ENVIRONMENTAL DISCLOSURE AND FIRM VALUE IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
    Environmental problems have become major headlines of political, economic and corporate discussion due to the negative effects they have on the stability of the society (Uwalomwa, 2011). Oba and Fodio (2012) opined that, sustainable development among corporate organization, explains that the processes of production must not trigger undue depletion of natural and human resources or threaten the stability of the environment. Therefore, efforts should be made to ensure the sustainability of the society; as such sustainability marries economic and social systems with environmental factors. Thus, the increased awareness of social responsibility or, specifically, environmental concern is now a challenge facing the corporate world.
Analysis of prior research has shown that in the last two decades, there has been an increasing global concern for the harmful long-term impact of industrial activities on the environment. These uncontrolled impacts of industrial activities on the environment have created critical ecological challenges on the planet; which has aggravated phenomena like climate change, ozone depletion, over-exploitation of natural resources, air pollution and increase in radioactive water pollution that has resulted in the continuing destruction of the water marines thereby disrupting the sustainable development of such environment.
    Environmental reporting represents a tool for providing environmental information to the stakeholders and reflecting environmental performance and companies concerns on environmental issues (Shearer, 2002). During the last decade, the demand for environmental reporting has increased dramatically within the stock listed companies (Beretta & Bozzolan, 2004). The world economy has witnessed tremendous economic and social changes (Oba & Fodio, 2012; Mwanhi & Jerotich, 2013; Wang & Choi, 2013). As a result, the business environment is also becoming more complex and demanding. One of the emerging issues that confront modern-day businesses is that of corporate environmental responsibility. Due to the heightened interest in the concept of corporate environmental responsibility and what it entails, much research has been done in this area, particularly in the developed countries. In contrast, the developing countries are slower in responding to the increased concern about the issue of corporate environmental reporting. Despite some increase in research studies in this area in the developing countries researches are still scarce (Oba & Fodio, 2012; Buhr & Freedman, 2001; Holland & Foo, 2003).
    Attention is paid to economic consequences of the influence of the company on the environment, and the rate at which corporate organization responds to environmental challenges cause by their operation (Mwanhi & Jerotich, 2013; Wang & Choi, 2013). Environmental reporting of the company is not just about cost but also how it may significantly influence economic results of the company (not only concerning costs, but also concerning revenues) and its financial position. Naturally, owners are interested in the environmental behaviour and the economic consequence of environmental behavior of the company and their impacts on return on investment.The economics approach therefore to environmental issues as recorded in Atsegbua, Akpotaire, and Dimowo (2010)assumes that companies in unprincipled pursuit of profits can do great social harm and that the environment suffers and thus, there is an emphasis for a meeting point between corporate objective of profit maximization and the need for environmental management. In this regard, the need for environmental accounting has become the concern and focus of nations and responsible corporate managements (Okoye&Ngwakwe, 2004).
    Given the fact that corporate financial performance is related, in part, to a company’s environmental performance, stakeholders are increasingly paying more and moreattention to environmental issues in a company. The impact of environmental reporting on the firms’ value in corporate organisation especially the less developed economies has not received much attention thus limiting the generalization of empirical findings. The extent to which firms in the less developed countries are reporting on the environment, the nature of the report and  strategy they are pursuing and the extent to which such moves help to improve the firms‟ financial performance and growth are not yet extensively explored, with particular reference to Nigeria(Dang, Nguyen & Vo, 2012). This study, therefore seeks to enhance the body of knowledge using the Nigeria context of the impact of environmental reporting on firm value in Nigeria. Hughes (2000) opined that, the basic notion is that poor relative environmental performance proxies for latent environmental liabilities. The study tested for a significant positive association between voluntary environmental disclosures and equity value after controlling for relative environmental performance.While prior studies offer insights into the nature and impact of environmental accounting and financial reporting and corporate social responsibility disclosures in Nigeria, the main focus of this study is to investigate the relationship between Environmental reporting and firm value in Nigeria.
1.2    Statement of the Research Problem
Majority of studies abide by the idea that a high level of social indulgence helps to build good relationships with its stakeholders, thus enhancing the firm’s financial performance. Study of Dutton (1994) showed that a high level of social indulgence of the firm is perceived as quality of virtue and moral worth among the employees. This results into a greater satisfaction of the stakeholders, and they tend to identify more strongly with the firm. Strong identification indicates greater loyalty towards the firm, thus contributing more to the firm’s success. Environmental activities also build good relationships with the firm’s external stakeholders such as customers, community, and prospective employees. They weigh the firm’s Environmental involvement positively, thereby increasing their demand or paying premium prices for the products of Environmental active firms. Environmental involved firms attract better quality of workforce as these firms are perceived as attractive by job-seekers (Wang & Choi, 2013; Atsegbua et al, 2010; Davis& Searcy, 2010).
