The impact of top management’s environmental responsibility audit on corporate environmental investment: evidence from China

Lu Zhang · Jiangtao Li

27 citations0/0 files storedSustainability Accounting Management and Policy Journal

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Corporate Social Responsibility Reporting Environmental Sustainability in Business Accounting and Financial Management

Abstract

Purpose The purpose of this paper is to examine the effect of top management’s environmental responsibility audit (ERA) implementation on firms’ investment for environmental protection in China. Design/methodology/approach The sample comprises firms publicly traded on A-Share in China from 2011 to 2017. The authors used the ordinary least squares regression model to test the relation between ERA implementation and corporate environmental investment. Findings Firms’ environmental investment increases significantly after the ERA implementation. Compared to state-owned enterprises (SOEs), non-state-owned enterprises (non-SOEs) are more likely to increase their environmental investment after ERA implementation. Moreover, such change is more likely for non-heavily polluting enterprises (non-HPEs) compared to heavily polluting enterprises (HPEs). Practical implications This paper provides an in-depth analysis of the positive influence of environmental enforcement on corporate behavior, which could serve as reference for regulators on the latest environmental accounting practice in China and other emerging economies. Social implications This paper shows that clear assignment of environmental responsibility and subsequent assessment of environmental performance are contributing factors to effective and efficient implementation of an environmental management system. Originality/value Contributing to accounting and environmental management literature, this paper explains how mandated environmental audit incentivizes firms to deal with environmental issues. Because there is no prior research concerning the mandatory implementation of environmental audit in China, this paper is of high-innovatory value by providing a better understanding of environmental auditing and providing an economic explanation for government intervention as an effective means of mitigating environmental degradation in emerging economies.

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References

2007The Social Responsibility of Business Is to Increase Its Profits 1991ORGANIZATIONAL INNOVATION: A META-ANALYSIS OF EFFECTS OF DETERMINANTS AND MODERATORS.1995A Natural-Resource-Based View of the Firm 1992Determinants of corporate social responsibility disclosure: An application of stakeholder theory 2010Corporate Social Responsibility as a Conflict Between Shareholders 2006The role of environmental disclosures as tools of legitimacy: A research note 2008Does It Pay to Be Green? A Systematic Overview 2004TALKING TRASH: LEGITIMACY, IMPRESSION MANAGEMENT, AND UNSYSTEMATIC RISK IN THE CONTEXT OF THE NATURAL ENVIRONMENT.

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