Environmental Disclosure on Cost of Capital: Environmental Risk as a Moderator Variable
Abstract
The goal of this research is to test the effect of environmental disclosure on cost of capital. Also, to examines the environmental risk on its relationship on cost of capital. This study is derived on the stakeholder theory, legitimacy theory, and signaling theory. To implement the stakeholder theory, the companies can inform their environmental issues by disclosing their environmental management (Meng et al. 2014). They also disclose their environmental issue to fulfill both national and international regulation on environment to implement the legitimacy theory. Disclosure of environmental issue also indicates investor reliance. The larger disclosure will increase the more investor reliance (El Ghoul et al. 2011). Disclosure also indicate the signal of management to the investor. The design of this study is an explanatory research with quantitative approach. The populations in this study are the companies that listed on Indonesia Stock Exchange. The sampling technique based on purposive sampling. The data used is secondary data; consist of annual report of the company and financial report. The authenticity of this research is the first accounting study in Indonesia that examines environmental risks. The result shows that environmental risk can moderate the relationship between environmental disclosure and cost of capital.
References
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[23] Ghani, E. K., Jamal, J., Puspitasari, E., and Gunardi, A. 2018. Factors Influencing Integrated Reporting Practices Among Malaysian Public Listed Real Property Companies: A Sustainable Development Effort. International Journal of Managerial and Financial Accounting, 10(2): 144–162. DOI:10.1504/IJMFA.2018.10012811
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[25] Gunardi, A., Febrian, E., and Herwany, A. 2016. The implication of firm-specific characteristics on disclosure: the case of Indonesia. International Journal of Monetary Economics and Finance, 9(4): 379–387. DOI:10.1504/IJMEF.2016.080080
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[28] Handa, P., and Linn, S. C. 1993. Arbitrage Pricing with Estimation Risk. Journal of Financial and Quantitative Analysis, 28(1): 81–100.
[29] Keown, A. J., Martin, J. D., Petty, J. W., and Scott, D. F. 2005. Financial Management: Principles and Applications (10th ed.). Pearson.
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[31] Mallouh, A. A., and Tahtamouni, A. 2018. The Impact of Social Responsibility Disclosure on the Liquidity of the Jordanian Industrial Corporations. International Journal of Managerial and Financial Accounting, 10(3): 273–300. DOI:10.1504/IJMFA.2018.093504
[32] Mangena, M., Pike, R., and Li, J. 2010. Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence. Edinburgh: The Institute of Chartered Accountants of Scotland.
[33] Meng, X. H., Zeng, S. X., Shi, J. J., Qi, G. Y., and Zhang, Z. B. 2014. The Relationship Between Corporate Environmental Performance and Environmental Disclosure: An Empirical Study in China. Journal of Environmental Management, 145: 357–367. DOI:10.1016/j.jenvman.2014.07.009
[34] Nahar, S., Azim, M., and Jubb, C. A. 2016. Risk Disclosure, Cost of Capital and Bank Performance. International Journal of Accounting and Information Management, 24(4): 476–494. DOI:10.1108/IJAIM-02-2016-0016
[35] Neuman, W. L. 2006. Social Research Methods: Qualitative and Quantitative Approaches (6th ed.). Boston: Pearson.
[36] Odoemelam, N., and Okafor, R. G. 2018. The Influence of Corporate Governance on Environmental Disclosure of Listed Non-Financial Firms in Nigeria. Indonesian Journal of Sustainability Accounting and Management, 2(1): 25–49.
[37] Petrova, E., Georgakopoulos, G., Sotiropoulos, I., and Vasileiou, K. Z. 2012. Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures. International Journal of Economics and Finance, 4(3): 83–96. DOI:10.5539/ijef.v4n3p83
[38] Richardson, A. J., and Welker, M. 2001. Social Disclosure, Financial Disclosure and the Cost of Equity Capital. Accounting, Organizations and Society, 26(7–8): 597–616. DOI:10.1016/S0361-3682(01)00025-3
[39] Sarumpaet, S. 2005. The Relationship between Environmental Performance and Financial Performance of Indonesian Companies. Jurnal Akuntansi Dan Keuangan, 7(2): 89–98.
