Next Article in Journal
Analysis of News Coverage of Haze in China in the Context of Sustainable Development: The Case of China Daily
Previous Article in Journal
Genetic Diversity and Stability of Performance of Wheat Population Varieties Developed by Participatory Breeding
 
 
Search for Articles:
Title / Keyword
Author / Affiliation / Email
Journal
Article Type
 
 
Advanced Search
 
Section
Special Issue
Volume
Issue
Number
Page
 
Journals
Sustainability
Volume 12
Issue 1
10.3390/su12010385
sustainability-logo
Submit to this Journal Review for this Journal Propose a Special Issue
► Article Menu

Article Menu

share Share announcement Help format_quote Cite question_answer Discuss in SciProfiles thumb_up
...
Endorse textsms
...
Comment
first_page
settings
Order Article Reprints
Font Type:
Arial Georgia Verdana
Font Size:
Aa Aa Aa
Line Spacing:
Column Width:
Background:
Article

The Drivers of Corporate Water Disclosure in Enhancing Information Transparency

by
Hui-Cheng Yu
1,
Lopin Kuo
2 and
Beiling Ma
3,*
1
School of Finance and Accounting, Fuzhou University of International Studies and Trade, Fuzhou 350202, China
2
Department of Accounting, Tamkang University, New Taipei City 25137, Taiwan
3
School of Tourism Management, Hunan University of Technology and Business, Changsha 410205, China
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(1), 385; https://doi.org/10.3390/su12010385
Submission received: 23 December 2019 / Revised: 30 December 2019 / Accepted: 31 December 2019 / Published: 3 January 2020
Browse Figure
Versions Notes

Abstract

:
This paper explores drivers of corporate water disclosure (CWD) from an aspect of accountability. Based on legitimacy theory and stakeholder theory, we propose six potential drivers of CWD. First, this paper uses an independent sample t-test to analyze differences in CWD among US firms. Later, potential drivers on CWD were identified using ordinal logit regression. These hypotheses posit that debt ratio, blockholders’ ownership ratio, inclusion in a capital market index (i.e., S&P500), and the status of belonging to a water-sensitive industry (WSensi) all have a positive effect on CWD. However, the relations of firm size and profitability on CWD are insignificant. This suggests that the supervision of blockholders and creditors can effectively improve the transparency of CWD.

1. Introduction

The worst environmental conditions caused by climate change are drought and flood [1]. These water-related disasters will exacerbate the uneven distribution of water resources in the world. For instance, while most regions have abundant water resources (e.g., Europe), there are some countries in the world, such as Mozambique, having no access to this basic human right [2]. This environmental phenomenon indicates the worsening of climate change and also highlights the importance of water resources. To be more specific, inadequate water resources management will pose a serious threat to the environment and human health and, in the worst condition, result in the death of all human beings [3]. It may also affect the operations of a firm and cause business failure [4,5]. Therefore, many companies have begun to pay attention to water resources and are faced with both risks and opportunities in water management. These companies have realized that water-related problems may affect profitability if they are not properly addressed. For instance, the financial impacts of water-related problems totaled more than US$2.5 billion in 2015 [6].
Businesses can no longer use water resources with a “business as usual” mentality [7]. To ensure a stable supply of water resources, water stewardship is necessary [6]. In particular, water-sensitive industries (i.e., industries that are heavily dependent on use of freshwater, including industries with high generation of wastewater and pollution, such as apparel, automobile, drinks and beverages, biotech/pharmacy, chemical, forest product, food production, high-tech/electronics, metal/mining, oil refining, and public utilities [8,9,10]) are faced with stress from multiple sources. For example, in the supply aspect, they need the quality and quantity of water resources [4] to be stable and the prices be maintained at a reasonable level [11]. In the demand aspect, they are expected to demonstrate the efficiency and effectiveness of their water stewardship [6,11,12] and implement the highest standards to minimize the company’s environmental impacts [13].
Therefore, water stewardship is of high importance to corporations. As pointed out by Hart (1995) [14], water is one of the most important natural resources for corporations and is an essential element of business success [15]. Today, stakeholders are also paying attention to corporate water stewardship. According to Morrison et al. (2010) [16], water stewardship which used to be more internally focused is now focused on risks derived from the socio-political context, the environmental context, and suppliers. This switch of focus is associated with stakeholders’ potential influence on corporate water use [17]. In fact, water stewardship has become a critical aspect that investment institutions look at in the evaluation of a firm’s performance [6]. Through engagement in water stewardship, which involves identification of weaknesses and disclosure of information on water-related risks and opportunities [8], businesses can achieve sustainable water use [17] and be better prepared for sustainable development [18].
However, sustainable development is built upon legitimacy. As far as water resources are concerned, corporate acquisition of water resources is increasingly viewed as an act that may deprive people’s basic human right to water [2,19]. If a business wastes water or its operations do harm to the local water quality, this business is likely to be said to have infringed on the fundamental human right to freshwater. Hence, a firm whose legitimacy is challenged (e.g., when infringing on a fundamental human right) is likely to be frustrated in pursuit of sustainable development. If the firm manages to comply with all regulations governing water use, it can make contributions to the society, establish a better reputation for itself [13], and also achieve sustainable development.
Extensive attention is being paid to water resources, and many organizations [20] have called for corporate water disclosure (hereafter referred to as CWD). Various stakeholder groups are increasingly interested in and concerned about CWD. However, research of CWD is very limited, and research exploring the underlying drivers of CWD is even rarer. Moreover, US firms ranked 15th globally on water productivity in 2016 [21]. In the US, several water protection laws (e.g., Clean Water Act, Safe Drinking Water Act, and Coastal Zone Management Act) have been enacted. These facts manifest that water management is highly valued among both the government and firms in the US. What are the factors driving their disclosure of water-related information? The purpose of this paper is to find drivers of CWD among US-listed firms and empirically examine whether legitimacy pressure and stakeholder pressure have a positive effect on CWD. If stakeholder-related factors can influence water disclosure of corporate accountability, the high regulatory costs can be reduced for stakeholders (e.g., the government and environmental groups).
A recent study by Burritt et al. (2016) [13] explores drivers of corporate water-related disclosure among Japanese firms. Their methodology is based on the coding of water-related information published on corporate websites (1 for companies whose water-related information is disclosed, and 0 for companies whose water-related information is not disclosed). In this paper, we measure water disclosure by CDP’s water disclosure rating results. Compared to Burritt et al.’s (2016) [13] method, CDP’s water disclosure rating is more systematic and objective (see Method section for details).
This paper contributes to the literature in four aspects. The first contribution is also the most important one. The research is designed to classify CWD performance into several levels and then test the strength of each driver of CWD. This design is not common in literature, so the empirical findings can not only strengthen legitimacy theory and stakeholder theory but also broaden the scope of water disclosure research. Second, our evidence indicates that the debt ratio is positively related to the water disclosure level. Despite being inconsistent with the major conclusion in related literature [22,23], this finding supports Roberts’ (1992) [24] argument. It is indeed a rare finding in environmental research. Third, our evidence shows that the presence of blockholders has a positive effect on water disclosure. This finding differs from the findings of previous research on environmental disclosure [13,22]. It suggests that in firms with blockholders have higher ownership of the company, blockholders have a stronger influence on the corporate manager, and the influence will propel the manager to participate in the CDP survey and attain a higher water disclosure ranking. Kalu et al. (2016) [25] pointed out that separation of ownership and control usually creates information asymmetry, which if not adequately controlled, may be abused by the manager at the expense of shareholders. Therefore, blockholders’ ownership ratio has been recognized as having a positive effect on the regulation of corporate responses to climate change. Blockholders’ increased attention to water disclosure of the firm can drive the manager to respond to the informational need of stakeholders (shareholders). Their attention to water disclosure meets stakeholder expectations and can also help the firm establish legitimacy in society and achieve sustainable development. Finally, we use S&P500 inclusion as a proxy variable for high market visibility, which is a factor seldom considered in research of water disclosure. Our empirical evidence shows that firms listed in S&P500 are more motivated to disclose their water stewardship information. This seems to imply that there is a higher incentive for firms listed in a capital market index to disclose more environmental information and improve their information transparency for investors of socially responsible investment funds.

