Corporate board characteristics and environmental disclosure quantity: Evidence from South Africa (integrated reporting) and Nigeria (traditional reporting)

Ofoegbu, Grace N.; Odoemelam, Ndubuisi; Okafor, Regina G. Article Corporate board characteristics and environmental disclosure quantity: Evidence from South Africa (integrated reporting) and Nigeria (traditional reporting) Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Ofoegbu, Grace N.; Odoemelam, Ndubuisi; Okafor, Regina G. (2018) : Corporate board characteristics and environmental disclosure quantity: Evidence from South Africa (integrated reporting) and Nigeria (traditional reporting), Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 5, https://doi.org/10.1080/23311975.2018.1551510 This Version is available at: https://hdl.handle.net/10419/206144 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ ACCOUNTING, CORPORATE GOVERNANCE & BUSINESS ETHICS | RESEARCH ARTICLE Corporate board characteristics and environmental disclosure quantity: Evidence from South Africa (integrated reporting) and Nigeria (traditional reporting) Grace N. Ofoegbu 1 , Ndubuisi Odoemelam 1 *and Regina G. Okafor 1 Abstract: The study examined the influence of corporate board characteristics on environmental disclosure quantity of listed firms in two leading emerging economies: South Africa and Nigeria which practice integrated reporting framework and traditional reporting framework, respectively. Two issues motivate the study: First, calls by researchers for integrated reporting regulation in Nigeria. Second, the challenge facing regulatory bodies and companies boards in Nigeria in ensuring commitment to the protection of the environment and the society. Many studies have examined the influence of corporate governance on environmental disclosure at the cross-country level, documenting evidence that corporate governance mechanisms are essential for corporate ecological reporting. However, these studies examined settings based on the legal framework and mostly focused on companies quoted on common and civil law countries. They neglected the weak and robust reporting framework and difference within either common or civil law countries. Our study provides evidence on ABOUT THE AUTHORS Grace N. Ofoegbu holds a Doctorate degree in Accounting and she is a Senior Lecturer in the Department of Accountancy, University of Nigeria, Enugu Campus, Nigeria. She is the current Head of Accountancy Department at the University for 2018/2019 academic year. In addition, she holds the professional certification of the Institute of Chartered Accountants of Nigeria, a Fellow of the Institute. Her research interest includes Corporate Financial Reporting, Taxation, and Auditing. Ndubuisi Odoemelam is currently carrying out Ph.D. research on the effect of accounting earnings of quoted Nigerian firms on economic growth of Nigeria, under the supervision of Prof. R G. Okafor. Regina G. Okafor is a Professor of Accounting in the Department of Accountancy, University of Nigeria, Enugu Campus, Nigeria. She is the current Dean of Faculty of Business Administration in the University of Nigeria . PUBLIC INTEREST STATEMENT Reporting on the environmental impact of the company’s activities ensures commitment to the protection of the environment and the larger society. Researchers in Nigeria call for regulation of integrated reporting. This research investigated the corporate board characteristics influence on environmental disclosure of quoted companies in two different countries (South Africa and Nigeria). These two countries adopt integrated financial reporting and traditional reporting framework, respectively. Data on annual reports of companies from the two countries were used. Results revealed a more significant positive association between board characteristics and environmental disclosure in South Africa and less relevant association in Nigeria. In a traditional reporting framework, the effect of environmentally sensitiveindustries is insignificant and highly significant in the integrated reporting framework. The results enhance the policymakers and regulators decision on regulation of integrated reporting in Nigeria and other countries not under integrated reporting. Corporate board’s responsibility towards successfully integrated reporting also highlights. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 © 2018 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. Received: 07 September 2018 Accepted: 19 November 2018 First Published: 23 November 2018 *Corresponding author: Ndubuisi Odoemelam, Department of Accounting, Faculty of Business Administration, Enugu Campus University of Nigeria, Enugu, Nigeria E-mail: ndubuisi.odoemelam@uniport. edu.ng;[email protected] Reviewing editor: Collins G. Ntim, Accounting, University of Southampton, UK Additional information is available at the end of the article Page 1 of 27 corporate board characteristics influence on environmental disclosure of quoted firms in South Africa and Nigeria. Data obtained from annual reports of 303 environmentally sensitive companies selected from South Africa (213) and Nigeria (90) was investigated using descriptive, multivariate, and regression model. Major findings indicate a significant positive association between board independence and environmental disclosure in Nigeria. In South Africa, 45% of environmentally sensitive industries significantly influence environmental disclosure, while 51% of environmentally polluting industries in Nigeria show insignificant association with environmental disclosure. Our findings are helpful to policymakers and other regulators for an impactful framework on environmental reporting. Subjects: Accounting; Corporate Governance; Corporate Social Responsibility & Business Ethics Keywords: corporate board