Advertisement

Journal of Business Ethics

, Volume 152, Issue 3, pp 613–626 | Cite as

Environmental and Social Disclosures and Firm Risk

  • Mohammed Benlemlih
  • Amama ShaukatEmail author
  • Yan Qiu
  • Grzegorz Trojanowski
Article

Abstract

We examine the link between a firm’s environmental (E) and social (S) disclosures and measures of its risk including total, systematic, and idiosyncratic risk. While we do not find any link between a firm’s E and S disclosures and its systematic risk, we find a negative and significant association between these disclosures and a firm’s total and idiosyncratic risk. These are novel findings and are consistent with the predictions of the stakeholder theory and the resource-based view of the firm suggesting that firms which make extensive and objective E and S disclosures promote corporate transparency that can help them build a positive reputation and trust with their stakeholders. This in turn can help mitigate the firms' idiosyncratic/operational risk. These findings are important for all corporate stakeholders including managers, employees, and suppliers who have a significant economic interest in the survival and success of the firm.

Keywords

Environmental and social disclosures Firm risk Voluntary disclosure Corporate social responsibility Stakeholder theory Resource-based view Risk management 

Abbreviations

CAPM

Capital asset pricing model

CFP

Corporate financial performance

CSD

Corporate social disclosure

CSP

Corporate social performance

CSR

Corporate social responsibility

E

Environmental

FTSE

Financial Times Stock Exchange Group

GHG

Green house gas

GRI

Global reporting initiative

ISO

International Organization for Standardization

MTB

Market to book ratio

RBV

Resource-based view (of the firm)