2. Theoretical Background

Stakeholder groups are demanding higher CWD. Over the last decade, investors and investment institutions have shown a higher willingness to invest more in firms dedicated to water disclosure [6,8,26]. This is because water disclosure has been recognized as a tool that assures that the company’s profit is not created at the expense of the environment [27]. Besides, the Minerals Council of Australia [20] has adopted water disclosure as a means to convey a signal of being water and environmentally friendly to stakeholders. The Coca-Cola company uses water labeling to manifest their care for water resources and the fundamental right to drinking water for all [28]. These behaviors are associated with corporate legitimacy. If water stewardship engages stakeholder groups’ attention, firms can use water disclosure to convey to the public that they are using water resources in a reasonable manner that safeguards people’s right to water [19]. Therefore, we believe that for analysis of drivers of CWD, legitimacy theory and stakeholder theory can offer valuable insights. In the following paragraphs, we will introduce these two theories respectively.

2.1. Legitimacy

Legitimacy is one of the most influential concepts in the research of corporate environmental reporting [29]. For corporations, showing care for the environment is a cornerstone of legitimacy [30,31]. Hence, they manage to use education and data to influence social perceptions or describe their performances to shape corporate symbols and boost firm performance [32]. In any of the above behaviors, their goal is to convey a legitimacy image through engagement in environmental protection or compliance with regulations to ultimately minimize the legitimacy gap between actual performance and social expectation of the firm [32]. According to organization theory, legitimacy is pivotal to the long-term survival of an organization, and it is fundamentally determined by society.
Therefore, legitimacy theory suggests that organizations continually seek to ensure that they operate within the bounds and norms of their respective societies [33]. To this end, they will endeavor to make their business activities consistent with accepted behavioral norms in larger social systems [34]. Simply put, it is necessary for organizations to establish legitimacy within the bounds and the norms that are widely accepted in society [32]. Recent studies [18] have pointed out that environmental protection is an effective legitimation strategy. Corporations will use legitimacy as a signal or symbolic actions to communicate a “public image” [34] and then align their primary goals with the image to avoid causing social or environmental problems [35]. Environmental problems arising from climate change have posed a threat to corporate legitimacy (e.g., stakeholder groups are paying greater attention to corporate responsibility for the environment and water resources [18], and businesses may employ legitimation strategies [36] to achieve the primary goals, methods or outcomes of their operations). In fact, legitimacy has been recognized as a vital resource for organizations [34]. Therefore, businesses will use environmental protection initiatives or policies to solicit social support and enhance their legitimacy [18]. Legitimacy can also lead to a higher reputation, higher profitability, more balanced policy development, and lower risks [37]. In a nutshell, legitimacy is an organization-society relationship that brings social support for the organization. It is also one of the incentives for businesses to disclose environmental information to stakeholders.

