25 ROA + 0.0078 2.7889 0.0081 1.12

C −0.7616 −1.9955 0.0528

with various studies [21, 22, 25, 27, 61] who deduced a direct connection between the size of a board and the level of environmental reporting, advocating that larger board acquires the needed skills and incurs more efficient reporting system to ensure sound environmental disclosure.

The result implies that management of the firms needs to have an optimal board size having variety of members from national and multinational organization so that environmental reporting in these firms is sustained. The greater number of board members leads to have rigorous brainstorming and interchange of more ideas which results in economic integration

tors is positively and significantly linked with the extent of environmental reporting. The

) proposed that board size is negatively related to the environmental

, the findings revealed a positive relationship between environmental

) implies that the proportion of independent non-executive direc-

is not sustained. The finding is coherent

**Table 3.** Pairwise correlation.

Some exploratory details about the components of the ERI and relevant score by each company are presented in Appendix 1.

#### **5.2. Correlation analysis**

Pairwise correlation coefficients exhibit relationship of corporate environmental reporting to all corporate governance attributes and firm specific variables used in the study and are presented in **Table 3**. Results indicate a positive association between the extent of environmental reporting and each of board size, independence of board, leverage, profitability and percentage of institutional investors whereas the CEO duality is negatively associated with the level of environmental reporting.

The Relationship between Environmental Reporting and Corporate Governance: Empirical… http://dx.doi.org/10.5772/intechopen.75228 157


**Table 4.** Multiple regression results using (ERI) as the dependent variable.

#### **5.3. Multiple regressions analysis**

Some exploratory details about the components of the ERI and relevant score by each com-

**Variables Mean Minimum Maximum Standard deviation**

**ERI** 43.4 0.00 95.0 27.2 **BS** 8.58 6.00 15.0 1.93 **BI** 40.0 25.0 85.1 8.63 **DUAL** 0.08 0.00 1.00 0.27 **ACI** 91.2 33.3 100 15.1 **FEMDIR** 6.22 0.00 33.3 9.05 **INSINV** 58.1 0.02 100 32.8 **LEV** 2.16 0.05 7.79 1.94 **ROA** 4.58 −20.2 24.9 9.70

Pairwise correlation coefficients exhibit relationship of corporate environmental reporting to all corporate governance attributes and firm specific variables used in the study and are presented in **Table 3**. Results indicate a positive association between the extent of environmental reporting and each of board size, independence of board, leverage, profitability and percentage of institutional investors whereas the CEO duality is negatively associated with the level

pany are presented in Appendix 1.

**Variables ER1 BS** 0.49\*\* **BI** 0.292\* **DUAL** −0.284\* **ACI** −0.027 **FEMDIR** −0.06 **INSINV** 0.507\*\* **LEV** 0.316\* **ROA** 0.324\*

**5.2. Correlation analysis**

**Table 3.** Pairwise correlation.

**Table 2.** Descriptive statistics.

156 Globalization

\*

5% significance. \*\*1% significance.

of environmental reporting.

The results by using multiple regression analysis presented in **Table 4** are explained as follows.

#### *5.3.1. Environmental reporting and board size*

The first hypothesis (H1 ) proposed that board size is negatively related to the environmental reporting. Contrary to H1 , the findings revealed a positive relationship between environmental reporting and the size of a board (p = 0.070). Hence H1 is not sustained. The finding is coherent with various studies [21, 22, 25, 27, 61] who deduced a direct connection between the size of a board and the level of environmental reporting, advocating that larger board acquires the needed skills and incurs more efficient reporting system to ensure sound environmental disclosure.

The result implies that management of the firms needs to have an optimal board size having variety of members from national and multinational organization so that environmental reporting in these firms is sustained. The greater number of board members leads to have rigorous brainstorming and interchange of more ideas which results in economic integration of companies leading to higher globalization.

#### *5.3.2. Environmental reporting and board independence*

The second hypothesis (H2 ) implies that the proportion of independent non-executive directors is positively and significantly linked with the extent of environmental reporting. The results revealed a positive and substantial linkage between environmental reporting and board independence (p = 0.010). Therefore, H2 is supported.