Several studies have been carried out on the relationship between environmental reporting and corporate financial performance resulting in different conclusions. Klassen and McLaughlin (1996) studied 14 manufacturing sector firms to conclude that environmental management can play a positive role in improving corporate financial performance. In exploring the linkages between environmental performance and financial performance with respect to the market value, Konar and Cohen (2001) argued that a firm with a better environmental performance has a significant positive impact on its market value. Fauzi (2009) did a research on firms listed on the New York Securities Exchange (NYSE) to determine the relationship between environmental disclosure and corporate financial performance. He found that environmental disclosure has no effect on corporate financial performance corporate. He however found that leverage (a control variable in the model) has a moderating effect on the interaction between corporate financial performance and environmental disclosure.
The empirical analysis of the relationship between environmental reporting and firm value has yet to provide a convincing causal link between the two variables. There are studies that argue that it is not in the best interest of shareholders for a firm to be involved in environmental practice. Mwanhi and Jerotich (2013), for example concluded that the relationship between environmental disclosure and corporate profitabilitycould be positive, neutral, and negative. Cowan and Gadenne (2005) found a tendency by their sample Australian firms to disclose higher levels of positive environmental news. Finally, also using content analysis, Tilt (2001) found that even where a firm has a specific corporate environmental policy, they place a low priority on reporting environmental performance data to external parties. She concluded that Australian firms prefer to disclose their activities and specific programs, rather than their research and development, capital expenditure, policies or performance.
Flowing from the aforementioned studies, it is obvious that researches have not accurately identified the influence of environmental reporting on firm valueor corporate firm value on environmental reporting, that is, which variable depends on the other because of the bidirectional relationship between environmental reporting and firm value, therefore the problem is hinged on faulty methodologies in previous studies. This study therefore seeks to fill the existing gap by using a simultaneous approach to examining the relationship between environmental reporting and firm value in listed companies in Nigeria. The research questions for this are outlined below:
1.    What is the relationship between firm value and environmental reporting in Nigeria?
2.    What is the relationship between earning per share and environmental reporting in Nigeria?
3.    What is the relationship between shareholders’ equity and environmental reporting in Nigeria?
4.    What is the relationship between firm size and environmental reporting in Nigeria?
1.3    Objectives of the Study
The broad objective of this study is to investigate empirically the relationship between environmental reporting and firm value in Nigeria. The specific objectives of the study are to:
1.    examine the relationship between firm value and environmental reporting in Nigeria;
2.    evaluate the relationship between earnings per share and environmental reporting in Nigeria;
3.    investigate the relationship between shareholders equity and environmental reporting in Nigeria; and
4.    determine the relationship between firm size and environmental reporting in Nigeria
1.4     Hypotheses of the Study
To address the research questions and objectives of the study above, the following hypotheses are stipulated in a null form.
1.    H1:  There is no significant relationship between firm value and environmental reporting in Nigeria.
2.    H2:  There is no significant relationship between earnings per share and environmental reporting and in Nigeria.
3.    H3:   There is no significant relationship between return on shareholders’ equity and environmental disclosure in Nigeria.
4.    H1:  There is no significant relationship between firm size and environmental reporting in Nigeria.
1.5    Scope of the Study
The study basically seeks to ascertain and investigate empirically the relationship between environmental reporting and firm value in Nigeria. This study is designed to cover the period of 2010-2015 to be pooled for six (6) years. The population of this study consists of companies that are in the financial, food and beverage and oil and gas sectors whose shares are quoted on the first- tier market of the Nigeria Stock Exchange (NSE) as at 31st December, 2015. As at 31st December, 201, industrial goods 18 quoted companies while the food and beverage and oil and gas consists of twenty five (25) and fourteen (14) quoted companies respectively (NSE FactBook, 2014/2015). Using the Yaro Yermani 1967 sample size determination, the study sample size is all 50 listed oil, gas and manufacturing companies for the period above. Our interest is to investigate environmental reporting in these sectors and generalized on the total companies listed in Nigerian Stock Exchange Market. The choice of these sectors is hinged on its impact on the environment and overall performance of the economics. Then finally, the entire period under review is analyzed and variables of interest as stated in the study objective from the financial statement of sampled companies is used to analysed the relation between environmental reporting and firm value.
1.6    The Significance of Study
The main aim of this study is to contribute to the discussion about the relationship between environmental reporting as tool of the disclosure policies on firm specific factors in Nigeria. We believe standard setters will be interested in our evidence of the extent to which the management approach induces firms to provide representational faithful environmental disclosure. The study is of paramount importance to the entire stakeholders, because it will help the management to make a final decision based on the outcome whether to give more commitment to environmental disclosure or otherwise. It helps the shareholders/ investors to be patronizing the shares of socially responsible firms to overcome the problem of risk profile of investing in irresponsible corporations. In addition to that, the study is vital to consumers, because it is an enlightened guide to consumers to be patronizing the products of socially responsible corporations.
The outcome of this study would be useful to the regulatory accounting body, The Financial Reporting Council of Nigeria (FRCN). The management of corporate organizations in Nigeria would benefit from this study as a veritable source of literature of the relationship between environmental reporting and firm value in Nigeria.