2.2. Stakeholder Theory

Stakeholder theory explains the relationship between stakeholders and the information they receive [38]. When communicating water stewardship practices with stakeholders, firms’ disclosure of water-related information plays an important role. Gray et al. (1995) [39] stated that disclosure of information to stakeholders is likely to be viewed as a kind of corporate contribution to society. Stakeholders usually use water-related information disclosed by a firm as one of the measures of a firm’s reliability and legitimacy.
Regarding corporate disclosure, two views of stakeholder theory have been developed, one is normative or ethical [40], and the other is managerial [41,42]. Both views stress the importance of sufficient disclosure of internal information to stakeholders. The major difference between the two views lies in the focus of the disclosure content. The normative or ethical view suggests that equality should be considered in the disclosure of any information [40]. The managerial view argues that stakeholders’ responsibility is to ensure that the disclosure content is relevant to decisions [42]. To be more specific, the normative or ethical view suggests that businesses should endeavor to disclose detailed information on water stewardship to all stakeholder groups, while the managerial view suggests that disclosing water-related information that supports stakeholders’ investment decisions is well enough. There is a certain degree of difficulty for a company to provide detailed information on water stewardship [13], and the cost-effectiveness of the disclosure should be usually considered. Firms may prefer to take the managerial view of stakeholder theory when dealing with the disclosure. Through disclosure of water stewardship information, they can communicate with stakeholders and develop a better relationship with them [43]. Firms’ favor for the managerial view is also documented in previous research [44,45,46,47,48].
In addition, literature [49,50] has mentioned that pressure for water-related disclosure is related to a series of firm characteristics. In this paper, we will adopt the managerial view of stakeholder theory to discuss drivers of CWD, which include financial drivers (e.g., firm size, profitability), creditor driver (e.g., debt ratio), blockholder driver (e.g., degree of ownership concentration), market viability driver (e.g., inclusion in S&P500), and industry characteristic driver (e.g., water sensitivity). Our hypotheses will be developed based on these drivers as Figure 1.
Financial drivers: In this paper, we evaluate only the effects of firm size, profitability, and debt ratio. Larger firms invite public attention more easily, and their operations generally involve the interests of a wider range of stakeholder groups [51]. Larger firms are also more likely to become the subject of tight scrutiny by the government or special stakeholders (e.g., consumers with hostility or radical employees) [27]. Therefore, larger firms are usually more willing to disclose water-related information to reduce negative attention [22], maintain their legitimacy [18], and also prevent consumers’ boycott of their products. This argument has been supported in many empirical studies. For instance, the empirical evidence in Huang and Kung (2010) [52], Kuo and Yu (2017) [53], and Marquis and Qian (2014) [54] have confirmed that firm size is positively related to environmental reporting. Therefore, we propose the following hypothesis:
Hypothesis 1.
Larger firms release more information on CWD.
Logsdon (1985) [55] found that environmental policy is sensitive to profitability. This is because profitability provides firms with abundant resources and the agility needed for coping with stakeholder concerns [23,56]. Firms are also under pressure from stakeholder expectations. They need to ensure that their activities comply with social norms and regulations [49,57]. The correlation between profitability and environmental disclosure has been confirmed in empirical research of stakeholder theory. However, some studies [22,53] have offered a different insight which suggests that profitability is not related to environmental disclosure. To test whether profitability is also a driver of CWD, we propose the following hypothesis:
Hypothesis 2.
Firms with a higher profitability release more information on CWD.
Creditor driver: Creditors are the provider of corporate loans. For corporations, creditors are important and powerful stakeholders, because they (creditors) are capable of influencing corporate disclosure actions [23]. Previous research [22] has found that when firms have a low degree of leverage, their creditor stakeholders will exert less pressure to constrain the manager’s discretion over disclosure. In other words, the disclosure level is negatively related to leverage. However, Roberts (1992) [24] argued that when firms have a higher degree of leverage, they are expected to have more responses to issues concerned by stakeholders (e.g., environmental and social issues). A recent water stewardship report [6] shows that water shortage will cause a tremendous loss of firms. Hence, we propose the following hypothesis:
Hypothesis 3.
Firms with a higher leverage ratio release more information on CWD.
Blockholder driver: Blockholders are likely to have an impact on corporate disclosure policy. As suggested in previous research [24,58], both the concentration of ownership and dispersion of ownership affect corporate disclosure policy. The evidence in Reverte (2009) [27] suggests that ownership is positively related to corporate social responsibility (CSR) disclosure score. However, there is also evidence suggesting that shareholders of firms with a more dispersed ownership structure pay more attention to environmental management and will also impose greater pressure on voluntary disclosure policies [59], especially disclosure of environmental stewardship information [58]. We argue that when blockholders have a higher ownership ratio, they will be more concerned about the firm’s legitimacy issues (e.g., water risks management) because these issues affect the firm’s image and reputation. Blockholders’ heightened concerns about these issues will relatively increase the pressure of water disclosure on managers. Therefore, we propose the following hypothesis to examine whether blockholders’ ownership ratio is also a driver of CWD.
Hypothesis 4.
Firms with a higher blockholders’ ratio release more information on CWD.
High market visibility: Since 2009, CWD has been a concern for investment institutions [6]. This is because the stakeholder group believes that through disclosure of water-related information, corporations also make their water risks and coping mechanisms more transparent [60]. Besides, water disclosure assures stakeholders that the company’s profit has not been created at the expense of the environment [27]. To be more specific, investment institutions are also changing their attitude to place a greater emphasis on sustainability [60]. This is why more and more investment institutions consider water disclosure in the making of investment decisions [2]. For instance, S&P500 is a market value-weighted index. Firms listed in S&P500 are relatively larger in size and playing a more important role in the stock market. The criteria for S&P500 inclusion are high. Hence, S&P500 is said to be representative of the stock market and even the US economy. Firms included in S&P500 have higher market visibility (exposure) and can more easily win the trust of market investors (institutional investors). In order to meet stakeholder expectations and legitimacy requirements, managers of these firms may volunteer to accept CDP’s evaluations in pursuit of higher environmental performances, such as water disclosure rating, which is an important reference for green investors. Therefore, we use S&P500 inclusion as a proxy variable for high market visibility. As hypothesized below, whether the inclusion in a capital market index is positively related to water disclosure is tested.
Hypothesis 5.
Firms included in a famous index of capital market release more information on CWD.
Industry characteristics: Water-sensitive industries draw heightened attention from stakeholders [57] because their operations are susceptible to close attention and scrutiny by the government, environmental groups, and the public [18,49]. The attention or pressure from stakeholders influences the environmental disclosure of firms in these industries. For example, Morrison et al. (2010) [16] and Sarni (2013) [9] pointed out that environmental disclosure is related to specific industry characteristics. Kuo and Yu (2017) [53] found that environmentally sensitive industries are significantly associated with higher environmental disclosure levels. To be more specific, environmentally sensitive industries are expected by stakeholders to meet higher environmental disclosure and water disclosure requirements compared to non-environmentally sensitive industries [49]. This also explains why the environmental disclosure policy of firms in environmentally sensitive industries is subject to the influences of stakeholders. To examine whether this industry characteristic is a driver of water disclosure, we propose the following hypothesis:
Hypothesis 6.
Firms belonging to a water-sensitive industry release more information on CWD.

