Impact of governance structures on environmental disclosures in the Middle East and Africa

DOIhttps://doi.org/10.1108/CG-08-2019-0250
Pages739-763
Published date09 May 2020
Date09 May 2020
AuthorErhan Kilincarslan,Mohamed H. Elmagrhi,Zezeng Li
Subject MatterCorporate governance,Strategy
Impact of governance structures on
environmental disclosures in the
Middle East and Africa
Erhan Kilincarslan, Mohamed H. Elmagrhi and Zezeng Li
Abstract
Purpose This study aims to investigate the impact of corporate governance structures on
environmentaldisclosure practices in the MiddleEast and Africa (MEA).
Design/methodology/approach The researchmodel uses a panel data set of 121 publicly listed(non-
financial and non-utility) firms from 11 MEA countries over the period 2010-2017, uses alternative
dependent variables and regression techniques and is applied to various sub-groups to improve
robustness.
Findings The empiricalresults strongly indicate that MEA firms withhigh governance disclosures tend
to have better environmental disclosure practices. The board characteristics of gender diversity, size,
CEO/chairperson duality and audit committee size impact positively on MEA firms’ voluntary
environmentaldisclosures, whereas boardindependence has a negative influence.
Research limitations/implications This study advances research on the relationship between
corporate governancestructures and environmental disclosurepractices in MEA countries, but is limited
to firms forwhich data are available from Bloomberg.
Practical implications The results have important practical implications for MEA policymakers and
regulators. The positive impact of board gender diversity on firms’ environmental disclosures, policy
reforms should aim to increase female directors. MEA corporations aiming to be more environmentally
friendlyshould recruit women to top managerialpositions.
Originality/value This is thought to be the first study to provide insights from the efficiency and
legitimation perspectives of neo-institutional theory to explain the relationship between MEA firms’
internalgovernance structures and environmentaldisclosures.
Keywords Board characteristics, Corporate governance structures, Environmental disclosures,
Middle East and Africa
Paper type Research paper
1. Introduction
The Middle East and African (MEA) region has a rich array of natural resources. In 2017, it
had 55% of the world’s oil reserves (43% of global production), 48% of gas reserves (24%
of global production) and 1.4% of coal reserves (4.1% of global production) (British
Petroleum, 2018). These rich natural resources have increased the region’s strategic
importance and have led to rapid economic transformation and development
(AlRawashdeh et al.,2015). However, these major changes have raised serious concerns
about environmental and public health in the MEA region. According to the World Health
Organisation (WHO), 2016), air pollution is the main cause of various deadly illnesses
(especially stroke and heart disease) and MEA countries are among the worst affected by
air pollution, while the World Bank ranks seven MEA countries among the 20 experiencing
the highest per capita CO
2
emissions from energy consumption (World Bank, 2014).
Nevertheless, positive actions have been taken by MEA countries to address these issues
Erhan Kilincarslan is based
at the Department of
Accounting, Finance and
Economics, University of
Huddersfield,
Huddersfield, UK.
Mohamed H. Elmagrhi is
based at the Department of
Accounting and Finance,
School of Management,
Swansea University,
Swansea, UK. Zezeng Li is
based at the Department of
Accounting, Finance and
Economics, University of
Huddersfield,
Huddersfield, UK.
Received 10 August 2019
Revised 30 January 2020
1 April 2020
16 April 2020
Accepted 17 April 2020
DOI 10.1108/CG-08-2019-0250 VOL. 20 NO. 4 2020, pp. 739-763, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 739
and improve environmental governance, management, policies and regulations. For
example, South Africa’s National Environmental Management Act, 2008 aimed to enhance
environmental governance and management practices and the Environmental Protection
Agency in the United Arab Emirates (UAE) has launched a strategic plan to increase the
use of renewable sources to 50% by 2050 (The Official Portal of the UAE Government,
2018). MEA countries have also started to work closely with the US Environmental
Protection Agency to improve “environmental governance, water pollution and water
security, clean fuels and vehicles, public participation and pollution prevention”
(Environmental Protection Agency (EPA), 2018). However, so far very little academic
research on environmental governance and management has been conducted for the MEA
region (Gerged et al.,2018). This study examines the impact of governance structures
(composite governance index and board characteristics) on the environmental disclosures
of publicly listed firms in the MEA region, using theoretical insights from the efficiency and
legitimation perspectivesof neo-institutional theory.
Previous studies (Gibson and O’Donovan, 2007;Walls et al.,2012;Haque and Ntim, 2018)
suggest that corporations’ institutional actors (e.g. governing board) and context may
prompt them to voluntarily increase disclosures of environmental information. Neo-
institutional theory (DiMaggio and Powell, 1983;Scott, 2001;Judge et al., 2010) predicts
that social, political and economic institutional pressures may facilitate and/or restrain the
diffusion of good environmental practices among corporations. Such pressures are driven
by two key factors, namely, efficiency and legitimation (Cormier et al., 2005;Ntim and
Soobaroyen, 2013;Haque and Ntim, 2018). Neo-institutional theory has previously been
used in country-level analyses to explain institutional forces that may facilitate and/or
restrain the implementation of good practices, including the adoption of good governance,
corporate social responsibility (CSR) and international accounting practices (Chizema and
Buck, 2006;Zattoni and Cuomo, 2008;Judge et al.,2010;Brammer et al., 2012;Ntim and
Soobaroyen, 2013;Shahab and Ye, 2018). However, this theory has rarely been used to
explain the main institutional drivers of the diffusion of good environmental practices at the
corporate level.
Accordingly, this study uses and extends the neo-institutional theoretical perspective to
explain the main drivers of voluntary environmental disclosures at the corporate level,
focussing specifically on the theoretical implications of the legitimation and efficiency
perspectives. The legitimation perspective suggests that normative, mimetic and coercive
institutional pressures (i.e. pressures from legal mandates, group norms and stakeholders
on which corporations depend) may force corporations to comply with good practices to
meet the expectations of the wider community and legitimise their activities (Zattoni and
Cuomo, 2008;Salama et al., 2011;Brammer et al.,2012) by committing to good
environmental practices, including increased disclosure (Ntim and Soobaroyen, 2013;
Deegan, 2014). Greater environmental disclosure may also improve corporate legitimacy by
maintaining good relations withpowerful stakeholders (trade unions, creditors/bondholders,
students, government and employees) and winning their support (Hasseldine et al., 2005;
Haque and Ntim, 2018).
Similarly, the efficiency perspective of neo-institutional theory indicates that institutional
pressures may increase corporate competition for crucial resources to maintain sustainable
operations and protect shareholders’ interests (Toms, 2002;Zattoni and Cuomo,2008). This
view proposes that greater commitment to environmentally responsible activities/strategies
in the form of improved environmental disclosures may improve corporations’ operational
efficiency by reducing related costs and increasing access to vital resources such as
business contracts and finance (Ntimand Soobaroyen, 2013). It may alsoimprove corporate
efficiency by minimising information asymmetry between different stakeholders (Jensen and
Meckling, 1976;De Villiers et al.,2011). Given the complex nature and outcomes of
environmental and governance practices (Parker, 2005;Ntim and Soobaroyen, 2013;
PAGE 740 jCORPORATE GOVERNANCE jVOL. 20 NO. 4 2020

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