characteristics; environmental disclosure; traditional and integrated frameworks; South Africa and Nigeria 1. Introduction A call for companies environmental impact assessment and disclosure has assumed enormous dimensions over the decades. This clarion call aimed at providing a sustainable environment that will be conducive to the human and corporate organisations to operate efficiently (Votsi, Kallimanis, &Pantis,2017). Disclosure is a means through which a company reports its environmental activities to the stakeholders (Hendri & Puteri, 2015). In recent times, corporate governance has been considered essential and relevant in sustainability reporting because research results reveal that it is a factor that influences the level of environmental disclosure (Omer & Andrew, 2014). Through environmental disclosure, firms project their corporate governance effectiveness in promoting sustainability, accountability, and transparency (Ajibodade & Uwuigbe, 2013). Several studies have examined the influence of corporate governance on environmental disclosure at the firm level (Ienciu, Popa, & Ienciu, 2012), country-specific (e.g. Odoemelam & Okafor, 2018; Baboukardos, 2017; Akbas, 2016; Liao, Luo, & Tang, 2015), and cross-country evidence (Halme & Huse, 1997; Khlif, Guidara, & Souissi, 2015). Collectively, these studies show that corporate governance mechanisms are essential for corporate environmental reporting. However, the reviews on cross-country perspective have mostly examined a setting based on a legal framework (e.g. Khlif et al., 2015) and most importantly, the focus has been on companies quoted on common and civil law countries neglecting the weak and robust reporting framework. The studies have mainly concentrated on differentiating their sample size with regard to crosscountry analysis based on the difference in common law and civil law countries (Khlif et al., 2015). The authors of these prior studies failed to consider the tendency of within laws reporting framework, (i.e. within either common or civil law countries). No empirical research compared all in one fit and traditional reporting on environmental disclosure. We provided evidence on corporate board characteristics influence on environmental disclosure quantity of quoted firms in South Africa and Nigeria. Furthermore, we chose South Africa and Nigeria (two common law countries), unlike Khlif et al. (2015) that investigated the relationship between corporate performance and social and environmental disclosure of South Africa (common law country) and Morocco (civil law country). Though these two African leading economies have the same legal system, a reasonable gap exists between the two nations in their corporate reporting framework for quoted firms. South African quoted companies are mandated to submit an integrated annual report as approved by the King III report (Rensburg & Botha, 2014; Zhou, Simnett, & Green, 2017). While in Nigeria, the traditional corporate annual reporting is still a vital medium of relating to the stakeholders, which Otu Umoren, John Udo, and Sunday George (2015) found to be lacking Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 2 of 27 relevant information concerning the natural capital and other non-financial issues. The empirical evidence on the determinants of disclosure decisions is largely inconclusive (Beyer, Cohen, Lys, & Walther, 2010; Gray, Javad, Power, & Sinclair, 2001; Ott, Schiemann, & Günther, 2017). Our study contributes to accounting literature on the determinants of corporate environmental disclosure (Khlif et al., 2015). For the first time, we provide evidence between two countries of the same legal system but have different reporting mechanisms. The rest of this paper is organised as follows. Section 2 the theoretical framework, literature review, and hypotheses development. Section 3 discusses the research methodology, and Section 4 explains the results and discussion. Finally, Section 5 conclusions and limitations as well as directions for future studies. 2. Underpinning theory The theoretical framework adopted for this study to examine the relationship between corporate governance mechanisms and the quantity of corporate environmental disclosure practices of quoted companies in South Africa and Nigeria annual reports are the legitimate and stakeholder theories. These theories are linked to the concept that there exists a social contract between the organisation and society whereby an organisation endeavours to operate within the values and norms of the society and is being held responsible and accountable to its entire stakeholders (Gray et al., 1995). 2.1. Legitimacy theory Legitimacy theory is derived from the concept of organisational legitimacy. It grants an organisation the right to carry out its operations in an agreement with society’s interests. Hence organisations seek to operate within the norms and aspirations of their respective communities. When there is a disparity between two value systems, there is a threat to the company’s legitimacy. The argument surrounding legitimacy theory is that companies can only survive if they are operating within the framework of the society’s norms and values. Greiling and Grüb (2014) stress that an organisation must be accountable for its actions. Legitimacy theory is perceived as a possible reason for the recent rapid increase in environmental disclosure as corporate entities strive to be greenish in their operations (Braam, Uit de Weerd, Hauck, & Huijbregts, 2016; Lan, Wang, & Zhang, 2013; LYTON CHIYEMBEKEZO, 2013; Prasad, Mishra, & Kalro, 2016). Corporate disclosures represent a response to environmental pressures and the urge to legitimate their existence and actions. Companies disclose social and environmental information voluntarily to maintain their legitimacy. They aim to obtain the impression of the society that they are socially responsible. This reality of this perception lies in the strict adherence to the rule of law, and investors and citizen’s right to a healthy environment enshrined in the Constitution. 