[40] Scott, W. R. 2012. Financial Accounting Theory (6th ed.). New York: Pearson.
[41] Sekaran, U. 2003. Research Methods for Business. A Skill-Building Approach (4th ed.). New York: John Wiley & Sons, Inc.
[42] Semenova, N., and Hassel, L. G. 2008. Financial Outcomes of Environmental Risk and Opportunity for US Companies. Sustainable Development, 16(3): 195–212. DOI:10.1002/sd.365
[43] Sharfman, M. P., and Fernando, C. S. 2008. Environmental Risk Management and the Cost of Capital. Strategic Management Journal, 29(6): 569–592. DOI:10.1002/smj.678
[44] Tasios, S., and Bekiaris, M. 2014. Mandatory Disclosures and Firm Characteristics: Evidence from the Athens Stock Exchange. International Journal of Managerial and Financial Accounting, 6(4): 303–321. DOI:10.1504/IJMFA.2014.066401
[45] Yusoff, H., Kamaruddin, S. H., and Ghani, E. K. 2018. Environmental Reporting Practices of Top Public Listed Companies: Analyzing Pre-Post CSR Framework. Indonesian Journal of Sustainability Accounting and Management, 2(1): 50–64.
[2] Al-Tuwaijri, S. A., Christensen, T. E., and Hughes, K. E. 2004. The Relations among Environmental Disclosure, Environmental Performance, and Economic Performance: A Simultaneous Equations Approach. Accounting, Organizations and Society, 29(5–6): 447–471. DOI:10.1016/S0361-3682(03)00032-1
[3] Ali, M. M., Bakar, R. A., and Ghani, E. K. 2018. The Effect of Firm Internal and External Characteristics on Risk Reporting Practices among Malaysian Listed Firms. Indonesian Journal of Sustainability Accounting and Management, 2(2): 121–135.
[4] Bachev, H. 2018. Efficiency of Environmental and Sustainability Management in Bulgarian Agriculture. Indonesian Journal of Corporate Social Responsibility and Environmental Management, 1(1): 29–42.
[5] Botosan, C. A. 1997. Disclosure Level and the Cost of Equity Capital. The Accounting Review, 72(3): 323–349.
[6] Botosan, C. A., and Plumlee, M. A. 2005. Assessing Alternative Proxies for the Expected Risk Premium. The Accounting Review, 80(1): 21–53. DOI:10.2308/accr.2005.80.1.21
[7] Brigham, E. F., and Houston, J. F. 2016. Fundamentals of Financial Management (14th ed.). Cengage.
[8] Clarkson, P., Guedes, J., and Thompson, R. 1996. On the Diversification, Observability, and Measurement of Estimation Risk. Journal of Financial and Quantitative Analysis, 31(1): 69–84.
[9] Clarkson, P. M., Li, Y., Richardson, G. D., and Vasvari, F. P. 2008. Revisiting the Relation between Environmental Performance and Environmental Disclosure: An Empirical Analysis. Accounting, Organizations and Society, 33(4–5): 303–327. DOI:10.1016/j.aos.2007.05.003
[10] Coluccia, D., Fontana, S., and Solimene, S. 2016. Disclosure of Corporate Social Responsibility: A Comparison Between Traditional and Digital Reporting. An Empirical Analysis on Italian Listed Companies. International Journal of Managerial and Financial Accounting, 8(3/4): 230–246. DOI:10.1504/IJMFA.2016.10001410
[11] Core, J. E., Hail, L., and Verdi, R. S. 2015. Mandatory Disclosure Quality, Inside Ownership, and Cost of Capital. European Accounting Review, 24(1): 1–29. DOI:10.1080/09638180.2014.985691
[12] Cuadrado-Ballesteros, B., Garcia-Sanchez, I.-M., and Ferrero, J. M. 2016. How Are Corporate Disclosures Related to the Cost of Capital? The Fundamental Role of Information Asymmetry. Management Decision, 54(7): 1669–1701. DOI:10.1108/MD-10-2015-0454
[13] Deegan, C. 2002. Introduction: The Legitimising Effect of Social and Environmental Disclosures – A Theoretical Foundation. Accounting, Auditing and Accountability Journal, 15(3): 282–311. DOI:10.1108/09513570210435852
[14] Dhaliwal, D. S., Li, O. Z., Tsang, A., and Yang, Y. G. 2011. Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting. The Accounting Review, 86(1): 59–100.
