Does Environmental Cost Expenditure Matter? Evidence from Selected Countries in the Asia-Pacific Region

Abstract

This study investigated the effect of companies’ environmental cost expenditure on environmental performance and the disclosure thereof by selected companies in the Asia-Pacific region. This region is vulnerable to significant environmental degradation due to its substantial economic development. This study examined the issue from a legitimacy theory perspective. Secondary data, collected from the Bloomberg database of 578 listed companies from 2008 to 2020, were used as the sample for the study. The results show that the level of environmental cost expenditure does matter because it was positively associated with environmental performance and its disclosure. The environmental performance variable also served as a mediating variable between environmental cost expenditure and disclosure. Disclosure provides a signal to investors to access companies’ environmental initiatives and risks, which could influence their investment decision. The findings highlight the importance of companies’ financial commitment to protect and preserve the environment in their daily operation. The findings also help managers to make strategic business decisions to strengthen their companies’ legitimacy by operating within the norms and values shared by society. The results from this study provide an insight which can be generalized with respect to companies from other regions.