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

the Taiwanese capital market.

4. Implications and Research Limitations

In recent years, regulators have encouraged listed companies to prioritize and allocate
resources to Environmental, Social and Governance (ESG) issues. The amendment
of “Regulations Governing Information to be Published in Annual Reports of Public

Companies” in November 2021 has required TWSE/ TPEx listed companies to disclose
how they assess and manage the current and potential risks related to ESG issues such as
climate change, greenhouse gas emissions, etc. in annual reports.
We find that environmental disclosure positively influences investors’ perceptions
of earnings quality. We also find that companies with high managerial ownership are

accompanied by the effect of the "interest convergence hypothesis". Our results show
that environmental disclosure does indeed improve investors’ perceptions of earnings
quality. This finding also suggests that the disclosure of risk assessments and management
strategies related to ESG issues in annual reports from 2021 onwards will be in line

with investors’ non-financial disclosure expectations. It is expected that such disclosures
will have a positive impact on financial statement users and stakeholders and will be
in line with market expectations. This study has two limitations. First, ESG disclosure
encompasses three dimensions, namely environmental, social and corporate governance;

this study focuses specifically on non-financial information related to environmental
disclosure and does not examine the impact of social and corporate governance disclosure
on investors’ perceptions of earnings quality. Second, the study does not cover disclosure
of information on the potential risks of climate change, which is a major concern in the

current debate on ESG issues.

5. Originality and Contribution

This study makes three contributions. First, previous studies on environmental
disclosure (Liu, Chang, and Fu, 2019; Wen and Yeh, 2018) have mostly focused on a
specific industry while this study manually collected long-term data from the annual
reports of listed and OTC (Over-the-counter) companies in Taiwan from 2012 to 2019

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