2.1.1. Stakeholder theory Stakeholder theory is also considered as an explainable theory for corporate environmental accounting (Deegan & Blomquist, 2006; Depoers, Jeanjean, & Jérôme, 2016; Liao et al., 2015). It involves the recognition and identification of the relationship existing between the company’s behaviours and its impact on its stakeholders. The stakeholder theory perspective takes cognisance of the environment of the firm, including customers, suppliers, employees, and other segments of the society. As a result of this relationship, the company requires support from the stakeholders to survive. The connection must be managed if the company considers the stakeholders important. One of the ways of maintaining that relationship is by providing information through voluntary social and environmental disclosures to gain support and approval of these stakeholders. These stakeholders of the enterprise and lobbying decisions of these individuals are determined by the stakeholders who possess power, urgency, and legitimacy (Ahmad, 2015). We conclude that legitimacy theory and stakeholder theory are the theories that dominate the explanations of social and environmental impact disclosure practices. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 3 of 27 2.1.2. Empirical evidence A good number of researchers have provided empirical evidence on the relationship between the extent of environmental disclosure and corporate governance. Mostly corporate governance mechanism is used as an independent variable and environmental disclosure as a dependent variable. In this section, we review some of the existing empirical studies as supported by underpinning theories. 2.2. Environmental disclosure quantity Otu Umoren et al. (2015) from Nigeria provided evidence that the level of environmental information reported by sample companies listed in the Nigeria Stock Exchange (NSE) was 7%. The study used a sample of 40 companies across eight sectors and data from two-year 2013–2014 was analysed using descriptive statistics, correlation, and linear regression. The study desperately calls for integrated reporting in Nigeria. Otu Umoren et al. (2015) sample size based on the firm-level study is limited regarding generalising the result of the survey. In South Africa, KPMG (2013) reported that companies that prepare environmental report increased from 45% in 2008 to 98% in 2013. Mandatory integrated annual reporting, enhanced governance structure, and a strong legal environment could be factors to this upsurge. Ahmed Haji and Anifowose (2017) confirmed a significant rise in the overall corporate disclosure because of the adoption of integrated reporting in South Africa. This increase may be attributed to public pressure (Darrell & Schwartz, 1997). The current study focused on investigating and providing empirical evidence of the relationship between the extent of environmental disclosure and corporate board characteristics of listed companies in Nigeria and South Africa taking cognisance of both firm attribute in one hand and reporting framework of the individual country. 2.3. Corporate governance Recent scandals that ravaged some companies have awakened a good number of studies on how entities are governed. Beekes, Brown, Zhan, and Zhang (2016) in a cross-country study involving 23 countries confirmed: “the belief that better-governed firms make more frequent disclosures to the market”also corroborated by Ntim (2016) and Rupley, Brown, and Marshall (2012). That often happens in common law countries (Beekes et al., 2016) while national culture is said to be capable of explaining variations in firm-level and country level in corporate governance (Duong, Kang, & Salter, 2016) and carbon disclosure (Le & Tang, 2016). When the institution is weak, it affects the effectiveness of corporate governance (Kumar & Zattoni, 2016). Also, competent corporate governance is capable of reducing information asymmetry (Kanagaretnam, Lobo, & Whalen, 2007).A good number of measures have been taken to strengthen corporate governance in both Nigeria and South Africa. In South Africa ranging from King report on corporate governance in 1994 (Rossouw, Van der Watt, & Malan, 2002; Vaughn & Ryan, 2006), to King III report (King Committee on Corporate Governance, 2009). In Nigeria, in 2003, the Artedo Peterside committee set up by the Securities and Exchange Commission, developed a code of best practice for public companies in Nigeria. We focused on board independence (BIND), board size, board meetings, audit committee independence, and environmental committee as corporate board characteristics, while the emphasis is on the assumption that BIND arrangement may serve as bonding mechanisms in weak reporting environments, suggesting a substitutive relationship between BIND and the regulatory framework. 