**3.6. Institutional ownership (ownership concentration) and environmental reporting**

Ownership structure whether it is dispersed or concentrated is considered to be an important attribute of corporate governance [74]. Institutional ownership is the form of ownership concentration computed as the percentage of shares held by institutional shareholders comprising banks, pension funds, endowment funds, mutual funds and insurance companies, etc. [75]. It is generally argued that the efficacy and effectiveness of board is reduced due to the presence of institutional investors. Jensen and Meckling [42] argued that separation of ownership and control result in increasing demand of information disclosure by firms. Hence, it could be assumed that institutional shareholding decreases the probability of providing enhanced corporate environmental reporting.

Investors having larger stake in the firm confine the decision making power of the board, which reduces the board autonomy and activism [42, 75] whereas, the authors in [14, 54, 61, 73] found no substantial association between the institutional ownership and the level of reporting. Some studies have found a negative association between institutional ownership and corporate disclosures [74, 16]. According to the agency theory, institutional investors have strong incentives to monitor corporate disclosure practices and influence corporate values [12]. Consistent with the stakeholder theory, institutional investors demand more accountability and transparency and are positively associated with corporate voluntary disclosure practices including environmental disclosure [76]. In line with the theoretical expectations, Rao et al. [25] documented a positive association between institutional ownership and environmental reporting. They suggested that institutional investors are active owners and influence management and corporate value due to their large ownership stake in the firms. Based on the above discussion and rationale provided by agency and stakeholder theory, it could be anticipated that institutional shareholdings increase the likelihood of providing enhanced corporate environmental disclosure.

The conceptual framework for the study shows the role of internal, external and control vari-

The Relationship between Environmental Reporting and Corporate Governance: Empirical…

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

153

The sample consists of 50 nonfinancial firms listed at Pakistan Stock Exchange that may affect the environment; forestry; the extractive and manufacture industry; food industry; construction industry; automobile industry; chemical industry; production and distribution of electricity, oil, gas and water; engineering and transport and storage. Fifty companies are selected,

The annual report is the main source of data being utilized in the recent study to analyze the environmental reporting practices of firms listed on Pakistan Stock Exchange covering a period of 2014–2015. The selected time span is not an independent period compared to systematic factors in the economy (for details see Appendix 2 showing the major macro-economic

ables in affecting environmental reporting practices in the firm (**Figure 1**).

using proportionate stratified random sampling technique from 19 sectors.

**4. Methodology**

**Figure 1.** Conceptual framework.

**H6** :*The level of environmental reporting is positively related to the ownership concentration.* The Relationship between Environmental Reporting and Corporate Governance: Empirical… http://dx.doi.org/10.5772/intechopen.75228 153

**Figure 1.** Conceptual framework.

Aburaya [70] found a positive relationship association between audit committee independence and the reporting quality of certain environmental specific categories such as policies concerning environment, adherence with environmental legislations and other environmental information. Nevertheless, in the context of voluntary disclosure [9, 12, 55, 71–73] documented the presence of a positive link between audit committee and the incurring independence and the extent of voluntary reporting exhibited by the companies. They argued that board committees determine good corporate disclosure of information. In conclusion, the existence and independence of audit committee improves the transparency of corporate boards and is expected to guarantee that a company fulfills its social commitment including the environmental commitment. Hence, it is hypothesized that the relationship between the presence and independence of audit committee and environmental disclosure will be

:*The level of environmental reporting is positively related to the existence and independence of audit* 

Ownership structure whether it is dispersed or concentrated is considered to be an important attribute of corporate governance [74]. Institutional ownership is the form of ownership concentration computed as the percentage of shares held by institutional shareholders comprising banks, pension funds, endowment funds, mutual funds and insurance companies, etc. [75]. It is generally argued that the efficacy and effectiveness of board is reduced due to the presence of institutional investors. Jensen and Meckling [42] argued that separation of ownership and control result in increasing demand of information disclosure by firms. Hence, it could be assumed that institutional shareholding decreases the probability of providing

Investors having larger stake in the firm confine the decision making power of the board, which reduces the board autonomy and activism [42, 75] whereas, the authors in [14, 54, 61, 73] found no substantial association between the institutional ownership and the level of reporting. Some studies have found a negative association between institutional ownership and corporate disclosures [74, 16]. According to the agency theory, institutional investors have strong incentives to monitor corporate disclosure practices and influence corporate values [12]. Consistent with the stakeholder theory, institutional investors demand more accountability and transparency and are positively associated with corporate voluntary disclosure practices including environmental disclosure [76]. In line with the theoretical expectations, Rao et al. [25] documented a positive association between institutional ownership and environmental reporting. They suggested that institutional investors are active owners and influence management and corporate value due to their large ownership stake in the firms. Based on the above discussion and rationale provided by agency and stakeholder theory, it could be anticipated that institutional shareholdings increase the likelihood of providing

:*The level of environmental reporting is positively related to the ownership concentration.*

**3.6. Institutional ownership (ownership concentration) and environmental** 

enhanced corporate environmental reporting.

enhanced corporate environmental disclosure.

positive:

152 Globalization

*committee.*

**reporting**

**H5**

**H6**

The conceptual framework for the study shows the role of internal, external and control variables in affecting environmental reporting practices in the firm (**Figure 1**).
