Voluntary greenhouse gas emissions disclosure by non-greenhouse gas registered Australian companies: determinants and consequences

This research investigates the determinants and consequences of voluntary greenhouse gas (GHG) disclosure by non-GHG registered companies in Australia. Initial specific characteristics of a volunteer, and his/her presupposed knowledge of an action, play a significant role in the decision of taking a voluntary action (James, 1890). Based on this rationale, and consistent with the disclosure literature (e.g., Aerts et al., 2008; Ling, 2007), determinants and consequences of voluntary GHG disclosure by companies are examined as two possible dimensions for GHG disclosure decisions. This thesis is by publication and includes three papers. The first paper evaluates the determinants of GHG disclosure, using a number of firm-specific characteristics. The determinants are examined based on agency, legitimacy, stakeholder and voluntary disclosure theories. The second and third papers of this thesis examine the consequences of voluntary GHG disclosure on market-based and accounting based performance, respectively. A GHG disclosure index was developed based on the requirements in the Australian National Greenhouse and Energy Reporting Act 2007 and adapted from de Aguiar and Fearfull’s (2010) GHG disclosure index. The level of GHG disclosure was scored via content analysis of the annual reports (2009 to 2011 financial years) of non-GHG registered companies. The content analysis was validated by using a test-retest procedure. The first paper’s findings highlight a positive association between GHG disclosure, firm size and board independence. Further, it finds that companies with newer equipment are more likely to engage in discretionary disclosure and that foreign listing status plays a significant role in the GHG disclosure decision, suggesting that companies tend to view shareholders’ interests as a factor in determining GHG disclosure. The second paper indicates that a high level of debt cost in the previous year is a determinant for GHG disclosure. In the second paper, both linear regression and two-stage least squares regression analyses suggest that voluntary GHG disclosure is associated with a lower level of debt cost in the following year of disclosure. Also, it highlights that GHG disclosure has significant negative relationships with the bid-ask spread and return volatility in the following year of disclosure. The third paper, using a matched-pair research design in addition to linear regression and two-stage least squares regression analyses, also suggests that GHG disclosure has positive relationships with return on assets in the following year of disclosure. However, it does not provide evidence that the level of return on assets in the previous year of disclosure is a significant determinant for GHG disclosure. The second and third papers provide some evidence about the positive economic consequences of voluntary GHG disclosure. Overall, the research findings are consistent with the predictions of a cost-benefit framework. The findings indicate that managers tend to apply a cost-benefit framework based on likely trade-off between costs and benefits of disclosure (Garcia-Meca et al., 2005; Verrecchia, 1983, 1990, 2001) when deciding to disclose GHG voluntarily. The research outcome indicates that companies bear the extra voluntary disclosure costs to achieve the perceived benefits of voluntary disclosure. Overall, the thesis contributes to the GHG disclosure literature by responding to Simnett et al.’s (2009) call for research to apply a collection of archival data to examine the characteristics of companies reporting their GHG emissions. Understanding the underlying determinants for voluntary GHG disclosure may help stakeholders to appreciate the benefits and limitations of this disclosure. The thesis further contributes to the voluntary GHG disclosure literature by bridging the existing gap between the determinants and consequences of voluntary GHG disclosure. The findings could be implemented in the cost-benefit analysis of non-disclosing companies for future disclosure. The findings also highlight the value relevance of GHG disclosure in financial markets, which could help stakeholders in their decision-making process. Also, the content analysis of the annual reports provides some clarity in respect of the most common aspects of GHG disclosure (e.g., actions to tackle GHG emission) by non-GHG registered companies. It helps stakeholders to understand the nature, scope and quality of GHG disclosure.