2.3.1. Board independence The stakeholder’s theory buttress the importance of having independent directors in board composition aimed at protecting the interest of the investors (Arayssi, Dah, & Jizi, 2016; Gul & Leung, 2004; Jizi, Salama, Dixon, & Stratling, 2013). Liao et al. (2015) showed evidence of a positive association between significant independent directors and extensive disclosure of GHG information from a UK sample of 329 largest companies using both univariate and regression models. García- Meca and Sánchez-Ballesta (2010) adopted a meta-analysis approach to a sample of 27 empirical studies to explain the association of corporate governance structure with voluntary disclosure. The Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 4 of 27 study document “that positive association between BIND and voluntary disclosure only occurs in those countries with high investor protection rights.”Jizi et al. (2013) stated that there exists a positive relationship between the upper level of corporate social responsibility (CSR) disclosure and more independent boards of directors. The study was based on a sample of large US commercial banks. Eberhardt-Toth (2017) also supported having more independent executive administrators on the board. Post, Rahman, and McQuillen (2014) empirically investigated the association between board structure and company environmental performance using sustainability-themed alliances as a moderating variable and the whole public oil and gas companies as a sample. They found among others that the sustainability-themed alliances moderate dependent and independent variables. A higher percentage of independent nonexecutive directors on the board are expected to relate to extensive environmental impact disclosure significantly. 2.3.2. Board size The large composition of the board is perceived to be capable of influencing the extent to which corporate entities disclose their activities in any environment (Haniffa & Cooke, 2005; Ntim & Osei, 2011). Bhagat and Bolton (2008) supported by agency theory (John & Senbet, 1998) due to the diversity of expertise of members (Allegrini & Greco, 2011; Nan, Salama, Hussainey, & Habbash, 2010; Xie, Davidson, & Dadalt, 2003). Some of the studies conducted in both developed and developing countries revealed a positive association between board size and environmental impact disclosures (Andrikopoulos & Kriklani, 2013; Khlif et al., 2015) while some showed negative relationship Uwuigbe and Ajayi (2011) and others insignificant result (Cheng & Courtenay, 2006;Halme& Huse, 1997). Recent empirical evidence from an emerging economy by Trireksani and Djajadikerta (2016) examined the relationship between corporate governance variables and the extent of environmental disclosure. The study focused only on mining companies listed in Indonesia Stock Exchange and employed content analysis of the annual reports and documents a significant positive association between the board size and the extent of environmental disclosure. Osazuwa, Che- Ahmad, and Che-Adam (2016) utilised a cross-section data of sample size of 116 firms in Nigeria and provided evidence that board size positively relates to the level of environmental disclosure. Concerned about the quality of climate change disclosure, Ben-Amar and McIlkenny (2015)result from Canada showed a positive association between board effectiveness and the firm’s decision to answer the CDP questionnaire as well as its carbon disclosure quality. Bridging the gap in knowledge about the relationship between corporate governance and CSR in the banking sector of US, Jizi et al. (2013) found a significant positive association between board size and CRS. Jizi et al. (2013)used meta-analysis to a sample of 64 empirical studies to identify possible determinants to the relationship between board, audit committee characteristics and voluntary disclosure. The study acknowledged that board size has a significant positive effect on voluntary disclosure. We expect a significant positive relationship between environmental disclosure variables and corporate board size. 2.3.3. Audit committee independence Audit committee independence is among the dimensions of measuring audit committee effectiveness (Pincus, Rusbarsky, & Wong, 1989). This committee is part of corporate governance structure (Cohen, Hoitash, Krishnamoorthy, & Wright, 2014; Cohen, Krishnamoorthy, & Wright, 2002; Vera- Muñoz, 2005; Yasin & Nelson, 2013) that helps in overcoming agency-related problems (Aburaya, 2012; Ho & Shun Wong, 2001; Islam, 2010) as well as carrying out oversight function (Beasley, Carcello, Hermanson, & Neal, 2009; Rahim, Johari, & Takril, 2015) must be independent (Vera- Muñoz, 2005). Based on this important role of audit committee in achieving objectives of corporate governance (Ho & Shun Wong, 2001; Khan, Muttakin, & Siddiqui, 2013; Said, Hj Zainuddin, & Haron, 2009), required a good number of independent members for its effectiveness (Akhtaruddin & Haron, 2010; Bouaziz, 2012; Carcello & Neal, 2000; DeZoort, Hermanson, Archambeault, & Reed, 2002; Ghafran & O’Sullivan, 2013; Mohamad & Sulong, 2010). Some empirical evidence has emerged about the degree of number of independent members in positively influencing what, how and when to disclose information that will help stakeholders to make an informed decision. Madi, Ishak, and Manaf (2014) in a study of 146 Malaysian listed firms for the year 2009 provided Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 5 of 27 evidence that audit committee independence is positively related to voluntary corporate disclosure. The study used a content analysis method. Madi et al. (2014) is a confirmation of Iatridis (2013). Also, Samaha, Khlif, and Hussainey (2015) reported a positive relationship between the level of voluntary disclosure and the percentage of independent directors on the audit committee. 2.3.4. Board meetings Vafeas (1999) revealed that “board activity, measured by board meeting frequency, is an important dimension of board operations”which helps to overcome agency conflicts (Xie et al., 2003). Ntim and Osei (2011) study the impact of corporate board meetings on corporate performance of 169 listed companies in South Africa and found a positive relationship. On the other hand, Kantudu and Samaila (2015) reported negative association based on the study of the impact of monitoring characteristics on financial reporting quality of the Nigerian listed oil marketing firms. While in Nigeria, Osazuwa et al. (2016) investigated the relationship between board characteristics and the extent of environmental disclosures. The study used cross-sectional data and quantitative design method and documents a negative relationship between board meetings and environmental disclosure. 