Environmental Disclosure And Its Impact On Firm Value And Cost Of Capital: The Case Of Gcc Listed Chemical And Petro-Chemical Sector

Abstract

Environmental sustainability and disclosure are widely debated branches of Corporate Social Responsibility (CSR) in today’s corporate world. The concern is much wider among the environmentally sensitive industries. Nevertheless, the number of compulsory environmental disclosure (ED) laws are very limited for publicly-held companies in the Gulf Corporation Council (GCC). Hence, the mandatory environmental information discourse is less in the region. Review of the prior literature reveals that there are limited studies in the GCC that discuss this issue. 71 listed companies in the seven GCC stock exchanges categorized in the chemical and petrochemical sector serves as the sample. Firm annual report or CSR reports for the years 2010 and 2015 have been assessed using an ED index. This study aims to explore two dimensions (extent and quality) of ED and impact of which may have on firm value as well as on cost of capital. Whilst a dichotomous scoring measure the extent (QTED) of ED, a 4-point scoring (0-3) measures the quality (QLED). Results confirm improvements in QTED and QLED in the GCC for the duration of the sampled years. Yet, the environment reporting practices are still at the stage of infancy. The regression analysis mostly shows an insignificant relationship between firm value and cost of capital with environment disclosure (ED) scores; however, firm value (Market Capitalization and Enterprise Value) has identified a positive relationship with ED in 2015.