*5.3.6. Environmental reporting and institutional ownership*

environmental reporting and profitability.

independent variables included in the model.

**Table 5.** Results for the hypotheses testing.

**H1**

**H2**

**H3**

**H4**

**H5**

**H6**

on environmental reporting (p = 0.0001) leading to the acceptance of H6

The summary of the results for the hypotheses testing are presented in **Table 5**.

The final result depicts that institutional investors have a positive and significant impact

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

sistent with various studies [12, 25] who deduced a direct connection among institutional ownership and that of environmental reporting, advocating that institutional investors are active owners and influence management and corporate value due to their large ownership stake in the firms. The result shows a positive and constructive role by the blockholders leading to higher level of environmental reporting and economic freedom and globalization. The management of the firm needs to have a healthy relationship with the institutional shareholding so the level of environmental reporting in the firm is improved.

The results for the control variables suggest a considerable positive connection among environmental reporting and each of leverage and profitability. The positive connection between leverage and environmental reporting is reported by the authors in [12, 55]. The profitability is significant at 1% level of significance advocating that highly profitable firms disclose additional information regarding environmental activities in their annual reports. Results are consistent with the studies of [4, 10, 18] who deduced a significant positive connection between

As discussed before, the robustness tests for the study include multicollinearity and incremental regression analysis. The values of VIF vary from 1.11 to 1.34 showing a lack of substantial multicollinearity problem in our analysis [77]. The results for the incremental regression suggest that removal of the institutional investors' fraction leads to substantial fall in the value for the R-Squared (from 63 to 46%). The outcome shows that percentage of institutional investors is the most significant independent variable in affecting the level of environmental disclosure. The other diagnostics of the model show that the value for the R-Squared is 0.636 which reveals that 63.6% of the variations in the dependent variable are explained by the

**Hypotheses Status**

: Board size negatively impacts the level of ER. Rejected

: Board independence positively impacts the level of ER. Accepted

: CEO duality negatively impacts the level of ER. Accepted

**:** Higher percentage of women on the board positively impacts the level of ER. Rejected

: Audit committee independence positively impacts the level of ER. Rejected

**:** Institutional ownership positively impacts the level of ER. Accepted

. The finding is con-

159

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

The results are in line with the stakeholder and agency theory argument that voluntary disclosure practices of the firms are more likely to improve with an increase in the percentage of independent non-executive directors. The outcome is in harmony with the inferences of many prior studies [20, 45, 63].

The result implies that the board independence (higher number of independent directors) from national and international organizations lead to independent thinking and incorporation of environmental friendly provisions in the firms. The management of the firms needs to have a higher number of independent directors resulting in higher financial integration and cross investment in the company leading to higher globalization and value for shareholders.

#### *5.3.3. Environmental reporting and CEO duality*

The third hypothesis (H<sup>3</sup> ) suggests a negative relationship between the level of environmental reporting and role duality. Outcome of the H<sup>3</sup> is in harmony with the agency theory (p = 0.078), endorsing that separate headship will bring about an improved social and environmental reporting related to the firms. The results of the study are in consonance with the stakeholderagency theory stating that the separate leadership structure is liable to offer requisite checks and balances and can enhance the efficacy of the board in controlling the management's actions [58]. This reduces the probability of restraining information outflow and deterring unfavorable information/news from spreading to stakeholders. The result is coherent with [17, 45, 61].

The result implies that a single person holding both the positions is detrimental to the environmental friendly practices and its reporting in the firm. The management of the firms needs to use nondual leadership structure to improve on the environmental reporting as the single dominant person does not let the board members think properly leading to less economic integration and globalization.

#### *5.3.4. Environmental reporting and proportion of female directors*

The fourth hypothesis (H4 ) suggests a positive association between the proportion of female directors on the board and the level of environmental reporting. Contrary to the expectation, the results of the model revealed the lack of any significant association among these variables (p = 0.7063).

