Impact of Environmental Disclosure on Firm Performance: An Empirical Analysis of Food, Beverage and Tobacco Sector Companies Listed in Colombo Stock Exchange, Sri Lanka

Abstract

In recent years, environmental accounting disclosure has become more important in the business community as they are accountable to comply with the environment highly in which they operate. A cleaner and greener environment is a must for every business to survive in the business world saving the planet. The primary objective of an organization is to maximize the shareholders' value; hence it is needed to know the additional value created through adopting environmental accounting disclosures by the companies. Therefore, this study investigates, the impact of environmental disclosure on firm performance of food, beverage, and tobacco sector companies listed on the Colombo Stock Exchange. The data were collected from the annual reports of twenty-six (26) companies for the period from 2012 to 2019. An indexing procedure is used to measure the contents of the disclosures and 19 items of information were selected for inclusion in the disclosure index, the proxy for environmental disclosure. The firm performance was measured by using a proxy, Return on Assets. Firm size and liquidity were considered as the control variables. The study applied a panel data regression procedure. The results show that environmental accounting disclosure and firm size had a significant positive impact on return on assets. However, the liquidity could not show any significant relationship with return on assets. The finding will give an incentive for managers to adopt environment-friendly resources/activities to satisfy the stakeholders' expectations and save the earth. The top management should make sure that they comply with the environmental laws as a long-term business strategy in enhancing sustainability. Keywords: Colombo Stock Exchange, Content Analysis, Environmental Accounting Disclosure, Firm Performance, Panel Data Regression