Environmental Conservation Costs and Its Relation to Eco-Efficiency: Evidence on Japanese Firms

• In Event: Climate, the Environment, and Sustainability

Abstract

We examine the association between the magnitude of environmental conservation costs (ECC) and environmental performance (eco-efficiency) using voluntary disclosure and legitimacy theories as theoretical foundations. Our primary tests are based on 274 Japanese manufacturing firms disclosing actual ECC, and with CO2 emissions and financial data available for the period 2002-2012, inclusive. Controlling for leverage and size, we find the magnitude of ECC is negatively associated with three eco-efficiency measures (environmental intensity, carbon productivity and return on carbon). These results suggest firms with worse eco-efficiency disclose a greater magnitude of ECC, supporting legitimacy theory arguments. Further, we fail to find evidence that Japanese firms changed their disclosure strategy on ECC in relation to eco-efficiency during the first commitment period of the Kyoto Protocol (2008-2012), potentially due to the global financial crisis dominating the effects of the Kyoto Protocol. Our study contributes to the environmental accounting literature and our results have implications for management accounting and sustainability practice.

Authors

• Keunhyo Yook, University of Akron

• HakJoon Song, University of Akron

• Dennis M Patten, Illinois State University

• Il-Woon Kim, University of Akron