[15] Diamond, D. W., and Verrecchia, R. E. 1991. Disclosure, Liquidity, and the Cost of Capital. The Journal of Finance, 46(4): 1325–1359. DOI:10.1111/j.1540-6261.1991.tb04620.x
[16] Dobler, M., Lajili, K., and Zéghal, D. 2014. Environmental Performance, Environmental Risk and Risk Management. Business Strategy and the Environment, 23(1): 1–17. DOI:10.1002/bse.1754
[17] Easton, P. D. 2004. PE Ratios, PEG Ratios, and Estimating the Implied Expected Rate of Return on Equity Capital. The Accounting Review, 79(1): 73–95. DOI:10.2308/accr.2004.79.1.73
[18] Easton, P. D., and Monahan, S. J. 2005. An Evaluation of Accounting‐Based Measures of Expected Returns. The Accounting Review, 80(2): 501–538. DOI:10.2308/accr.2005.80.2.501
[19] El Ghoul, S., Guedhami, O., Kwok, C. C. Y., and Mishra, D. R. 2011. Does Corporate Social Responsibility Affect the Cost of Capital? Journal of Banking and Finance, 35(9): 2388–2406. DOI:10.1016/j.jbankfin.2011.02.007
[20] Embong, Z., Mohd‐Saleh, N., and Hassan, M. S. 2012. Firm Size, Disclosure and Cost of Equity Capital. Asian Review of Accounting, 20(2): 119–139. DOI:10.1108/13217341211242178
[21] Francis, J., Nanda, D., and Olsson, P. 2008. Voluntary Disclosure, Earnings Quality, and Cost of Capital. Journal of Accounting Research, 46(1): 53–99. DOI:10.1111/j.1475-679X.2008.00267.x
[22] Freeman, R. E. 1984. Strategic Management: A Stakeholder Approach. Boston: Pitman.
[23] Ghani, E. K., Jamal, J., Puspitasari, E., and Gunardi, A. 2018. Factors Influencing Integrated Reporting Practices Among Malaysian Public Listed Real Property Companies: A Sustainable Development Effort. International Journal of Managerial and Financial Accounting, 10(2): 144–162. DOI:10.1504/IJMFA.2018.10012811
[24] Ghozali, I., and Chariri, A. 2007. Teori Akuntansi (3rd ed.). Semarang: Badan Penerbit Universitas Diponegoro.
[25] Gunardi, A., Febrian, E., and Herwany, A. 2016. The implication of firm-specific characteristics on disclosure: the case of Indonesia. International Journal of Monetary Economics and Finance, 9(4): 379–387. DOI:10.1504/IJMEF.2016.080080
[26] Guthrie, J., Cuganesan, S., and Ward, L. 2007. Legitimacy Theory: A Story of Reporting Social and Environmental Matters within the Australian Food and Beverage Industry. In The 5th Asian Pacific Interdisciplinary Research in Accounting. Auckland.
[27] Hail, L. 2002. The Impact of Voluntary Corporate Disclosures on the Ex-Ante Cost of Capital for Swiss Firms. European Accounting Review, 11(4): 741–773. DOI:10.1080/0963818022000001109
[28] Handa, P., and Linn, S. C. 1993. Arbitrage Pricing with Estimation Risk. Journal of Financial and Quantitative Analysis, 28(1): 81–100.
[29] Keown, A. J., Martin, J. D., Petty, J. W., and Scott, D. F. 2005. Financial Management: Principles and Applications (10th ed.). Pearson.
[30] Lindrianasari, L. 2007. Hubungan antara Kinerja Lingkungan dan Kualitas Pengungkapan Lingkungan dengan Kinerja Ekonomi Perusahaan di Indonesia. Jurnal Akuntansi Dan Auditing Indonesia, 11(2): 159–172.