3. Method

3.1. Sample

The empirical data consist of two parts. The first part is financial data collected from the annual reports published on each sample firm’s website. The second part is water disclosure data collected from CDP Global Water Report 2016. CDP’s scoring method is step-wise. Participating companies will be accessed across four levels, including Disclosure, Awareness, Management, and Leadership. The number of points that a company has been awarded for each level will be divided by the maximum number that could have been awarded. The fraction is then converted to a percentage by multiplying by 100. The result is the company’s score for this level. The company’s final grade is determined by the score it has received for each level. The letter grading method is as shown in Table 1. A minimum score of 75% is required to be accessed on the next level. For instance, company A scores 86% on Disclosure, 77% on Awareness, and 63% on Management, so company A will be awarded “B”. Company B scores 76% on Disclosure and 37% on Awareness, so company B will be awarded “C−”. Companies that have not disclosed any water-related information will be given an “F” grade (i.e., Failure indicates no sufficient information is available for evaluation).
We collected water disclosure results of 347 US firms in 2016 (in 2015, US firms disclosed water-related information only as a response to CDP, and no evaluation result was published). We excluded the following firms from the sample: (1) 3 firms in the financial industry. The financial industry has special industry characteristics [61]. As a service industry, the financial industry has a comparatively smaller impact on water resources and is faced with fewer environmental problems [22]. (2) 25 firms whose water-related information was “not scored” were excluded. (3) 18 firms with missing financial data, and 7 non-listed firms were excluded. The final sample consists of 294 firms. The sample distributions before and after filtering are shown in Table 2.

3.2. Research Model

To capture potential drivers of voluntary water disclosure by corporations, we develop an empirical model as follows:
Wdisci,t = β0 + β1Sizei,t + β2Profiti,t + β3Levi,t + β4Ownershipi,t + β5S&P500i,t + β6WSensii,t + ε
where i = 1, 2, …, 294 and t = 2016, WDisc denotes water disclosure. In CDP, water disclosure is divided into five levels: Leadership (A and A−), Management (B and B−), Awareness (C and C−), Disclosure (D and D−), and Failure (F). To achieve the goal of our empirical analysis, we adopt Chiang and He’s (2010) [62] method, which is to convert A and A− into “5” points, B and B− into “4” points, C and C− into “3” points, D and D− into “2” points and F into 1 point. Size denotes the firm size. It is measured by business revenue. In our sample, Size ranges between US$142 million and US$728,243 million. To correct non-normality, this variable is converted to a natural logarithm. Profit denotes profitability. In this paper, Profit is measured by earnings before interest and taxes (EBIT) over average assets. Based on Reverte’s (2009) [27] concept, this variable is also represented by a natural algorithm. Lev denotes leverage and is measured by total debts over total assets. Ownership is the ownership ratio by blockholders. Following previous research [63], we use the total ownership of the top five blockholders as a measure of ownership concentration. To correct non-normality, we convert data of this variable into natural logarithms. S&P500 is a dummy variable, where 1 denotes that the firm is included in S&P500, and 0 denotes that the firm is not. WSensi is also a dummy variable, where 1 indicates that the firm belongs to a water-sensitive industry, and 0 indicates that the firm does not.

4. Results

Table 3 shows descriptive statistics. As shown in Table 3, the mean level of water disclosure in the entire sample is 2.40, which also implies that the overall level of water disclosure is not high. We further use an independent-sample t-test to analyze differences between different sample groups. The results are presented in the Table (T-Test of Water Disclosure).
Table 4 shows the correlations between variables. As shown in this table, the correlation coefficients range between −0.07 and 0.25, suggesting almost no collinearity between variables. Besides, water disclosure (WDisc) is significantly and positively correlated to firm size (Size), blockholders’ ownership ratio (Ownership), S&P500 inclusion (S&P500), and the status of belonging to a water-sensitive industry (WSensi).
Table 5 compares the water disclosure scores between different sample groups. From Panel A to Panel C, we can find that firms in the water-sensitive industries, S&P500 firms, and S&P500 firms in water-sensitive industries all score higher on water disclosure than their respective counterparts, and the differences are significant. However, what are the factors driving these firms to disclose water information voluntarily? Table 5 does not offer an answer to this question. Therefore, we further conduct ordinal logit regression analysis to explore the drivers of voluntary water disclosure. The results are presented in the next section.
Table 6 presents the drivers of water disclosure obtained from empirical analysis. As shown in this table, Lev, Ownership, S&P500, and WSensi are all positively and significantly related to water disclosure. This finding supports H3, H4, H5, and H6, meaning that debt ratio (Lev), ownership concentration (Ownership), inclusion in a capital market index (S&P500), and the status of belonging to a water-sensitive industry (WSensi) are all important factors of CWD. Firm size (Size) is positively related to water disclosure score, but not to the extent of significance. The relation between profitability (Profit) and water disclosure score is negative but not significant. Therefore, there is no evidence suggesting that firm size and profitability are significant drivers of CWD.

