Title

The Role of Corporate Environmental Disclosures: An Empirical Analysis of the Influence of a Firm's Environmental Initiatives on Its Economic Performance

Abstract

The purpose of this study is to empirically analyze the influence of a firm's environmental initiatives on its economic performance, taking into account the role of environmental disclosures. This is because although the positive influence of environmental initiatives on economic performance generally results from plural paths, involving both an improvement in productivity and an increase in demand, it is expected that the environmental initiatives through an increase in demand will not directly but indirectly via disclosed information influence economic performance. Indeed, the discussions in the literature on social and environmental accounting support this possibility. The theoretical model derived from a Cobb–Douglas production function and an inverse demand function predicts that a firm's environmental initiatives enhance economic performance through an improvement in productivity and/or an increase in demand, and the environmental disclosures are substituted for environmental initiatives through an increase in demand for the empirical estimations. The empirical findings that used panel data on Japanese manufacturing firms from 2010 to 2012 support the view that although environmental initiatives enhance economic performance, even if only the effect of an improvement in productivity is considered, environmental initiatives enhance economic performance further if the effect of an increase in demand is also considered; thus environmental disclosures play an important role for the relationship.

Keywords

Environmental disclosures, Environmental initiatives, Economic performance, Improvement in productivity, Increase in demand, Fixed effects instrumental variables model

Inquiries

Kimitaka NISHITANI
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Katsuhiko KOKUBU
Graduate School of Business Administration, Kobe University