Does Internal Control Contribute to a Firm’s Green Information Disclosure? Evidence from China

Does environmental information disclosure affect the financial performance of commercial banks? Evidence from China

The article uses hand-collected data regarding environmental information disclosure for Chinese 30 listed banks from 2009 to 2019 to investigate the effect of environmental information disclosure on banks' financial performance. Results show that the improvement in the quality of environmental information disclosure enhances the financial performance of banks, and this effect is intertemporal. In terms of the bank heterogeneity, national banks have a more significant effect of environmental information disclosure on their financial performance compared to regional banks. Furthermore, we provide evidence that the regional green development environment moderates the relationship between environmental information disclosure and banks' financial performance. The findings of our study add impetus for commercial banks to improve their environmental information disclosure.

Can Corporate Digitalization Promote Green Innovation? The Moderating Roles of Internal Control and Institutional Ownership

This study examined the impact of corporate digitalization on green innovation using data concerning A-share companies listed on the Shanghai and Shenzhen stock markets from 2012 to 2018. We measured the degree of corporate digitalization through a text analysis of annual reports and empirically tested its impact on green innovation using a panel data fixed effects model. We found that digital transformation can improve green innovation levels, especially when internal control is weak and institutional ownership is low. These findings support the theoretical expectation that digitalization can strengthen supervision. The relationship between digitization and corporate governance mechanisms was proved to be complementary. Additionally, the analysis of economic consequences showed that digitalization improves financial performance by promoting green innovation. The results clarify the determinants of corporate green innovation and provide relevant insights for increasing the value of corporate digital transformation.

The Role of Internal Control in Firms’ Coping with the Impact of the COVID-19 Pandemic: Evidence from China

Internal control plays a role in risk prevention for firms when dealing with serious emergencies, which ensures the sustainable development of firms during a crisis. Based on the rapid outbreak of COVID-19 in China, this paper empirically tests whether internal control alleviates the negative impact of the pandemic on firm performance. Using a sample of Chinese listed firms from the first quarter of 2019 to the third quarter of 2020 and employing the difference-in-difference (DID) method, we find that the firms with a higher quality of internal control achieve better financial performance during the pandemic period; the more serious the pandemic is, the more obvious effect internal control plays. Furthermore, we consider the industry heterogeneity and firm heterogeneity of the risk resistance effect of internal control. In the manufacturing industry, which is a “disaster zone” of the pandemic, and the non-high-tech industry with a low degree of digitization, internal control can play a more important role in firms’ performance. Moreover, for state-owned enterprises, and firms with strong financing constraints, the role of internal control is more prominent. The above results provide empirical evidence for the risk prevention function of internal control and shed new light on the measures for firms to resist emergencies in the future.

Internal Control Personnel’s Experience, Internal Control Weaknesses, and ESG Rating

Effective internal control is expected to have a positive effect on Environmental, Social, and Governance (ESG) ratings, which are an indicator of corporate sustainability, as it ensures improvements in efficiency and effectiveness in operations, reliable reports, and compliance with applicable laws and regulations. However, no matter how well an internal control system is designed, internal control quality deteriorates if internal control (IC) personnel do not understand the firm’s business or lack accounting experience. This study first explores the relationship between ESG ratings and internal control weaknesses (ICWs). We then examine two types of career experience of IC personnel—length of service and accounting experience—and their effect on ICWs. We conduct logit regression analyses using the data of 1876 non-financial listed firms in Korea. The results show that ICW firms have low ESG ratings. We also find that the accounting experience of IC personnel is more closely related to ICWs than the length of service. This implies that the accounting expertise of IC personnel may have a greater effect on internal control quality than the understanding of a firm’s business. Overall, our findings provide evidence that firms must have IC personnel with sufficient accounting expertise for sustainable management.

Environmental Sustainability Commitment and Financial Performance of Firms Listed on the Johannesburg Stock Exchange (JSE)

The importance of heeding the environmental sustainability commitment call cannot be underestimated. Laggards in terms of environmental sustainability commitment are likely to face fines and penalties as talks to tighten environmental legislation are now at an advanced stage globally. The current work assessed the link between environmental sustainability commitment and financial performance of firms listed on the Johannesburg Stock Exchange (JSE). The study was quantitative in nature with a case study research design. The longitudinal design was adopted where the researcher collected panel data from 2011–2018. The population of the study included all firms listed on the JSE Responsible Investment Index in South Africa. The sample constituted of 32 firms listed on the Financial Times Stock Exchange FTSE/JSE Responsible Investment Index in South Africa. The researchers employed the panel regression analysis model to analyze the data. Specifically, the Feasible Generalized Least Squares regression model was used in this study. Financial performance was treated as the dependent variable as measured by earnings per share and share price. The independent variables of the study included components of environmental sustainability such as carbon emission reduction and environmental compliance. Control variables such as firm size and liquidity were used in the study. The findings indicated that carbon emission reduction was positively and significantly related to earnings per share and share price. The findings further exhibited that environmental compliance was positively related to earnings per share and share price. It was concluded that firms can enhance their financial performance from environmental investment as all the hypotheses were supported. This study contributes practically towards shaping environmental policies and it also serves as motivation to listed companies that they can enhance both their profitability and market value from environmental investments.