5. Discussion and Conclusions

5.1. Discussion of Results

The objective of this paper is to explore drivers of CWD, which is an important aspect of corporate accountability. Based on legitimacy theory and stakeholder theory, we develop a theoretical framework consisting of six independent potential drivers of CWD. Among the six proposed hypotheses, four are supported. These hypotheses posit that debt ratio (Lev), blockholders’ ownership ratio (Ownership), inclusion in a capital market index (S&P500), and the status of belonging to a water-sensitive industry (WSensi) are positively related to water disclosure. The other two unsupported hypotheses posit that firm size (Size) and profitability (Profit) have an effect on water disclosure. Our empirical results are respectively discussed as follows: Firstly, the debt ratio is positively and significantly related to CWD. This suggests that when firms have higher leverage, in response to pressure from creditors, they will disclose more information on issues that are concerned by creditors (e.g., water risks and opportunities). The relation between blockholders’ ownership ratio and water disclosure is significantly positive. This suggests that firms with a larger ownership ratio by blockholders are likely to be more concerned about their image, reputation, and the impacts of water-related issues on them (e.g., sales and legitimacy). As a result, their managers are under greater pressure to disclose water-related information.
Secondly, inclusion in a capital market index is confirmed as a potential driver of water disclosure. When a firm is included in S&P500, it will pay particular attention to information that affects stakeholders’ investment decisions. This empirical finding also supports the argument that managers prefer the managerial view of stakeholder theory.
Thirdly, the status of belonging to a water-sensitive industry is also a driver of CWD. Most water-sensitive industries are engaged in the production of products that are essential in our daily life. As a result, they invite special attention from stakeholders easily. Compared to other industries, water-sensitive industries are exposed to higher water risks and under greater pressure to disclose water-related information [13]. They are also more dedicated to water disclosure compared to other industries (see Table 4). Besides, the water shortage has become a global issue [16], as it may cost businesses tens of billions of dollars [4,6]. Therefore, as suggested by legitimacy theory and stakeholder theory, water-sensitive industries pay greater attention to water management and disclosure of water-related information.
Finally, there is no direct evidence showing that firm size is a driver of CWD, but it is positively related to the water disclosure level. The relation between profitability and water disclosure level is negative. This finding does not support a prominent finding of previous research [64] that firms with higher profitability are faced with higher stakeholder expectations and higher demands for non-financial information. However, it echoes the evidence in Brammer and Pavelin (2008) [22] which suggests that profitability is not significantly related to environmental disclosure.

5.2. Implications for Research

Firms’ strategies to disclose information to stakeholders may depend on their decision to take the managerial or the normative/ethical view of stakeholder theory. As to disclosure of environmental issues, especially issues that concern the basic rights of stakeholders (basic right to water), previous research [41] has pointed out that the managerial view of stakeholder holder is more advised. Our empirical evidence also supports this view (i.e., the managerial view of stakeholder theory).
In this paper, we classify CWD performances into several levels to identify potential drivers of CWD. Our findings are not entirely consistent with those shared in literature [13]. Therefore, our findings can not only strengthen the managerial view of stakeholder theory but also have a practical value. To be more specific, the design of disclosure levels has helped us capture factors driving CWD and also find that increased monitoring by blockholders and creditors’ pressure can contribute to a significant improvement in transparency of corporate water management.

5.3. Implications for Practice

A firm’s attitude toward water stewardship is hard to fake. As water resources are increasingly scarce around the globe, water has become one of the most important natural assets [1,16], and stakeholders are also paying special attention to water-related issues. This trend has affected firms’ water disclosure policy. Based on our empirical findings, we propose two practical suggestions as follows. The first suggestion is about the water disclosure level. Our empirical analysis does not find any information overload in water disclosure by US sample firms [65] but seemingly detects an insufficiency of disclosure among the firms. This finding is consistent with the survey results obtained by Fung et al. (2007) [66]. Therefore, managers should realize that their information disclosure can hardly meet stakeholder expectations if the disclosure is overloaded or insufficient. The characteristics of information are the key to effective disclosure [67,68,69]. In other words, in addition to regulatory compliance of water disclosure, managers should also pay attention to the balance of information quality, quantity, and accuracy, so as to maintain a better relationship with stakeholders and create opportunities for sustainable operation and investment [60].
The other suggestion is about drivers of the disclosure. Our findings indicate that the debt ratio and blockholders’ ownership ratio are positively related to the water disclosure level. In other words, higher leverage and larger ownership ratio of blockholders can lead to higher transparency of water-related information. To be more specific, when planning a water disclosure strategy, firms are advised to comprehensively consider the disclosure level and the effects of all potential drivers. By doing so, they can not only better meet stakeholder expectations but also win public recognition of their water stewardship practices. Besides, the government and other stakeholder groups can also use water disclosure as a regulatory tool to reduce the regulatory cost.

5.4. Limitation and Future Research

In this paper, the water disclosure data were obtained from CDP’s report [1], which shows only the disclosure grade for each participating firm. With only the grade data, we were unable to further excavate other potential drivers of CWD. However, we believe that our empirical findings have covered the major drivers of CWD. In addition, our sample consisted of only US firms. Given this limitation, caution is advised when generalizing our empirical findings to other regions or countries. Future researchers can also compare findings from different countries. Their results will be contributive to literature.

Author Contributions

H.-C.Y. and L.K. proposed the conceptualization of this study and wrote the paper and used the methodology, B.M. wrote and revised the paper. All authors have read and agreed to the published version of the manuscript.

Funding

This research was funded by the Major Research plan of the National Natural Science Foundation of China (No. 91846301), Chinese Academy of Engineering Consulting Project (No. 2020-XY-36), Social Science Foundation of Hunan Province of China (Nos. 17YBA409, 15YBB052), and the Think Tank Special Project of Hunan Social Science (No. 18ZWB22).

Conflicts of Interest

The author declares no conflict of interest.

