**2. Corporate governance and environmental reporting**

"Environment Reporting" offers an opportunity for firms to apprise stakeholders that their corporate operations and efforts are environmental friendly. Environmental reporting should be embraced by corporation as an opportunity rather than an impediment to the growth of business. However, it is a real challenge in a country like Pakistan, where pervasive control and command systems invade the governance of country. Regulatory framework often tends to target the disciplinary behavior of corporations, instead of providing them with a facilitating environment for better compliance on ecological and social standards. Sustainability reporting also known as triple bottom-line reporting, corporate social responsibility reporting or non-financial reporting addresses the ability of organizations to formally reveal information about their economic, social and environmental operations [36]. In this perspective, sustainable approach, i.e. to fulfill the requirements of current generation without compromising the capacity of upcoming generations to fulfill their requirements is an emerging concern among the global community. In Pakistan, sustainability reporting of which environment reporting is a significant category is in its infancy but gradually growing.

Globalization is the process of economic integration of multinational and national companies. These include listing of companies at international and national stock exchanges. This cross listing provides investors with opportunities to invest and earn economic gains originating from versatile interactions because of higher level of brain storming skills [37].

**3. Literature review and development of hypotheses**

develop hypotheses relevant for CG characteristics.

between board size and environmental disclosure would be negative:

**3.2. Board independence and environmental reporting**

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

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

**H1**

**3.1. Board size and environmental reporting**

The previous studies investigating the extent of corporate voluntary reporting practices are of the view that environmental reporting is a significant phenomenon employed by corporations and is influenced by many corporate governance and firm specific attributes. The present review is an endeavor to encircle the multiple determinants of environmental reporting and its relationship with corporate governance characteristics. Corporate governance characteristics are manifested and categorized into: (1) board characteristics namely the size of board, board composition, role duality and proportion of female directors; (2) board committee's characteristics computed by audit committee independence and (3) ownership structure computed by the percentage of institutional investors. Control variables employed in the present study are size of the firm, leverage and profitability. In the sub-sections below, we

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

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

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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

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

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 of these services.

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 accountability and transparency of the top management.
