3. Essay one
3.4 Empirical Results
3.4.4 The impact of environmental uncertainty
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all positively and significantly associated with the environmental performance measures. The results are consistent with our conjecture.
(Insert Table 1.4 here)
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environmental uncertainties increase, such as greater financing constraints, manager need to adjust their strategies to cater to a wider range of stakeholders, so as to reduce such uncertainties.
(Insert Table 1.5 here) 3.4.4.2 SOEs and non-SOEs
According to Liu, Luo, & Tian (2016), SOEs have access to more resources and supports, so they have a better operating environment and less competitions compared with private firms. At the same time, the political connection background of SOEs can improve the company’s ability to resist risks (Capobianco & Christiansen, 2011).
However, single resource may not be enough to keep the private sector competitive, and it will take more effort for the private sector to become competitive (García-Herrero
& Ng, 2021), including improving its environmental performance. Therefore, I further examine whether lack of state ownership encourage companies to seek more measures to establish a stable connection with external resources. I conduct regression using the subsamples of SOEs and Non-SOEs respectively, and the results are shown in Table 1.6. The regression results show that in private firms, the negative relationship between accounting conservatism and environmental responsibility evaluation and environmental disclosure quality is no longer significant. I argue that in private firms, higher accounting conservatism cannot alleviate the investors and stakeholder’s expectation on environmental performance because the competition is much tougher for private firms.
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(Insert Table 1.6 here) 3.4.4.3 Key polluter or not
The relationship between accounting conservatism and corporate environmental performance could be different for key polluters and non-key polluters. For major polluting companies, the dependence on legitimate resources may be higher, because it will directly affect their survival. Policy pollution penalties and subsidies for environmental performance excellence may affect corporate operating performance (Matsumoto & Szidarovszky, 2020), thus changing corporate attitudes towards corporate environmental behaviour. On the other hand, moderate environmental regulation may also benefit the development of companies. According to Porter's hypothesis (1995), properly designed environmental regulations can trigger enterprise innovation, which may partially or more than completely offset the costs of complying with these regulations (Porter & Linde 1995; Ambec et al., 2013); through stimulating innovation, stringent environmental regulations can actually improve business competitiveness (Yang et al., 2021). Therefore, I assume that under the pressure of policy regulation, the negative association between accounting conservatism and environmental performance will become no longer significant. In 2003, Ministry of Ecology and Environment, PRC issued document No. 60, which listed 15 types of highly polluting industries as key polluters and required all regions to draw up lists of key polluters accordingly. It also requires that major polluting enterprises be monitored.
According to the classification of key polluters by Ministry of Ecology and
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Environment, I divided the samples into two sub-samples: key polluters and non-key polluters. Table 1.7 shows the subsample regression analysis of accounting conservatism and environmental performance. It can be seen that the negative association between accounting conservatism and environmental performance becomes no longer significant in key polluters. The result is in line with our expectation.
(Insert Table 1.7 here) 3.4.4.4 Industry competition
A company's survival depends on how it responds to market competition, which prompts managers to develop appropriate strategies to compete effectively (Yadav et al., 2016). The challenges posed by competition put tremendous pressure on managers to find scarce resources and create strategic value to gain a competitive advantage (Ruf et al., 2001). A growing body of evidence highlights the strategic role of environmental performance, suggesting that efforts in social and environmental practices can improve corporate image, and increase consumer satisfaction with green products, thus enabling companies to differentiate themselves from competitors in the market (Yadav et al., 2016). In the fierce competition environment, gaining consumer recognition and obtaining consumer resources is an important factor to increase market shares (Tsendsuren et al., 2021). The literature on strategy, marketing and business ethics has provided evidence that consumers consider environmental responsibility in their purchasing decisions (Luo & Bhattacharya, 2006). Consumers are more likely to buy from socially and environmentally responsible companies and reduce their price
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sensitivity due to the additional satisfaction by consuming eco-friendly products. On the other hand, previous literature finds that when companies move towards cleaner production, exposure to environmental attitudes has a significant positive impact on the profitability of companies, which is amplified at a higher level of corporate competition (Aghion et al., 2020). Therefore, I expect that in a highly competitive industry, managers will not reduce environmental performance even when they engage in high accounting conservatism.
To verify the above expectations, I introduce two common industry concentration index Herfindahl-Hirschman index (HHI) and CR4. The Herfindahl-Hirschman index indicates the industry concentration, the lower the index, the higher the competition in the industry. CR4 is the sum of the market share (revenue) of the top four largest enterprises in a relevant market of an industry. CR4 indicates the industry concentration, the smaller the index, the fiercer the competition. Panels A and B in Table 1.8 show the relationship between accounting conservatism and environmental performance in high and low industry competition. I find that when industry competition is high, the negative correlation between accounting conservatism and environmental performance becomes insignificant, which verifies the above theory.
(Insert Table 1.8 here)