References

  1. CDP. Thirsty Business: Why Water Is Vital to Climate Action; 2016 Annual Report of Corporate Water Disclosure; Carbon Disclosure Project: London, UK, 2016. [Google Scholar]
  2. United Nations. UN Water. The Human Right to Water and Sanitation; UN Water, The United Nations Educational, Scientific and Cultural Organization: Geneva, Switzerland, 2016; Available online: http://www.un.org/waterforlifedcade/human_right_to_water.shtml (accessed on 29 April 2017).
  3. Fogel, D.S.; Palmer, J.E. Water as a corporate resource. J. Glob. Responsib. 2014, 5, 104–125. [Google Scholar] [CrossRef]
  4. CDP. Moving Beyond Business as Usual. A Need for a Step Change in Water Risk Management; CDP Global Water Report 2013; Carbon Disclosure Project: London, UK, 2013. [Google Scholar]
  5. Wedawatta, G.; Ingirige, B. Resilience and adaptation of small and medium-sized enterprise to flood risk. Disaster Prev. Manag. Int. J. 2012, 21, 474–488. [Google Scholar] [CrossRef] [Green Version]
  6. CDP. Accelerating Action; CDP Global Water Report 2015; Carbon Disclosure Project: London, UK, 2015. [Google Scholar]
  7. Daniel, M.A.; Sojamo, S. From risk to shared value? Corporate strategies in building a global water accounting and disclosure regime. Water Altern. 2012, 5, 636–657. [Google Scholar]
  8. Barton, R. Murky Water? Corporate Reporting on Water Risk; CERS: Boston, MA, USA, 2010. [Google Scholar]
  9. Sarni, W. Getting ahead of the “ripple effect”. A framework for a water stewardship strategy. Deloitte Rev. 2013, 12, 84–97. [Google Scholar]
  10. Morikawa, M.; Morrison, J.; Gleick, P. Corporate Reporting on Water: A Review of Eleven Global Industries; Pacific Institute: Oakland, CA, USA, 2007. [Google Scholar]
  11. Grimod, J. For want of a drink: A special report on water. Econ. Newsp. 2010, 395, 1–20. [Google Scholar]
  12. United Nations Global Compact. Supply Chain Sustainability Revealed: A Country Comparison; Supply Chain Report 2014-15; CDP: New York, NY, USA, 2015. [Google Scholar]
  13. Burritt, R.J.; Christ, K.L.; Omori, A. Drivers of corporate water-related disclosure: Evidence from Japan. J. Clean. Prod. 2016, 129, 65–74. [Google Scholar] [CrossRef]
  14. Hart, S.L. A natural-resource-based view of the firm. Acad. Manag. Rev. 1995, 20, 986–1014. [Google Scholar] [CrossRef] [Green Version]
  15. Christ, K.L.; Burritt, R.L. Material flow cost accounting: A review and agenda for future research. J. Clean. Prod. 2015, 108, 1378–1389. [Google Scholar] [CrossRef]
  16. Morrison, J.; Schulte, P.; Schenck, R. Corporate Water Accounting: An Analysis of Methods and Tools for Measuring Water Use and Its Impacts; Pacific Institute: Oakland, CA, USA, 2010. [Google Scholar]
  17. Lambooy, T. Corporate social responsibility: Sustainable water use. J. Clean. Prod. 2011, 19, 852–866. [Google Scholar] [CrossRef]
  18. Kuo, L.; Yu, H.C.; Chang, B.G. The signals of green governance on mitigation of climate change-evidence from Chinese firms. Int. J. Clim. Chang. Strateg. Manag. 2015, 7, 154–171. [Google Scholar] [CrossRef]
  19. Jensen, M.H.; Villumsen, M.; Petersen, P.D. The AAAQ Framework and the Right to Water; The Danish Institute for Human Rights: Copenhagen, Denmark, 2014. [Google Scholar]
  20. WBCSD. Water for Business: Initiatives Guiding Sustainable Water Management in the Private Sector (Version 3); World Business Council for Sustainable Development: Geneva, Switzerland, 2012. [Google Scholar]
  21. Newsweek Green. Top Green Companies in the World 2016; Newsweek: New York, NY, USA, 2017; Available online: http://www.newsweek.com (accessed on 28 June 2017).
  22. Brammer, S.; Pavelin, S. Factors influencing the quality of corporate environmental disclosure. Bus. Strategy Environ. 2008, 17, 120–136. [Google Scholar] [CrossRef]
  23. Lu, Y.; Abeysekera, I. Stakeholder’s power, corporate characteristics, and social and environmental disclosure: Evidence from China. J. Clean. Prod. 2014, 64, 426–436. [Google Scholar] [CrossRef] [Green Version]
  24. Roberts, R. Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Account. Organ. Soc. 1992, 17, 595–612. [Google Scholar] [CrossRef] [Green Version]
  25. Kalu, J.U.; Buang, A.; Aliagha, G.U. Determinants of voluntary carbon disclosure in the corporate real estate sector of Malaysia. J. Environ. Manag. 2016, 182, 519–524. [Google Scholar] [CrossRef]
  26. Signori, S.; Bodino, G.A. Water management and accounting: Remarks and new insights from an accountability perspective. Stud. Manag. Financ. Account. 2013, 26, 115–161. [Google Scholar]
  27. Reverte, C. Determinants of corporate social responsibility disclosure ratings by Spanish listed firms. J. Bus. Ethics 2009, 88, 351–366. [Google Scholar] [CrossRef]
  28. Hills, J.; Welford, R. Co Ca-Cola and water in India. Corp. Soc. Responsib. Environ. Manag. 2005, 12, 168–177. [Google Scholar] [CrossRef]
  29. Bansal, P.; Clelland, I. Talking trash: Legitimacy, impression management, and unsystematic risk in the context of natural environment. Acad. Manag. J. 2004, 47, 93–103. [Google Scholar]
  30. Bullis, C.; Ie, F. Corporate environmentalism. In The Debate over Corporate Social Responsibility; May, S.K., Cheney, G., Roper, J., Eds.; Oxford University Press: New York, NY, USA, 2007; pp. 321–335. [Google Scholar]