2.3.5. Environmental committee The environmental committee is saddled with the responsibility of assessing the natural capital (Council on Social Work Education, 2015; Pryor, Bierbaum, & Melillo, 1998; Rockwell, 1991; Sánchez & McIvor, 2007; Sano & Kawai, 1996; Stewart, 2004). An advisory committee (Vasseur et al., 1997) that has shown a high-level transparency towards the environment (Liao et al., 2015).However, the words of Berrone and Gomez-Mejia (2009) that “…environmental committee do not reward environmental strategies more than those without such structures, suggesting that these mechanisms play a merely symbolic role,”call for more evidence on the relationship between the environmental committee and corporate environmental disclosure practices. Dixon-Fowler, Ellstrand, and Johnson (2017) found a positive association between board environmental committees and corporate environmental performance. In agreement with agency theory, such committee will be proactive and not reactive in handling environmental issues and actions help companies gain environmental legitimacy (Berrone, Fosfuri, & Gelabert, 2015; Hummel & Schlick, 2016) and firm value (Clarkson, Fang, Li, & Richardson, 2013; Plumlee, Brown, Hayes, & Marshall, 2015) as well as beneficial to shareholders (Griffin & Sun, 2013).Peters and Romi (2013b) reported a positive association between the environmental committee and environmental disclosure. 2.4. Corporate attributes (control variable) Roberts (1992) pointed out the importance of company characteristics in investigating the level of corporate environmental disclosure. In this current study, the firm attribute is used as control variables as previously done by (e.g. Akbas, 2016). Therefore, we consider only three attributescompany size, industry membership, and auditor type. 2.4.1. Industry membership The industry a company belongs is perceived to be a determinant factor of the quantity of environmental impact disclosure to the stakeholders. In a study by Halkos and Skouloudis (2016) using a disclosure index, investigate the level of disclosure practices of the largest 100 firms operating in Greece, document among others that working in environmentally sensitive sectors has a positive association with climate change disclosure. The study used a logit regression method. This evidence supported an earlier study by Galani, Gravas, and Stavropoulos (2012). On the contrary, Ong, Tho, Goh, Thai, and Teh (2016) found that less environmentally sensitive industry disclosed more and higher quality of environmental disclosure than ecologically sensitive industries of Malaysia. The finding is not unconnected to the poor and weak legal environment as it relates to the environment (Ong et al., 2016). In Jordan, Ismail and Ibrahim (2008) on the overall, found no significant relationship between industry type and the level of social and environmental disclosure. From the United Kingdom, Brammer and Pavelin (2008) provided evidence to support that industry class relate to the extent of corporate disclosure of environmental information using a sample of 450 conglomerates selected from different sectors. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 6 of 27 2.4.2. Firm size Large companies exhibit higher disclosure as they have financial “muscle”to bear the cost. Various studies provided the empirical result relating the size of a company and the level of environmental disclosure. In China, Lu and Abeysekera (2014); Zeng, Xu, Dong, and Tam (2010) documented a positive significant relationship. Greek evidence shows that size is a strong determinant of environmental ratings (Galani et al., 2012). Adhikari and Tondkar (1992) examined the relationship between selected environmental factors and stock exchange disclosure requirements of 35 stock exchanges in different countries and found that the size of the equity market significantly explained the variation. Chek, Zam Zuriyati, Nordin Yunus, and Norwani (2013) used content analysis and Pearson correlation methodology and found the size of 154 companies in consumer and plantation industries of Malaysia to correlate with level disclosure. Having the desire to fill the gap in knowledge, Ismail and Ibrahim (2008) provided evidence from Jordan a developing country. Using a sample of 60 companies in the manufacturing and service sectors, content analysis was employed. The study equally found a positive association between company size and level of environmental disclosure. Also from Thailand, Suttipun and Stanton (2012) found a positive association. Evidence from developed country US showed a different result when company size and industry type were used as a control variable to determine the relationship between performance and disclosure for the 131 companies (Patten, 1992). Canadian experience as documented by Cormier and Magnan (1999) showed that firm size significantly explain environmental disclosure. Also in UK, Brammer and Pavelin (2008) reported a positive association. 2.4.3. Audit firm size The reputation of an engaged external auditor is perceived to be an influencing factor in corporate environmental disclosure practices. As such complete disclosure enhances the audit firms reputation (Copley, 1991). Anchoring on this perception, Wang, Sewon, and Claiborne (2008) provided evidence from China. The study showed that voluntary disclosure is related to the reputation of the auditor. Braam and Borghans (2014) see the interlock ties between the board and the external auditor as a catalyst for voluntary corporate disclosure. From the point of ethical values, Houqe, van Zijl, Dunstan, and Karim (2015)statedthusentities“from countries where ‘high corporate moral values’prevail are more likely to hire a Big four auditor.”By extension, we expect “Big 4”auditor type to influence extensive corporate environmental disclosure in a strong legal environment, investor protection and disclosure standards (El Ghoul, Guedhami, & Pittman, 2016; Ernstberger & Grüning, 2013). 