Effects of Environmental and Social Disclosures Practice on Firm Risks: Evidence From a Developing Nation

Abstract

The purpose of this study is to explore the effects of environmental and social disclosures (ESD) on firm risk in Malaysia. The study utilises stakeholder theory because it explains the responsibilities of the firms towards the wide range of stakeholders that will then contribute to the economic performance of the firms and it has been widely used by researchers in corporate social responsibility studies. The data were collected through content analysis. The extent of ESD was obtained from the annual reports and sustainability reports for the year 2017, while the firm risk was calculated based on the share prices obtained from Bursa Station. The finding indicates the level of ESD is still low among the top 100 listed companies in Malaysia and the result from the hypotheses testing found the relationships between ESD with specific firm risks (total risk, systematic risk, unsystematic risk) are insignificant. The discovery infers investors have minimal demands and reliance on ES information of the country’s public listed companies in making financial-related decisions. Apart from investors, other company’s stakeholder groups also may not value the importance of ES-related activities including ESD. Nevertheless, this study provides an insight for (i) the regulators namely the government and Bursa Malaysia that continuous initiatives should be performed on ESD guidance and (ii) the companies on the need for new strategies towards a successful implementation of ESD.