The Role Of Agency Theory And Related Factors In Maintaining Effective Carbon Disclosure In Organizations

Literature Review: Motivation

What Is The Role Of Agency Theory And Related Factors In Maintaining Effective Carbon Disclosure In Organizations?

Practical Motivation

Coad, Jack and Kholeif (2015) stated that the vital sources of carbon emission are there in organizations and for this reason they might contribute in decreasing the emission level. With emergence of Corporate Social Responsibility concept within nation’s regulatory framework, the organizations are becoming aware. Moreover, they are also considering carbon emission disclosure as this is related with the financial performance. Hoque (2018) indicated that the major concern of the environment is increasing carbon emission level by organizations for the reason that it greatly impacts global warning along with increasing harmful environmental consequences. Carbon emissions also impacts business conducts like investment, competition along with investor and stakeholder activities. This also greatly puts huge impact on the goods and raw materials supply along with government co-operation risks and decreased share prices. In contrast, Christensen, Nikolaev and Wittenberg?Moerman (2016) revealed that there is different connection between carbon emissions performance disclosure, financial performance and company’s growth. Voluntary disclosure by organizations indicates their management efficiency of emissions. This leads to development of shareholders interest in consideration to business investment within the organization relied on its potential. For this reason, carbon emission disclosure is a vital concern for all international organizations.

This research is intended to explain the significance of carbon emission disclosure for the organizations in consideration to increasing financial performance through employing agency theory. Research carried out by Bosse and Phillips (2016) explained that the carbon emission disclosure has great impact on financial performance of organizations. Organizations must focus on decreasing the environmental concerns that can gradually offer economic advantages. For this reason, they can voluntarily disclose that an organization cares for its environment and focus on considering climate change due to operations of the organization. Nevo, Nevo and Pinsonneault (2016) indicated that climate change is essential concern for the research. Carbon disclosure by the organizations must be voluntary and accurate relied on real figures and facts that can facilitate shareholders in determining real financial performance and value of the organization. This also focuses on facilitating the organization in order to prove the environmental effectiveness. For this research, it will be considered to realize the effect of carbon emission disclosure on the organizations non-financial performance as well as financial performance.

Ott, Schiemann and Günther (2017) gathered that this attracts shareholders for investing within the company attaining financial benefits for the organization. Moreover, from administrative viewpoint an organization might follow CSR policy for maintaining an effective relationship within the legal and government bodies. This effective relationship also increases reputation along with company’s goodwill. Bosse and Phillips (2016) added that on the other hand there is a relationship between the suppliers and consumers. This is because they turn out to be stronger as consumers all through the world are environment conscious and contribute to efforts that focuses on environment protection.

Theoretical Motivation

Depoers, Jeanjean and Jérôme (2016) explained agency theory as prices that explain the relationship between agents and principles in consideration to a particular problem. The major reason of such issue and agents spreading the issue can be recognized using agency theory.

Pepper and Gore (2015) stated that based on the agency theory, the expenses related with environmental responsibilities increases the profit of the organization and for this reason, environmental activity has negative impact on a company’s profitability. These researchers also indicated that there exists a neural relationship between environmental ad company performances. Moreover, they contend that a company’s ideal level of interest within social environmental responsibility might be analyzed within an indistinguishable path through taking into consideration supply and demand sides. Shogren et al. (2015) evidenced that they also indicate that organizations that does not take part in environmental responsibility will offer these products at cheaper rate. Moreover, the organizations that are involved in CSR might provide higher prices for the products. It can also be stated that environmental and financial performance has neutral relationship.

Shogren et al. (2015) explained through the use of agency theory that because of the climate change effect on the economy there are several nations that are making attempts in decreasing the emission disclosure and measurement. Such efforts are relied on realizing the financial market factor pressure and slack for business carbon emission disclosure in several sectors. This can facilitate the programs and incentives for encouraging meeting and participation for national targets (Bosse and Phillips 2016).

The agency theory can be employed as a theoretical model in order to test relationships between the company’s financial and non-financial performance and carbon emission disclosure. Bosse and Phillips (2016) evidenced that based on agency theory prediction, the performance of carbon emission of an organization also generates non-financial effect on the operations and business of the organization. These non-financial impacts indirectly lead to the financial influence and the carbon emission disclosure leads to development of effective company reputation within the trading market.

The theoretical framework indicated above explained that the agency theory and the related variables are related with carbon disclosure. The effect of company’s responsibility to investors along with financial debt holders resulted in investors request for disclosure in order to facilitate them to analyze the risk and return of the organization that can support investment decision. The managers are observed to disclosure only because of proprietary costs as well as uncertainty (Pepper and Gore 2015). For this reason, the conceptual framework explained that failure of information disclosure might lead to information asymmetry between the investment providers and management. This can facilitate in increasing organization’s investment expenses.

