Skip Navigation Links
Journal of Environmental Accounting and Management
António Mendes Lopes (editor), Jiazhong Zhang(editor)
António Mendes Lopes (editor)

University of Porto, Portugal


Jiazhong Zhang (editor)

School of Energy and Power Engineering, Xi'an Jiaotong University, Xi'an, Shaanxi Province 710049, China

Fax: +86 29 82668723 Email:

Impact of Climate Change Disclosure on Financial Performance: An Analysis of Indian Firms

Journal of Environmental Accounting and Management 6(3) (2018) 185--197 | DOI:10.5890/JEAM.2018.09.001

Praveen Kumar; Mohammad Firoz

Department of Business Administration, National Institute of Technology, Kurukshetra, 136119 India

Download Full Text PDF



This paper investigated the relationship between the climate change disclosure and the firms’ financial performance in the Indian context. The climate change disclosure scores assigned by the Carbon Disclosure Project (CDP) survey to 44 participating Indian firms during 2011 to 2015 is being used to determine the extent of climate change disclosure. Further, Return on Equity (ROE) and Return on Assets (ROA) are being used to proxy the sample firms’ financial performance. After controlling for industry-and firm-specific ariables, we observed that the ROE will be higher for companies having higher environmental disclosure scores comparatively the companies having low environmental disclosure scores. Moreover, the results of the regression analysis revealed that the market rerceives the voluntary climate change disclosure as a positive corporate initiative, leading to significant positive regression coefficient. However, this study did not find any evidence to supports that the climate change disclosure affects ROA. These findings are crucial for managers and the investors to assess the economic consequences of voluntary environmental disclosures by the firms operating in emerging economies.