  31. Jose, A.; Lee, S.M. Environmental reporting of global corporations: A content analysis based on website disclosures. J. Bus. Ethics 2007, 72, 307–321. [Google Scholar] [CrossRef]
  32. Sethi, S.P. Advocacy Advertising and Large Corporations; Lexington Books: Lexington, MA, USA, 1977. [Google Scholar]
  33. Blomquist, C.; Deegan, C. Stakeholder Influence on Corporate Reporting: An Exploration of the Interaction between the World Wide Fund for Nature and the Australian Minerals Industry; Working Paper; University of Southern Queensland: Darling Heights, Australia, 2000. [Google Scholar]
  34. Dowling, J.; Pfeffer, J. Organizational legitimacy: Social values and organizational behaviour. Pac. Sociol. Rev. 1975, 18, 122–136. [Google Scholar] [CrossRef]
  35. Ihlen, O. The oxymoron of “sustainable oil production”: The case of the Norwegian oil industry. Bus. Strategy Environ. 2009, 18, 53–63. [Google Scholar] [CrossRef]
  36. Lindblom, C.K. The Implications of Organizational Legitimacy for Corporate Social Performance and Disclosure. In Proceedings of the Critical Perspectives on Accounting Conference, New York, NY, USA, 20 April 1994. [Google Scholar]
  37. Fombrun, C.J.; van Riel, C.B.M. Fame & Fortune: How Successful Companies Build Winning Reputations; Financial Times Prentice Hall: Upper Saddle River, NJ, USA, 2004. [Google Scholar]
  38. Sun, N.; Salama, A.; Hussainey, K. Corporate environmental disclosure, corporate governance and earnings management. Manag. Audit. J. 2010, 25, 679–700. [Google Scholar] [CrossRef] [Green Version]
  39. Gray, R.; Kouhy, R.; Lavers, S. Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Account. Audit. Account. J. 1995, 8, 47–77. [Google Scholar] [CrossRef]
  40. Ratanajongkol, S.; Davey, H.; Low, M. Corporate Social reporting in Thailand: The news is all good and increasing. Qual. Res. Account. Manag. 2006, 3, 67–83. [Google Scholar] [CrossRef] [Green Version]
  41. Deegan, C. Financial Accounting Theory, 2nd ed.; McGraw-Hill Australia Pty Ltd.: North Ryde, Australia, 2007. [Google Scholar]
  42. Guthrie, J.; Petty, R.; Yongvanich, K. Using content analysis as a research method to inquire into intellectual capital reporting. J. Intellect. Cap. 2004, 5, 282–293. [Google Scholar] [CrossRef]
  43. Freeman, R.E. Strategic Management: A Stakeholder Approach; Pitman Publishing Inc.: Boston, MA, USA, 1984. [Google Scholar]
  44. Asif, M.; Searcy, C.; Zutshi, A. Anintergrated management systems approach to corporate social responsibility. J. Clean. Prod. 2013, 56, 7–17. [Google Scholar] [CrossRef]
  45. Linnenluecke, M.K.; Griffiths, A. Firms and sustainability: Mapping the intellectual origins and structure of the corporate sustainability field. Glob. Environ. Chang. 2013, 23, 382–391. [Google Scholar] [CrossRef]
  46. McDonald, S.; Young, S. Cross-sector collaboration shaping corporate social responsibility best practice within the mining industry. J. Clean. Prod. 2012, 37, 54–67. [Google Scholar] [CrossRef]
  47. Aschehoug, S.H.; Boks, C.; Storen, S. Environmental information from stakeholders supporting product development. J. Clean. Prod. 2012, 31, 1–13. [Google Scholar] [CrossRef]
  48. Jenkins, H.; Yakovleva, N. Corporate social responsibility in the mining industry: Exploring trends in social and environmental disclosure. J. Clean. Prod. 2006, 14, 271–284. [Google Scholar] [CrossRef]
  49. Gamerschlag, R.; Möller, K.; Verbeeten, F. Determinants of voluntary CSR disclosure: Empirical evidence from Germany. Rev. Manag. Sci. 2011, 5, 233–262. [Google Scholar] [CrossRef] [Green Version]
  50. Brammer, S.; Pavelin, S. Voluntary social disclosures by large UK companies. Bus. Ethics A Eur. Rev. 2004, 13, 86–99. [Google Scholar] [CrossRef]
  51. Ben Lahouel, B.; Peretti, J.M. Stakeholder power and corporate social performance. Corp. Gov. 2014, 14, 363–381. [Google Scholar] [CrossRef]
  52. Huang, C.; Kung, F. Drivers of environmental disclosure and stakeholder expectation: Evidence from Taiwan. J. Bus. Ethics 2010, 96, 435–451. [Google Scholar] [CrossRef]
  53. Kuo, L.; Yu, H.C. Corporate political activity and environmental sustainability disclosure: The case of Chinese companies. Balt. J. Manag. 2017, 12, 348–367. [Google Scholar] [CrossRef]
  54. Marquirs, C.; Qian, C. Corporate social responsibility reporting in China: Symbol or Substance? Organ. Sci. 2014, 25, 127–148. [Google Scholar] [CrossRef]
  55. Logsdon, J. Organizational responses to environmental issues. In Research in Corporate Social Performance and Policy; Preston, L., Ed.; JAI Press: Greenwich, CT, USA, 1985; pp. 47–71. [Google Scholar]
  56. Hackston, D.; Milne, M.J. Some determinants of social and environmental disclosures in New Zealand companies. Account. Audit. Account. J. 1996, 9, 77–108. [Google Scholar] [CrossRef]
  57. Kuo, L.; Yeh, C.C.; Yu, H.C. Disclosure of corporate social responsibility and environmental management: Evidence from China. Corp. Soc. Responsib. Environ. Manag. 2012, 19, 273–287. [Google Scholar] [CrossRef]
  58. Ullmann, A.E. Data in search of a theory: A critical examination of the relationships among social performance, social disclosure and economic performance of US firms. Acad. Manag. Rev. 1985, 10, 540–557. [Google Scholar]
  59. Cullen, L.; Christopher, T. Governance disclosures and firm characteristics of listed Australian mining companies. Int. J. Bus. Stud. 2002, 10, 37–58. [Google Scholar]