Conflicting Previous Results

The conceptual framework explained through the use of agency theory that because of the climate change effect on the economy there are several nations that are making attempts in decreasing the emission disclosure and measurement. Such efforts are relied on realizing the financial market factor pressure and slack for business carbon emission disclosure in several sectors. This can facilitate the programs and incentives for encouraging meeting and participation for national targets (Bosse and Phillips 2016). Financial market factors impact company’s responsibility towards investors along with financial debt holders. This facilitated them to ask for information for evaluating real value of the company and for enabling investment judgment along with company ownership. This has a considerable association with the reports.

The hypotheses that are to be tested through the research on contemporary and management accounting issues in consideration to Agency theory is explained under:

• H1: The carbon emissions disclosure by the organizations leads to opposite relationship between the environmental responsibility and profitability effect on growth, sustainability and profitability of an organization
• H2: Target slack will be more in the initial year within which the targets are set
• H3: Target slack will be more in the existence of performance-based incentives

Theoretical Construct	Proxy measure	Dependent (DV), Independent (IV)	Source
Target slack will be greater in the first year in which targets are set based on agency theory	Increase in remuneration and being able to attain the target in case unexpected factors are present.	Slack is deemed to be the dependent variable	The target that is explained in CDP. Previous research available in budgetary process and incentives for managers.
Target slack will be greater in the presence of performance based incentives based on agency theory	Information asymmetry is observed to decrease with time. This is measured as the number of years before the company has been setting targets for emission of carbon.	Independent variable is deemed to be the information asymmetry	Data related with this variable will be gathered through evaluating the performance based incentives of the company that can increase the pressure to generate target slack.

The research on the agency theory and carbon disclosure will consider employing primary as well as secondary data that can facilitate in attaining desired research outcomes. Gathered quantitative data signifies the information section which can be evaluated for collecting data in alignment with the research results. Collection of the secondary data for investigating “Contemporary Accounting and Management Accounting Issues: Agency Theory” will be collecting data from authenticate government websites and journals (Taylor, Bogdan and DeVault 2015). Primary data might be collected from employing the technique of questionnaire survey. This is the reason for which suitable survey respondents has been chosen to participate within the process of survey and for obtaining reliable research results on agency theory practice along with carbon disclosure theory.

Non-probability sampling method will be used in this research. This sampling is based on the subjective judgment of researcher in opposition to the random selection (Silverman 2016). In order to attain results from the research, 5 managers of the companies operating in Australia will be selected for taking part in the survey process. The gathered responses will be evaluated for attaining views on agency theory and its relevance on addressing carbon disclosure issues.

In order to attain relevant research results certain statistical methods will be employed such as MS Excel and graphical representation of data. This can facilitate in evaluating the opinions of the survey participants and can properly plan, design and represent collected data. Moreover, quantitative data will be represented through tables and graphs that can ensure the clarity and authenticity of collected data (Flick 2015). Pearson correlation test will be carried out that will ensure the reliability and validity of data. In order to test the relationship between the dependent and independent variables, correlation and regression analysis will be carried out in this research.

References

Bosse, D.A. and Phillips, R.A., 2016. Agency theory and bounded self-interest. Academy of Management Review, 41(2), pp.276-297.

Christensen, H.B., Nikolaev, V.V. and WITTENBERG?MOERMAN, R.E.G.I.N.A., 2016. Accounting information in financial contracting: The incomplete contract theory perspective. Journal of accounting research, 54(2), pp.397-435.

Coad, A., Jack, L. and Kholeif, A.O.R., 2015. Structuration theory: reflections on its further potential for management accounting research. Qualitative Research in Accounting & Management, 12(2), pp.153-171.

Depoers, F., Jeanjean, T. and Jérôme, T., 2016. Voluntary disclosure of greenhouse gas emissions: Contrasting the carbon disclosure project and corporate reports. Journal of Business Ethics, 134(3), pp.445-461.

Flick, U., 2015. Introducing research methodology: A beginner’s guide to doing a research project. Sage.

Hoque, Z., 2018. Methodological issues in accounting research. Spiramus Press Ltd.

Nevo, S., Nevo, D. and Pinsonneault, A., 2016. A Temporally Situated Self-Agency Theory of Information Technology Reinvention. Mis Quarterly, 40(1), pp.157-186.

Ott, C., Schiemann, F. and Günther, T., 2017. Disentangling the determinants of the response and the publication decisions: The case of the Carbon Disclosure Project. Journal of Accounting and Public Policy, 36(1), pp.14-33.

Pepper, A. and Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about executive compensation. Journal of management, 41(4), pp.1045-1068.

Shogren, K.A., Wehmeyer, M.L., Palmer, S.B., Forber-Pratt, A.J., Little, T.J. and Lopez, S., 2015. Causal agency theory: Reconceptualizing a functional model of self-determination. Education and Training in Autism and Developmental Disabilities, pp.251-263.

Silverman, D. ed., 2016. Qualitative research. Sage.

Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.