2.4.4. Research hypotheses In cognisance of the theoretical and empirical evidence on the relationship between board characteristics and the extent of overall environmental disclosure. We state hypotheses for this study thus: H1. Corporate Environmental Disclosure Quantity is associated with corporate board characteristics in African emergent markets (South Africa and Nigeria). H2: Board Independence arrangement serve as bonding mechanism in the traditional reporting framework (Nigeria) and not in integrated reporting framework (South Africa) with the extent of corporate Environmental Disclosure Quantity 3. Research method This current study used an archive data which call for ex-post facto research design to enable us to investigate the relationship between corporate board characteristics and environmental disclosure practices of listed companies in South Africa and Nigeria. The population of the study is listed companies of NSE and Johannesburg Stock Exchange (JSE). This population comprises of 188 and 360 companies listed on NSE and JSE, respectively. We eliminated companies that are either suspended or unavailability of the annual report for the year 2015. The 303 (Nigeria 90 and South Africa 213) companies formed the sample size for the study. The sample is made up of Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 7 of 27 large and industrially diverse companies for possible generalisation of the findings (Aburaya, 2012; Brammer & Pavelin, 2006). The study employed content analysis of annual reports which has been widely used by previous studies to investigate the extent of environmental disclosure by corporate entities (Akbas, 2016; Fallan, 2016; Hackston & Milne, 1996; Hughes, Anderson, & Golden, 2001; Khlif et al., 2015; Niskala & Pretes, 1995; Nor, Bahari, Adnan, Kamal, & Ali, 2016; Ong et al., 2016). In line with prior studies (Aburaya, 2012; Clarkson, Li, Richardson, & Vasvari, 2008; Cormier et al., 2011; Hackston & Milne, 1996), we developed a 35 checklist item (Appendix A) was used to measuring the extent (Aburaya, 2012; Odoemelam & Okafor, 2018). The annual report of the sample companies for the year 2015 was used for the investigation. This data is based on the annual reports which are the secondary source (Hussey & Hussey, 1997) of data collection that is widely accepted as credible (Al-Tuwaijri, Christensen, & Hughes, 2004; Neu, Warsame, & Pedwell, 1998; Tilt, 2001; Tilt & Symes, 1999). Coding of the items to generate a data set is in line with (e.g. Gray, Kouhy, and Lavers (1995); Aburaya (2012)) based on a measure of disclosure volume by the scoring system. Despite the criticism that un-weighted index (dichotomous scores) of the 1 if the item is disclosed and 0, if not disclosed, negate the possibility that all the elements are not equally important (Barako, Hancock, & Izan, 2006),the un-weighted index is accepted for measuring quantity of entities environmental disclosure (Bozzolan, Trombetta, & Beretta, 2009) and previous studies have used dichotomous score (e.g. Aburaya (2012); Haniffa and Cooke (2005); Chau and Gray (2002). Hence, we adopt the formula by Aburaya (2012) and Odoemelam and Okafor (2018) for calculating the quantity of environmental disclosure by the sample companies. Corporate Environmental Disclosure Quantity Index for each company is computed according to the following equation: n CED Quantity = ΣQuantity i=1 MAX Quantity i where: CED Quantity = Corporate Environmental Disclosure Quantity Index, Quantityi= 1 if item iis disclosed; 0 if item iis not disclosed, MAX Quantity = maximum applicable disclosure quantity score, n= number of items disclosed. The study tests the hypotheses using a cross-sectional sample of companies (Cho, Roberts, & Patten, 2010) listed across South African and Nigerian stock exchange (www.jse.co.za andwww.nse.com.ng) 3.1. Model specification To achieve the purpose of examining the relationship between board characteristics and the extent of environmental disclosure, we follow Akbas (2016) model using ordinary least square with cross-sectional data and as well as panel data technique to test the association. Therefore, the model for the study is specified thus: Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 8 of 27 Table 5. Coefficients and significance (South Africa Sample) Coefficients a Model Unstandardised coefficients Standardised coefficients tSig. BStd. error Beta 1 (Constant) −20.215 12.982 −1.557 .121 BSIZE 1.263 .641 .142 1.971 .050** BIND .029 .111 .019 .263 .793 BOMET −.021 .871 −.001 −.025 .980 ACOINDE .134 .103 .090 1.301 .195 ENVICOM 17.602 3.420 .332 5.147 .000*** SIZE 1.338 .812 .130 1.649 .101 AFS 6.323 3.671 .113 1.723 .087* INDM 8.938 3.228 .177 2.769 .006*** a Dependent Variable: OED. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 15 of 27 Table 6. Coefficients and significance (Nigeria Sample) Coefficients a Model Unstandardised coefficients Standardised coefficients tSig. BStd. error Beta 1 (Constant) −9.229 5.571 −1.657 .101 BSIZE 1.186 .510 .272 2.325 .023 BIND .220 .074 .337 2.955 .004 BOMET 1.194 .935 .133 1.278 .205 ACOINDE .043 .062 .077 .687 .494 ENVICOM 3.215 3.136 .092 1.025 .308 SIZE −.387 .346 −.135 −1.118 .267 AFS 5.248 2.455 .206 2.137 .036 INDM 1.569 2.619 .063 .599 .551 a Dependent Variable: OED. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 16 of 27 Based on the evidence, board size associated with the extent of environmental disclosure among listed companies in South Africa and Nigeria. The results agree with the findings of (Akbas, 2016; Haniffa & Cooke, 2005; Jizi et al., 2013; Ntim & Osei, 2011; Osazuwa et al., 2016) that board size influences the extent of environmental disclosure. The finding agrees that having a large board comprising a diversity of expertise (Nan et al., 2010) encourages more disclosure. We find that audit firm size influences the extent of corporate environmental disclosure. The result concurs with (Braam & Borghans, 2014).Hence, these results allow corroborating the results attained by Wang et al. (2008), Copley (1991), Braam and Borghans (2014). Moreso, South Africa’s estimated regression result indicates that environmental committee (ENVICOM) and industry membership (INDUM) are statistically significant (p≤0.01) and (p≤0.01), respectively. On the contrary, Nigeria’s estimated regression results show that both variables are statistically insignificant at (p> 0.05) for ENVICOM and (p> 0.05) for INDUM. The results of South Africa with regard to environmental committee and industry membership positive association to the extent of overall environmental disclosure were not surprising. South African companies are operating in a relatively strong legal environment and have a strong regulatory standard (i.e. Integrated reporting). The ENVICOM result from South Africa confirms the views of Liao et al. (2015) & Council on Social Work Education (2015). The findings agree with Dixon-Fowler et al. (2017); Peters & Romi (2013) and gaining of environmental legitimacy Berrone et al. (2015). Firms operating in a highly regulated and strong reporting environment is also enjoined to be proactive (Peters & Romi, 2012) in agreement with legitimacy theory. The result disagrees with the view of Berrone and Gomez-Mejia (2009). In the same vein, our findings show that environmentally sensitive industries in a strong reporting framework (South Africa) are legitimising their operations. South Africa’s results corroborate well the results reached by Halkos and Skouloudis (2016), Galani et al. (2012), Brammer and Pavelin (2008) confirming that the presence of strong reporting framework institution associated with the occurrence of stakeholder activism (Darrell & Schwartz, 1997), upheld legitimacy theory. However, on the contrary, disagree with Ong et al. (2016). While environmentally sensitive industries result from Nigeria, agrees with Ismail and Ibrahim (2008) that document insignificant relationship and Ong et al. (2016) of low disclosure of environmentally sensitive industries that portrays poor and weak legal environment (traditional framework). On the other hand, the coefficients for the variables audit committee independence; board meeting and firm size were not significant in both countries. This finding implies that these variables do not significantly influence the extent of environmental disclosure of listed firms in South Africa and Nigeria. These results negate the stakeholder’s theory which expects the presence of independent directors on the board to help to overcome information related problems (Aburaya, 2012; Ho & Shun Wong, 2001; Rahim et al., 2015) and larger firms to extensively disclose environmental information. The result on board meeting contradicts the earlier finding of Osazuwa et al. (2016)in Nigeria and (Ntim & Osei, 2011) from South Africa. The result on company size does not match with the results achieved by Lu and Abeysekera (2014); Zeng et al. (2010); Galani et al. (2012);Ismail and Ibrahim (2008); Suttipun and Stanton (2012); Cormier and Magnan (1999); Brammer and Pavelin (2008) as well as Chek et al. (2013). Usually, companies having a big size are characterised by more transparency, less information asymmetry 5. Conclusions The differences in respect to the mode of reporting system between the two leading African emerging economies allows us to distinguish between the extent at which corporate board mechanisms influence environmental disclosure quantity between the two countries South Africa and Nigeria. Our results are consistent with the conclusion that corporate board characteristics associate with environmental disclosure quantity in both countries, but emphasises centres on a substitutive relationship between BIND and the regulatory framework. The magnitude of the Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 17 of 27 association in a relatively weak regulatory framework and that of strong reporting environment. Our results are robust for CEDQ for a country that has a strong institution and has implemented integrated reporting regulations. Moreover, the influence of BIND on environmental reporting suggests a substitutive relationship in a traditional reporting setting. While interestingly, our results reveal a great concern with regard to environmentally polluting industries and less environmentally polluting industries. Firms from the strong regulatory framework and are environmentally sensitive-industries are more inclined to disclose their environmental impact. While their counterpart firms from weak legal environment publish less environmental impact to stakeholders. This result is inconsistent with both the voluntary disclosure perspective and the legitimacy theory. Interestingly, companies that have environmental committee are more likely to publish their environmental responses. Furthermore, our results are based on the unique setting of the medium of disclosure, characterised by mandatory integrated reporting of environmental impact and voluntary disclosure of climate change-related issues. Therefore, we are constrained to crosssectional content analysis and should be careful of generalising our specific results. Our results provide useful insight background information for future research and are also relevant for regulators