  1. [1]  Al-Tuwaijri, S.A., Christensen, T.E., and 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
  2. [2]  Bae, B. and Sami, H. (2005), The effect of potential environmental liabilities on earnings response coefficients, Journal of Accounting, Auditing and Finance, 20(1), 43-70
  3. [3]  Bauer, R. and Hann, D. (2010), Corporate environmental management and credit risk, Available at: Hann (2010).pdf (accessed 1 November 2016)
  4. [4]  Beatty, T. and Shimshack, J.P. (2010), The impact of climate change information: New evidence from the stock market, The BE Journal of Economic Analysis and Policy, 10(1), 1935-1682
  5. [5]  Blacconiere, W.G. and Northcut, W.D. (1997), Environmental information and market reactions to environmental legislation, Journal of Accounting, Auditing and Finance, 12(2), 149-178
  6. [6]  Brown, N. and Deegan, C. (1998), The public disclosure of environmental performance information-a dual test of media agenda setting theory and legitimacy theory, Accounting and Business Research, 29(1), 21-41
  7. [7]  Campbell, D. (2004),A longitudinal and cross-sectional analysis of environmental disclosure in UK companies-a research note, The British Accounting Review, 36(1), 107-117
  8. [8]  Chaklader, B. and Gulati, P.A. (2015),A study of corporate environmental disclosure practices of companies doing business in India, Global Business Review, 16(2), 321-335
  9. [9]  Chapple, L., Clarkson, P.M., and Gold, D.L. (2013), The cost of carbon: Capital market effects of the proposed emission trading scheme (ETS), Abacus, 49(1), 1-33
  10. [10]  Clarkson, P.M., Li, Y., Richardson, G.D., and Vasvari, F.P. (2008), Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis, Accounting, Organizations and Society, 33(4), 303-327
  11. [11]  Cohen, M.A., Fenn, S. and Naimon, J.S. (1995), Environmental and financial performance: are they related? Investor Responsibility Research Center, Environmental Information Service
  12. [12]  Connelly, J.T. and Limpaphayom, P. (2004), Environmental reporting and firm performance: evidence from Thailand, The Journal of Corporate Citizenship, 13, 137
  13. [13]  Cormier, D. and Magnan, M. (2007), The revisited contribution of environmental reporting to investors' valuation of a firm's earnings: An international perspective, Ecological Economics, 62(3), 613-626
  14. [14]  Deegan, C. (2002), Introduction: The legitimising effect of social and environmental disclosures-a theoretical foundation, Accounting, Auditing and Accountability Journal 15(3), 282-311
  15. [15]  Deegan, C. and Rankin, M. (1996), Do Australian companies report environmental news objectively? An analysis of environmental disclosures by firms prosecuted successfully by the Environmental Protection Authority, Accounting, Auditing and Accountability Journal, 9(2), 50-67
  16. [16]  Doda, B., Gennaoli, C., Gouldson, A., Grover, D., and Sullivan, R. (2016), Are corporate carbon management practices reducing corporate carbon emissions? Corporate Social Responsibility and Environmental Management, 23(5), 257- 270
  17. [17]  Dowell, G., Hart, S., and Yeung, B. (2000), Do corporate global environmental standards create or destroy market value? Management Science, 46(8), 1059-1074
  18. [18]  Dye, R.A. (1985), Disclosure of nonproprietary information, Journal of Accounting Research, 123-145
  19. [19]  Easley, D. and O'hara, M. (2004), Information and the cost of capital, The Journal of Finance, 59(4), 1553-1583
  20. [20]  Fisher-Vanden, K. and Thorburn, K.S. (2011), Voluntary corporate environmental initiatives and shareholder wealth, Journal of Environmental Economics and Management, 62(3), 430-445
  21. [21]  Flammer, C. (2015),Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach, Management Science, 61(11), 2549-2568
  22. [22]  Freedman, M. and Jaggi, B. (1982), Pollution disclosures, pollution performance and economic performance, Omega, 10(2), 167-176
  23. [23]  Gozali, N.O., How, J.C., and Verhoeven, P. (2002), The economic consequences of voluntary environmental information disclosure (Doctoral dissertation, International EnvironmentalModelling and Software Society)
  24. [24]  Gray, R., Kouhy, R., and 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
  25. [25]  Griffin, P.A. and Sun, Y. (2013), Going green: Market reaction to CSR newswire releases, Journal of Accounting and Public Policy, 32(2), 93-113
  26. [26]  Griffin, P.A., Lont, D.H., and Sun, E. (2012), The relevance to investors of greenhouse gas emission disclosures, SSRN Electronic Journal, available at: (accessed 8 December 2016)
  27. [27]  Hackston, D. and Milne, M.J. (1996), Some determinants of social and environmental disclosures in New Zealand companies, Accounting, Auditing and Accountability Journal, 9(1), 77-108
  28. [28]  Hai, Y.T., Pin, F., Joo, T., and Ling, Y. (1998), Environmental disclosure-financial performance link, further evidence from industrial economy perspectives, In The 2nd Asian Pacific Interdisciplinary Research on Accounting Conference (AIRA), Singapore
  29. [29]  Hair, J.F., Anderson, R.E., Babin, B.J., and Black,W.C. (2010),Multivariate data analysis: A global perspective, 7, Upper Saddle River, NJ: Pearson
  30. [30]  Haniffa, R.M. and Cooke, T.E. (2005), The impact of culture and governance on corporate social reporting, Journal of Accounting and Public Policy 24(5), 391-430
  31. [31]  Hart, S.L. and Ahuja, G. (1996), Does it pay to be green? An empirical examination of the relationship between emission reduction and firm performance, Business Strategy and the Environment, 5(1), 30-37
  32. [32]  Haslinda Y., Normahiran Y., and NorainiM.N. (2002), The extensiveness of environmental disclosures and the relationship with corporate characteristics of Malaysian reporting companies, Conference on Financial Reporting, Shah Alam, Selangor, Malaysia, October
  33. [33]  Home - CDP (n.d.), Retrieved Dec 29, 2016, from EF5F&CID=260C0DF5614E68992DCF78860DE6952&rd=1&h=AOv1crYMyZQqQr2MJm3Vjfkyx0FksM8bUOmR jBUZg&v=1&,5062.1
  34. [34]  Hossain, M., Perera, M.H.B., and Rahman, A.R. (1995), Voluntary disclosure in the annual reports of New Zealand companies, Journal of International Financial Management and Accounting, 6(1), 69-87