ROA

Return on assets

S

Social

SIC

Standard industrial classification

UK

United Kingdom

References

  1. Abdelghani, K. E. (2005). Informational content of the cost of equity capital: Empirical evidence. Managerial Auditing Journal, 20(9), 928–935.CrossRefGoogle Scholar
  2. Al-Tuwaijri, S. A., Christensen, T. E., & Hughes, K. E. (2004). The relations among environmental disclosure, environmental performance, and economic performance: A simultaneous equations approach. Accounting, Organizations and Society, 29(5), 447–471.CrossRefGoogle Scholar
  3. Amit, R., & Wernerfelt, B. (1990). Why do firms reduce business risk? Academy of Management Journal, 33(3), 520–533.CrossRefGoogle Scholar
  4. Asher, C. C., Mahoney, J. M., & Mahoney, J. T. (2005). Towards a property rights foundation for a stakeholder theory of the firm. Journal of Management and Governance, 9, 5–32.CrossRefGoogle Scholar
  5. Benlemlih, M., & Girerd-Potin, I. (2014). Does corporate social responsibility affect firm financial risk? Evidence from international data. Working Paper, Financial Management Association European Conference (FMA), Maastricht (The Netherlands), 11–13 June 2014.Google Scholar
  6. Beurden, P., & Gossling, T. (2008). The worth of values—A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82(2), 407–424.CrossRefGoogle Scholar
  7. Bouslah, K., Kryzanowski, L., & M’Zali, B. (2013). The impact of the dimensions of social performance on firm risk. Journal of Banking & Finance, 37(4), 1258–1273.CrossRefGoogle Scholar
  8. Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial Management, 35(3), 97–116.CrossRefGoogle Scholar
  9. Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.CrossRefGoogle Scholar
  10. Cho, C. H., & Patten, D. M. (2007). The role of environmental disclosures as tools of legitimacy: A research note. Accounting, Organizations and Society, 32(7), 639–647.CrossRefGoogle Scholar
  11. Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4), 303–327.CrossRefGoogle Scholar
  12. Clarkson, P. M., Li, Y., Richardson, G. D., & Vasvari, F. P. (2011). Does it really pay to be green? Determinants and consequences of proactive environmental strategies. Journal of Accounting and Public Policy, 30(5), 122–144.CrossRefGoogle Scholar
  13. Cormier, D., Aerts, W., Ledoux, M. J., & Magnan, M. (2009). Attributes of social and human capital disclosure and information asymmetry between managers and investors. Canadian Journal of Administrative Sciences, 26(1), 71–88.CrossRefGoogle Scholar
  14. Cormier, D., & Magnan, M. (2013). The economic relevance of environmental disclosure and its impact on environmental legitimacy. Business Strategy and the Environment, 24(6), 431–450.CrossRefGoogle Scholar
  15. Cormier, D., & Magnan, M. (2014). The impact of social responsibility disclosure and governance on financial analysts’ information environment. Corporate Governance, 14(4), 467–484.CrossRefGoogle Scholar
  16. Dowell, G., Hart, S., & Yeung, B. (2000). Do corporate global environmental standards create or destroy market value? Management Science, 46(8), 1059–1074.CrossRefGoogle Scholar
  17. Dye, R. A. (1985). Disclosure of nonproprietary information. Journal of Accounting Research, 23(1), 123–145.CrossRefGoogle Scholar
  18. Eccles, R. G., Ioannou, I., & Serafeim, G. (2012). The impact of a corporate culture of sustainability on corporate behavior and performance. National Bureau of Economic Research Working Paper No. 17950.Google Scholar
  19. Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–7798.CrossRefGoogle Scholar
  20. Gray, R., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing and Accountability Journal, 8(2), 47–77.CrossRefGoogle Scholar
  21. Guidry, R. P., & Patten, D. M. (2012). Voluntary disclosure theory and financial control variables: An assessment of recent environmental disclosure research. Accounting Forum, 36(2), 81–90.CrossRefGoogle Scholar
  22. Hackston, D., & Milne, M. J. (1996). Some determinants of social and environmental disclosures in New Zealand companies. Accounting, Auditing & Accountability Journal, 9(1), 77–108.CrossRefGoogle Scholar
  23. Hart, S. L. (1995). A natural resource based view of the firm. Academy of Management Review, 20(3), 986–1014.CrossRefGoogle Scholar
  24. Hasseldine, J., Salama, A. I., & Toms, J. S. (2005). Quantity versus quality: The impact of environmental disclosures on the reputations of UK Plcs. British Accounting Review, 37(2), 231–248.CrossRefGoogle Scholar
  25. Heal, G. M. (2005). Corporate social responsibility: An economic and financial framework. Geneva Papers, 30(3), 387–409.Google Scholar
  26. Huselid, M. A. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 38(3), 635–672.Google Scholar
  27. Husted, B. W. (2005). Risk management, real options, and corporate social responsibility. Journal of Business Ethics, 60(2), 175–183.CrossRefGoogle Scholar
  28. Ioannou, I., & Serafeim, G. (2015). The impact of corporate social responsibility on investment recommendations: Analysts’ perceptions and shifting institutional logics. Strategic Management Journal, 36(7), 1053–1081.CrossRefGoogle Scholar
  29. Jensen, M. C., & Meckling, W. (1976). Theory of firm: Managerial behaviour, agency costs, and capital structure. Journal of Financial Economics, 3(4), 305–360.CrossRefGoogle Scholar
  30. Jo, H., & Na, H. (2012). Does CSR reduce firm risk? Evidence from controversial industry sectors. Journal of Business Ethics, 110(4), 441–457.CrossRefGoogle Scholar
  31. Jones, T. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of Management Review, 20(2), 404–437.CrossRefGoogle Scholar
  32. Lee, D., & Faff, R. W. (2009). Corporate sustainability performance and idiosyncratic risk: A global perspective. Financial Review, 44(2), 213–237.CrossRefGoogle Scholar
  33. Lewellen, J. (1999). The time-series relations among expected return, risk, and book-to-market. Journal of Financial Economics, 54, 5–43.CrossRefGoogle Scholar
  34. Oikonomou, I., Brooks, C., & Pavelin, S. (2012). The impact of corporate social performance on financial risk and utility: A longitudinal analysis. Financial Management, 41(2), 483–515.CrossRefGoogle Scholar
  35. Orens, R., Aerts, W., & Cormier, D. (2010). Web-based non-financial disclosure and cost of finance. Journal of Business Finance and Accounting, 37(9&10), 1057–1093.CrossRefGoogle Scholar
  36. Orlitzky, M., & Benjamin, J. D. (2001). Corporate social performance and firm risk: A meta-analytic review. Business and Society, 40(4), 369–396.CrossRefGoogle Scholar
  37. Patten, D. M. (1991). Exposure, legitimacy, and social disclosure. Journal of Accounting and Public Policy, 10(4), 297–308.CrossRefGoogle Scholar
  38. Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: A research note. Accounting, Organizations and Society, 27(8), 763–773.CrossRefGoogle Scholar
  39. Qiu, Y., Shaukat, A., & Tharyan, R. (2016). Environmental and social disclosures: Link with corporate financial performance. British Accounting Review, 48(1), 102–116.CrossRefGoogle Scholar
  40. Salama, A., Anderson, K., & Toms, S. (2011). Does community and environmental responsibility affect firm risk? Evidence from UK panel data 1994-2006. Business Ethics: A European Review, 20(2), 192–204.CrossRefGoogle Scholar
  41. Sharfman, M. P., & Fernando, C. S. (2008). Environmental risk management and the cost of capital. Strategic Management Journal, 29(6), 569–592.CrossRefGoogle Scholar
  42. Shaukat, A., Qiu, Y., & Trojanowski, G. (2016). Board attributes, CSR strategy and corporate environmental and social performance in the UK. Journal of Business Ethics, 135(3), 569–585.CrossRefGoogle Scholar
  43. Toms, J. S. (2002). Firm resources, quality signals and the determinants of corporate environmental reputation: Some UK evidence. British Accounting Review, 34(3), 257–282.CrossRefGoogle Scholar
  44. Utz, S., & Wimmer, M. (2014). Are they any good at all? A financial and ethical analysis of socially responsible mutual funds. Journal of Asset Management, 15(1), 72–82.CrossRefGoogle Scholar
  45. Verrecchia, R. E. (1983). Discretionary disclosure. Journal of Accounting and Economics, 5, 179–194.CrossRefGoogle Scholar
  46. Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting and Economics, 32(1–3), 97–180.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  • Mohammed Benlemlih
    • 1
  • Amama Shaukat
    • 2
    Email author
  • Yan Qiu
    • 3
  • Grzegorz Trojanowski
    • 4
  1. 1.University of Grenoble Alpes, CERAG, CNRSGrenoble Cedex 9France
  2. 2.Essex Accounting Centre, Essex Business SchoolUniversity of EssexColchesterUK
  3. 3.Manchester Business SchoolUniversity of ManchesterManchesterUK
  4. 4.University of Exeter Business SchoolExeterUK

Personalised recommendations