and policymakers charged with environmental accounting. Our contribution to the literature is twofold. First, we shed further light on the substitutive relationship between BIND and the regulatory framework. Second, we contribute specifically to the environmental disclosure literature by showing—in the setting of different reporting framework—industry membership influences on environmental disclosure decisions vary. In Polluting-intensive industries, the mandatory disclosure perspective (integrated reporting) and the legitimacy perspective advanced in prior research appear to complement each other in a highly regulated country while our result extends prior study arguing that environmentally sensitive industries in the poorly regulatory country, voluntary disclosure perspective substitute legitimacy perspective. Funding The authors received no direct funding for this research. Author details Grace N. Ofoegbu 1 E-mail: [email protected] Ndubuisi Odoemelam 1 E-mail: [email protected] ORCID ID: http://orcid.org/0000-0002-2762-8741 Regina G. Okafor 1 E-mail: [email protected] 1 Department of Accounting, Faculty of Business Administration, Enugu Campus University of Nigeria, Enugu, Nigeria. Citation information Cite this article as: Corporate board characteristics and environmental disclosure quantity: Evidence from South Africa (integrated reporting) and Nigeria (traditional reporting), Grace N. 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Actual statement of environmental policies 2. Departments or positions for environmental and/or safety management 3. Past, current, or future estimates of capital and operating expenditure for environmental protection or remediation 4. Environmental investment & investment appraisal 5. Financing of pollution control equipment and facilities 6. Research and development expenditure for pollution abatement 7. Environmental impact studies 8. Environmental contingent liabilities and provisions 9. Conservation of natural resources 10. Energy saving and conservation 11. Health and safety policies 12. Aesthetics policies and landscaping B. Product and process-related environmental issues 1. Pollution emissions and effluent discharge 2. Waste 3. Packaging 4. Recycling 5. Products and product development 6. Efficient use of materials 7. Energy efficiency of products 8. Product Safety 9. Rehabilitation C. Compliance with Environmental Laws and Standards 1. Discussion of environmental regulations and requirements 2. Compliance with pollution laws and regulations 3. Compliance with health and safety standards and regulations 4. Compliance status with environmental and/or health and safety such as ISO, EMS, BS OHSAS, and PAS D. Environmental Auditing 1. Internal and/or external verification, review, scoping, audit, and assessment of environmental performance and/or environmental disclosure E. Sustainability 1. Any mention of sustainability 2. Any mention of sustainable development F. Other environmentally related information 1. Receiving awards for environmental protection or safety excellence 2. Environmental protection e.g. pest control 3. Wildlife conservation 4. Supporting anti-liter campaigns 5. Environmental education and training 6. Environmental actions/lawsuits against the company 7. Any environmental issues other than the above Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 23 of 27 Appendix B. Panel A South Africa Nigeria Variables Obs Mean Median Std dev Min Max Obs Mean Median Std dev Min Max EP 213 33.7653 33.38 24.067 0 100 90 10.4067 8.33 11.2637 0 53.33 PPEI 213 45.5993 55.55 34.198 0 100 90 7.5477 0 14.5626 0 57.14 CELS 213 58.5868 75 41.466 0 100 90 10.2777 0 18.6986 0 75 EA 213 53.5258 100 50.923 0 100 90 6.7415 0 24.0631 0 100 SUS 213 84.6384 100 32.921 0 100 90 38.2022 50 41.3016 0 100 OERI 213 19.0848 14.29 15.4825 0 57.29 90 8.0918 7.145 9.0788 0 42.35 OED 213 40.1515 45.71 25.1609 0 91.43 90 10.7326 5.71 12.568 0 65.71 BSIZE 213 9.3619 9 2.8237 5 18 90 9.3 9 2.8852 5 17 BIND 213 52.0952 52 16.2901 30 78 90 11.8697 0 19.2723 0 89 BOMET 213 5.0765 5 1.7524 3 10 90 4.9111 5 1.4034 3 11 ACOINDE 213 94.4739 100 16.8817 67 100 90 15.9948 0 22.8092 0 100 FS 213 124,529 3,390 103,827 21,985 19,810,859 90 174,532,267 21,278 622,739,277 68.48 41,661,590 Panel: B: Dummy variables South Africa Nigeria ENVICOM FValid % Mean Median Std dev Min Max FValid % Mean Median Std dev Min Max YES 74 35 56 62.8 22.0981 2.86 91.43 4 4 29.285 35.715 18.2802 2.85 42.86 N 139 65 29.6695 32.405 22.4817 0 68.57 86 96 9.9858 5.71 11.6895 0 65.71 Total 213 100 90 100 INDUM YES 96 45 48.6362 54.27 24.1686 2.86 91.43 46 51 9.5047 5.71 10.0073 0 34.29 N 117 55 33.1897 37.14 23.878 0 88.57 44 49 12.016 5.7 14.7928 0 65.71 Total 213 100 90 100 AFS YES 154 72 45.2189 49.925 24.514 0 91.43 54 60 14.3409 8.57 14.6876 0 65.71 No 59 28 26.9246 22.86 21.9686 0 68.57 36 40 5.3202 5.7 4.9771 0 20 Total 213 100 90 100 Notes: Bsize: board size; BIND: board independence; BOMET: board meetings; ACOINDE: audit committee independence; ENVICOM: environmental committee; FS:firmsize;INDUM:industrymembership;AFS:audit firm size. EP: environmental policies disclosure; PPEI: product and process environmental issues disclosure; CELS: compliance with environmental laws and standards disclosure; EA: environmental auditing disclosure (EA); SUS: sustainability; OERI: other environmental related information disclosure; OED: a model for Overall environmental disclosure. For South Africa panel B, environmentally sensitive industries = 96 (45%); Number of firms audited by “Big4”= 154 (72%) While Nigeria environmentally sensitive industries = 46 (51%); the number of companies audited by “big 4”=54(60%)ofthetotalsubsample. Ofoegbu et al., Cogent Business & Management (2018), 5: 1551510 https://doi.org/10.1080/23311975.2018.1551510 Page 24 of 27