Firm Ownership and Carbon Disclosure in China

• In Event: China and Climate Change Politics

Abstract

In addition to government regulations to tackle the challenge of climate change, market actors have taken more and more actions, among which corporate sustainability and environmental reporting has experienced a significant increase globally and more prominently in (some) developing countries. China is no exception. Corporate environmental and carbon disclosure in China has become a research hotspot investigated by many. Past studies often focus on increasing stakeholder demands, corporate governance structures, and consumer preferences as explanations for corporate environmental and climate disclosures. These economic factors matter greatly in market economies. Yet some recent studies have shown that in countries in which the government plays important roles in managing the economy, political factors such as corruption, business-government connections, and even local leadership turnovers greatly affect firms’ incentives to disclose critical information regarding their environmental and climate performances. Environmental and carbon disclosure in China, for many, is a mechanism by which firms signal compliance with government policy preferences and seek favorite treatments from the government (e.g., subsidies and government contracts). This paper investigates the effect of firm ownership structure, focusing especially on the role of state-ownership in China: on the one hand, SOEs might have less incentive to signal via disclosure because they already have strong connections to the government; on the other hand, when the government starts to encourage firm disclosure of key information, SOEs might be under political pressure to set an example for firms of other ownership, therefore associated with a higher chance of environmental and carbon disclosure. To test the relationship between firm ownership and environmental and carbon disclosure, we have collected firm annual reports and corporate sustainability reports for all listed companies from the Shanghai and Shenzhen Stock Exchanges and company websites, 2008-2022. We coded these annual reports to measure whether a firm disclosed their environmental (air and water pollution) and climate (carbon emissions) performances. Company characteristics data, including firm ownership, has been obtained from the China Security Markets and Accounting Research Database (CSMAR). We pursue a panel regression approach using firm-year data.

Authors

• Xun Cao, Penn State University

• Yifei Zhu, Penn State Univ