[31] Mallouh, A. A., and Tahtamouni, A. 2018. The Impact of Social Responsibility Disclosure on the Liquidity of the Jordanian Industrial Corporations. International Journal of Managerial and Financial Accounting, 10(3): 273–300. DOI:10.1504/IJMFA.2018.093504
[32] Mangena, M., Pike, R., and Li, J. 2010. Intellectual Capital Disclosure Practices and Effects on the Cost of Equity Capital: UK Evidence. Edinburgh: The Institute of Chartered Accountants of Scotland.
[33] Meng, X. H., Zeng, S. X., Shi, J. J., Qi, G. Y., and Zhang, Z. B. 2014. The Relationship Between Corporate Environmental Performance and Environmental Disclosure: An Empirical Study in China. Journal of Environmental Management, 145: 357–367. DOI:10.1016/j.jenvman.2014.07.009
[34] Nahar, S., Azim, M., and Jubb, C. A. 2016. Risk Disclosure, Cost of Capital and Bank Performance. International Journal of Accounting and Information Management, 24(4): 476–494. DOI:10.1108/IJAIM-02-2016-0016
[35] Neuman, W. L. 2006. Social Research Methods: Qualitative and Quantitative Approaches (6th ed.). Boston: Pearson.
[36] Odoemelam, N., and Okafor, R. G. 2018. The Influence of Corporate Governance on Environmental Disclosure of Listed Non-Financial Firms in Nigeria. Indonesian Journal of Sustainability Accounting and Management, 2(1): 25–49.
[37] Petrova, E., Georgakopoulos, G., Sotiropoulos, I., and Vasileiou, K. Z. 2012. Relationship between Cost of Equity Capital and Voluntary Corporate Disclosures. International Journal of Economics and Finance, 4(3): 83–96. DOI:10.5539/ijef.v4n3p83
[38] Richardson, A. J., and Welker, M. 2001. Social Disclosure, Financial Disclosure and the Cost of Equity Capital. Accounting, Organizations and Society, 26(7–8): 597–616. DOI:10.1016/S0361-3682(01)00025-3
[39] Sarumpaet, S. 2005. The Relationship between Environmental Performance and Financial Performance of Indonesian Companies. Jurnal Akuntansi Dan Keuangan, 7(2): 89–98.
[40] Scott, W. R. 2012. Financial Accounting Theory (6th ed.). New York: Pearson.
[41] Sekaran, U. 2003. Research Methods for Business. A Skill-Building Approach (4th ed.). New York: John Wiley & Sons, Inc.
[42] Semenova, N., and Hassel, L. G. 2008. Financial Outcomes of Environmental Risk and Opportunity for US Companies. Sustainable Development, 16(3): 195–212. DOI:10.1002/sd.365
[43] Sharfman, M. P., and Fernando, C. S. 2008. Environmental Risk Management and the Cost of Capital. Strategic Management Journal, 29(6): 569–592. DOI:10.1002/smj.678
[44] Tasios, S., and Bekiaris, M. 2014. Mandatory Disclosures and Firm Characteristics: Evidence from the Athens Stock Exchange. International Journal of Managerial and Financial Accounting, 6(4): 303–321. DOI:10.1504/IJMFA.2014.066401
[45] Yusoff, H., Kamaruddin, S. H., and Ghani, E. K. 2018. Environmental Reporting Practices of Top Public Listed Companies: Analyzing Pre-Post CSR Framework. Indonesian Journal of Sustainability Accounting and Management, 2(1): 50–64.
Published
2019-07-17
How to Cite
HANINUN, Haninun et al.
Environmental Disclosure on Cost of Capital: Environmental Risk as a Moderator Variable.
Journal of Environmental Management and Tourism, [S.l.], v. 10, n. 3, p. 530-537, july 2019.
ISSN 2068-7729.
Available at: <https://journals.aserspublishing.eu/jemt/article/view/3755>. Date accessed: 27 july 2025.
doi: https://doi.org/10.14505//jemt.v10.3(35).08.
Section
Article
Copyright© 2025 The Author(s). Published by ASERS Publishing 2025. This is an open access article distributed under the terms of CC-BY 4.0 license.