#### *5.3.5. Environmental reporting and audit committee independence*

The fifth hypothesis (H5 ) recommends a positive and a significant association between independence of audit committee and the level of environmental reporting. The audit committee independence appeared to have no significant association with environmental reporting (p = 0.8245) leading to the rejection of H5 . The result is in line with previous evidence provided by the authors in [16, 24].

#### *5.3.6. Environmental reporting and institutional ownership*

results revealed a positive and substantial linkage between environmental reporting and

The results are in line with the stakeholder and agency theory argument that voluntary disclosure practices of the firms are more likely to improve with an increase in the percentage of independent non-executive directors. The outcome is in harmony with the inferences of many

The result implies that the board independence (higher number of independent directors) from national and international organizations lead to independent thinking and incorporation of environmental friendly provisions in the firms. The management of the firms needs to have a higher number of independent directors resulting in higher financial integration and cross investment in the company leading to higher globalization and value for shareholders.

endorsing that separate headship will bring about an improved social and environmental reporting related to the firms. The results of the study are in consonance with the stakeholderagency theory stating that the separate leadership structure is liable to offer requisite checks and balances and can enhance the efficacy of the board in controlling the management's actions [58]. This reduces the probability of restraining information outflow and deterring unfavorable information/news from spreading to stakeholders. The result is coherent with [17, 45, 61]. The result implies that a single person holding both the positions is detrimental to the environmental friendly practices and its reporting in the firm. The management of the firms needs to use nondual leadership structure to improve on the environmental reporting as the single dominant person does not let the board members think properly leading to less economic

directors on the board and the level of environmental reporting. Contrary to the expectation, the results of the model revealed the lack of any significant association among these variables

pendence of audit committee and the level of environmental reporting. The audit committee independence appeared to have no significant association with environmental reporting

is supported.

) suggests a negative relationship between the level of environmental

) suggests a positive association between the proportion of female

) recommends a positive and a significant association between inde-

. The result is in line with previous evidence provided

is in harmony with the agency theory (p = 0.078),

board independence (p = 0.010). Therefore, H2

*5.3.3. Environmental reporting and CEO duality*

reporting and role duality. Outcome of the H<sup>3</sup>

*5.3.4. Environmental reporting and proportion of female directors*

*5.3.5. Environmental reporting and audit committee independence*

prior studies [20, 45, 63].

158 Globalization

The third hypothesis (H<sup>3</sup>

integration and globalization.

The fourth hypothesis (H4

The fifth hypothesis (H5

by the authors in [16, 24].

(p = 0.8245) leading to the rejection of H5

(p = 0.7063).

The final result depicts that institutional investors have a positive and significant impact on environmental reporting (p = 0.0001) leading to the acceptance of H6 . The finding is consistent with various studies [12, 25] who deduced a direct connection among institutional ownership and that of environmental reporting, advocating that institutional investors are active owners and influence management and corporate value due to their large ownership stake in the firms. The result shows a positive and constructive role by the blockholders leading to higher level of environmental reporting and economic freedom and globalization. The management of the firm needs to have a healthy relationship with the institutional shareholding so the level of environmental reporting in the firm is improved. The summary of the results for the hypotheses testing are presented in **Table 5**.

The results for the control variables suggest a considerable positive connection among environmental reporting and each of leverage and profitability. The positive connection between leverage and environmental reporting is reported by the authors in [12, 55]. The profitability is significant at 1% level of significance advocating that highly profitable firms disclose additional information regarding environmental activities in their annual reports. Results are consistent with the studies of [4, 10, 18] who deduced a significant positive connection between environmental reporting and profitability.

As discussed before, the robustness tests for the study include multicollinearity and incremental regression analysis. The values of VIF vary from 1.11 to 1.34 showing a lack of substantial multicollinearity problem in our analysis [77]. The results for the incremental regression suggest that removal of the institutional investors' fraction leads to substantial fall in the value for the R-Squared (from 63 to 46%). The outcome shows that percentage of institutional investors is the most significant independent variable in affecting the level of environmental disclosure. The other diagnostics of the model show that the value for the R-Squared is 0.636 which reveals that 63.6% of the variations in the dependent variable are explained by the independent variables included in the model.


**Table 5.** Results for the hypotheses testing.