  35. [35]  Hrasky, S. (2011), Carbon footprints and legitimation strategies: symbolism or action? Accounting, Auditing and Accountability Journal, 25(1), 174-198
  36. [36]  Hsu, A.W.H. and Wang, T. (2013), Does the market value corporate response to climate change? Omega, 41(2), 195-206
  37. [37]  Ieng Chu, C., Chatterjee, B., and Brown, A. (2012), The current status of greenhouse gas reporting by Chinese companies: A test of legitimacy theory, Managerial Auditing Journal, 28(2), 114-139
  38. [38]  Jacobs, B.W., Singhal, V.R., and Subramanian, R. (2010), An empirical investigation of environmental performance and the market value of the firm, Journal of Operations Management, 28(5), 430-441
  39. [39]  Kennedy, P. (2003), A guide to econometrics, MIT press
  40. [40]  Kim, E.H. and Lyon, T. (2011),When does institutional investor activism increase shareholder value? the carbon disclosure project, The BE Journal of Economic Analysis and Policy, 11(1)
  41. [41]  King, A.A. and Lenox,M.J. (2001), Does it really pay to be green? An empirical study of firm environmental and financial performance: An empirical study of firm environmental and financial performance, Journal of Industrial Ecology, 5(1), 105-116
  42. [42]  Konar, S. and Cohen, M.A. (2001), Does the market value environmental performance? Review of Economics and Statistics, 83(2), 281-289
  43. [43]  Lee, S.Y., Park, Y.S., and Klassen, R.D. (2015),Market responses to firms' voluntary climate change information disclosure and carbon communication, Corporate Social Responsibility and Environmental Management, 22(1), 1-12
  44. [44]  Li, Y., Eddie, I., and Liu, J. (2014), Carbon emissions and the cost of capital: Australian evidence, Review of Accounting and Finance, 13(4), 400-420
  45. [45]  Luo, L., Lan, Y.C., and Tang, Q. (2012), Corporate incentives to disclose carbon information: Evidence from the CDP Global 500 report, Journal of International Financial Management and Accounting, 23(2), 93-120
  46. [46]  Luo, L., Tang, Q., and Lan, Y.C. (2013), Comparison of propensity for carbon disclosure between developing and developed countries: A resource constraint perspective, Accounting Research Journal, 26(1), 6-34
  47. [47]  Matisoff, D.C., Noonan, D.S., and O'Brien, J.J. (2013), Convergence in environmental reporting: assessing the Carbon Disclosure Project, Business Strategy and the Environment, 22(5), 285-305
  48. [48]  Matsumura, E.M., Prakash, R., and Vera-Muñoz, S.C. (2011), Voluntary disclosures and the firm-value effects of carbon emissions, The Accounting Review, 89(2), 695-724
  49. [49]  McWilliams, A. and Siegel, D. (2000), Corporate social responsibility and financial performance: correlation or misspecification, Strategic Management Journal, 21(5), 603-609
  50. [50]  Murphy, C.J. (2002), The profitable correlation between environmental and financial performance: a review of the research, Light Green Advisors
  51. [51]  Murray, A., Sinclair, D., Power, D., and Gray, R. (2006), Do financial markets care about social and environmental disclosure? Further evidence and exploration from the UK, Accounting, Auditing and Accountability Journal, 19(2), 228-255
  52. [52]  Nakao, Y., Amano, A., Matsumura, K., Genba, K., and Nakano, M. (2007), Relationship between environmental performance and financial performance: an empirical analysis of Japanese corporations, Business Strategy and the Environment, 16(2), 106-118
  53. [53]  Orens, R., Aerts, W., and Cormier, D. (2010), Webbased nonfinancial disclosure and cost of finance, Journal of Business Finance and Accounting, 37(9/10), 1057-1093
  54. [54]  Palmer, K., Oates, W.E., and Portney, P.R. (1995), Tightening environmental standards: The benefit-cost or the no-cost paradigm? The Journal of Economic Perspectives, 9(4), 119-132
  55. [55]  Peloza, J. (2009), The challenge of measuring financial impacts from investments in corporate social performance, Journal of Management, 35(6), 1518-1541
  56. [56]  Qiu, Y., Shaukat, A., and Tharyan, R. (2016), Environmental and social disclosures: Link with corporate financial performance, The British Accounting Review, 48(1), 102-116
  57. [57]  Reid, E.M. and Toffel, M.W. (2009), Responding to public and private politics: Corporate disclosure of climate change strategies, Strategic Management Journal 30(11), 1157-1178
  58. [58]  Ruslaina Y., Rahman, A., Amran, S., Mohamed, W., and Nazihah, W. (2006), The economic consequences of voluntary environmental reporting on shareholder wealth, Social and Management Research Journal, 3(2), 1-23
  59. [59]  Russo, M.V. and Fouts, P.A. (1997), A resource-based perspective on corporate environmental performance and profitability, Academy of Management Journal, 40(3), 534-559
  60. [60]  Saka, C. and Oshika, T. (2014), Disclosure effects, carbon emissions and corporate value, Sustainability Accounting, Management and Policy Journal, 5(1), 22-45
  61. [61]  Salama, A. (2005), A note on the impact of environmental performance on financial performance, Structural Change and Economic Dynamics, 16(3), 413-421
  62. [62]  Shen, C.H. and Chang, Y. (2009), Ambition versus conscience, does corporate social responsibility pay off? The application of matching methods, Journal of Business Ethics, 88(1), 133-153
  63. [63]  Stern, N.H. (2007), The economics of climate change: The Stern Review, Cambridge University Press
  64. [64]  Trebucq, S. and d'Arcimoles, C.H. (2002), The corporate social performance-financial performance link: Evidence from France
  65. [65]  Ullmann, A.A. (1985), Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance of US firms, Academy of Management Review, 10(3), 540-557
  66. [66]  Verma, P. and Singh, A. (2016), Fostering Stakeholders trust through CSR reporting: An analytical focus, IIM Kozhikode Society and Management Review, 5(2), 186-199
  67. [67]  Waddock, S.A. and Graves, S.B. (1997), The corporate social performance-financial performance link, Strategic Management Journal, 303-319
  68. [68]  Zauwiyah, A., Hassan, S. and Mohammad, J. (2003), Determinants of environmental reporting in Malaysia, International Journal of Business Studies, 11(1), 69.