  60. Cooper, B. Why Investors Are Concerned about Water Risk Management; Aroq Ltd.: Bromsgrove, UK, 2015; Available online: https://www.just-food.com/analysis/why-investors-are-concerned-about-water-risk-management_id130965.aspx (accessed on 2 January 2020).
  61. Leuz, C.; Nanda, D.; Wysocki, P.D. Investor protection and earnings management: An international comparison. J. Financ. Econ. 2003, 69, 505–527. [Google Scholar] [CrossRef]
  62. Chiang, H.T.; He, L.J. Board supervision capability and information transparency. Corp. Gov. Int. Rev. 2010, 18, 18–31. [Google Scholar] [CrossRef]
  63. Gedajlovic, E.; Shapiro, D.M. Ownership structure and firm profitability in Japan. Acad. Manag. J. 2002, 45, 565–575. [Google Scholar]
  64. Muttakin, M.B.; Khan, A. Determinants of corporate social disclosure: Empirical evidence from Bangladesh. Adv. Account. 2014, 30, 168–175. [Google Scholar] [CrossRef]
  65. Bae, H.; Wilcoxen, P.; Popp, D. Information disclosure policy: Do state data processing efforts help more than the information disclosure itself? J. Policy Anal. Manag. 2010, 29, 163–182. [Google Scholar] [CrossRef]
  66. Fung, A.; Graham, M.; Weil, D. Full Disclosure: The Perils and Promise of Transparency; Cambridge University Press: Cambridge, UK, 2007. [Google Scholar]
  67. Owen, R.S. Clarifying the simple assumption of the information load paradigm. Adv. Consum. Res. 1992, 19, 770–776. [Google Scholar]
  68. Iselin, E.R. The effect of the information and data properties of financial ratios and statements on managerial decision quality. J. Bus. Financ. Account. 1993, 20, 249–267. [Google Scholar] [CrossRef]
  69. Galibraith, J.R. Organization design: An information processing view. Interfaces 1974, 3, 28–36. [Google Scholar] [CrossRef]
Sustainability 12 00385 g001 550
Figure 1. Theoretical framework with hypotheses.
Figure 1. Theoretical framework with hypotheses.
Sustainability 12 00385 g001
Table
Table 1. Letter Grading Method.
Table 1. Letter Grading Method.
LevelScore
LeadershipA75–100%
A−0–74%
ManagementB40–74%
B−0–39%
AwarenessC40–74%
C−0–39%
DisclosureD40–74%
D−0–39%
FailureFFailure to disclose
Source: CDP (www.cdp.net/en/research/global-reports/global-water-report-2016).
Table
Table 2. Sample Distribution by Industry.
Table 2. Sample Distribution by Industry.
Industry TypeInitial Number of FirmsFinal Number of Firms
Consumer discretionary6461
Consumer staples4839
Energy3835
Financials30
Health care3834
Industrials4538
Information technology4633
Materials3128
Telecommunication Services31
Utilities3125
Total347294
Table
Table 3. Descriptive Statistics.
Table 3. Descriptive Statistics.
ObsMinMaxMeanS.D.
WDisc2941.005.002.401.49
Size2942.155.864.060.50
Profit2940.233.350.970.38
Lev2940.082.030.660.21
Ownership2940.343.812.210.65
S&P5002940.001.000.700.46
WSensi2940.001.000.560.50
Note: WDisc denotes water disclosure level. Size is firm size. Profit stands for profitability. Lev denotes debt ratio. Ownership denotes concentration of ownership. S&P500 is a dummy variable, where 1 indicates the firm is listed in S&P500 index and 0 indicates the firm is not. WSensi is a dummy variable indicating whether the firm belongs to a water-sensitive industry. 1 indicates Yes, and 0 indicates No.
Table
Table 4. Correlation Matrix.
Table 4. Correlation Matrix.
WDiscSizeProfitLevOwnershipS&P500WSensi
WDisc1.000.16 **−0.070.13 **0.22 ***0.16 ***0.13 **
Size 1.00−0.090.18 ***0.23 ***0.18 ***0.05
Profit 1.00−0.040.12 **−0.050.25 ***
Lev 1.000.060.070.01
Ownership 1.000.24 ***0.22 **
S&P500 1.000.04
WSensi 1.00
** p < 0.05, *** p < 0.01.
Table
Table 5. T-Test of Water Disclosure.
Table 5. T-Test of Water Disclosure.
Panel A: Firms in Water-Sensitive Industries vs. Firms not in Any Water-Sensitive Industry
Water disclosure score
Mean (S.D.)
WRSI (Obs. = 167)2.57 (1.52)
NWRSI (Obs. = 127)2.18 (1.43)
t-value2.24 **
Panel B: S&P500 firms vs. Non-S&P500 firms
Water disclosure score
Mean (S.D.)
S&P500 (Obs. 207)2.56 (1.49)
Non-S&P500 (Obs. 87)2.03 (1.44)
t-value2.80 ***
Panel C: S&P500 firms in water-sensitive industries vs. Non-S&P500 firms in non-water-sensitive industries
Water risk disclosure scores
Mean (S.D.)
S&P500 with WRSI (Obs. 120)2.72 (1.50)
Non-S&P500 with NWRSI (Obs.174)2.18 (1.18)
t-value3.055 **
** p < 0.05, *** p < 0.01.
Table
Table 6. Ordinal Logit Analysis of the Drivers of Water Disclosure.
Table 6. Ordinal Logit Analysis of the Drivers of Water Disclosure.
CoefficientWald
Size0.291.52
Profit−0.401.36
Lev1.215.00 **
Ownership0.424.82 **
S&P5000.483.36 *
WSensi0.494.34 **
Pseudo R-Square
Cox and Snell 0.094
Nagelkerke 0.103
Obs. 294
* p < 0.1, ** p < 0.05.

Share and Cite

MDPI and ACS Style

Yu, H.-C.; Kuo, L.; Ma, B. The Drivers of Corporate Water Disclosure in Enhancing Information Transparency. Sustainability 2020, 12, 385. https://doi.org/10.3390/su12010385

AMA Style

Yu H-C, Kuo L, Ma B. The Drivers of Corporate Water Disclosure in Enhancing Information Transparency. Sustainability. 2020; 12(1):385. https://doi.org/10.3390/su12010385

Chicago/Turabian Style

Yu, Hui-Cheng, Lopin Kuo, and Beiling Ma. 2020. "The Drivers of Corporate Water Disclosure in Enhancing Information Transparency" Sustainability 12, no. 1: 385. https://doi.org/10.3390/su12010385

Note that from the first issue of 2016, this journal uses article numbers instead of page numbers. See further details here.

Article Metrics

Back to TopTop