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The Effects of Environmental Information Disclosure on Investors’ Perceptions of Earnings Quality: The
Difference in Managerial Ownership Structure

This study focuses on the study of disclosing corporate environmental information
because such information has significant impact on business operations. Environmental
impact is becoming increasingly important as globally, companies are striving to achieve
zero emissions and zero pollution following the worldwide trends and governmental

policies. It is thus vital for companies to demonstrate commitment to strive for
environmental sustainability in order to gain investors’ favor and competitive advantage in
the market.

2. Design/Methodology/Approach

Using a sample of Taiwanese listed and Over-the-counter (OTC) companies
for the period 2012-2019, this study examines whether the disclosure of corporate

environmental information affects investors’ perceptions of earnings quality. That is,
a higher environmental disclosure score of a company indicates a higher investment
in environmental policies of the company, and investors perceive the company’s
environmental disclosure as transparent. Accordingly, we expect that environmental

information disclosure enhances investors’ confidence in the quality of financial reporting.
Therefore, investors’ perceptions of firms’ earnings quality will be positively affected by
corporate environmental information disclosure. Hypothesis 1 is therefore formulated as
follows:

Hypothesis 1: Under the same conditions, environmental disclosure positively affects
investors’ perceptions of earnings quality.

Furthermore, most business owners in Taiwan are family members who also own

significant shares in the companies; thus, the convergence of interests of managers and
shareholders helps achieve greater alignment. Particularly, in companies where managers
have a larger shareholding, the interests of management tend to be aligned with those
of the majority of shareholders. Besides, the disclosure of environmentally related

nonfinancial information can further improve earnings quality (Kim et al., 2012) and
increase investors’ confidence in the quality of earnings reported in the financial statements
as well. Hence, we propose Hypothesis 2 as follows:

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