Corporate characteristics and environmental management accounting (EMA) implementation: evidence from Malaysian public listed companies (PLCs)
Introduction
Because of the inextricable links between industrialization and economic growth, there appears to be a tension between profit-making intention and environmental efforts (Wilbanks et al., 2007). Oftentimes, such a pragmatic trade-off leads to companies' sensitivity toward the environment being less prioritized (Adams, 2009). These arguments, to a certain extent, are fortified by the dominance of environmental issues in China and India. China and India are both developing countries where industrial sector contributes substantially to their economic growth. As of 2011, China and India became newly industrialized countries (NIC). Despite their impressive growth rates, environmental problems are exacerbating as quickly as their economy. Furthermore, being the fastest growing economic region driven by natural resources industries (e.g. extractive, forestry and marine), Southeast Asian countries, for example, Indonesia, Vietnam and Thailand are at higher risk of environmental degradation (Herzig et al., 2012). Similarly, the rapid economic growth and structural transformation experienced by Malaysia since the 1970s have exacerbated many environmental problems. Of these, nearly 8.6% of Malaysia's natural forests have been deforested within a span of 20 years (from 1990 to 2010) for development projects (UN-REDD, 2010). In other cases, the Department of Environment (DOE) reported that open-burning, black smoke emissions, water pollution and industrial effluents are among the major environmental offenses committed by Malaysian companies. Furthermore, more than 40% of the rivers in Malaysia have been classified by the DOE as polluted or slightly polluted, with the major pollutants emanating from industrial wastes and sewage treatment plants. Various environmental issues have also made headlines, such as the indiscriminate land clearing for illegal agriculture activities in Cameron Highlands, which is Malaysia's agriculture heartland, and the frequent flash floods in Kuala Lumpur and other major cities across the country.
Across the globe, concerns on business environmental impacts and pressure of proliferating regulations are fast escalating. As a consequence, many companies are now starting to incorporate environmental information into their business strategies (Ernst & Young, 2013). In doing this, the implementation of EMA has become necessary as conventional management accounting systems do not provide such information where environmental information is treated as overhead cost, or hidden cost (Schaltegger et al., 2003, Burritt et al., 2002, Burritt, 2004). EMA helps companies measure their business environmental impacts and allocate related costs and/or earnings/savings gained from environmental activities (Burritt et al., 2002). Despite often being associated with greater additional costs, being innovative and proactive about environmental management has helped companies achieve simultaneous economic growth and environmental sustainability (Burritt et al., 2009, Burnett and Hansen, 2008, Sulong et al., 2014, Viere et al., 2007).
As a relatively new branch of accounting, EMA research is emerging. To date, there has not been much discussion on EMA implementation in emerging and developing economies, particularly in the Southeast Asia region (Herzig et al., 2012). Findings derived from similar economic settings will provide better understanding on the relevance and divergence of EMA implementation across countries. In addition, prior research has been concentrated on its implementation in high environmental risk industries, for example, manufacturing companies (e.g. Jalaludin et al., 2011, Kokubu and Nashioka, 2008, Gale, 2006, De Beer and Friend, 2006) and those in environmentally sensitive industries, i.e., chemicals, smelting, energy and oil (e.g. Bartolomeo et al., 2000, Ferreira et al., 2010, Burritt and Saka, 2006, Burritt et al., 2009), considering the necessary extent of EMA in these industries. In view of the fact that an understanding of companies' environmental responsiveness relating to EMA implementation among a wide range of industries would be of significance to reflect the uses or benefits of EMA, this study considers both environmentally sensitive and less sensitive industries. Drawing from contingency theory arguments that the design of management accounting system (MAS) may be shaped by companies' surrounding factors (Otley, 1980), this study also considers four other contingent factors, namely company size ownership status, environmental management system (EMS) adoption and the proportion of non-executive directors (NEDs).
Therefore, two research questions are addressed: first, “To what extent do companies implement EMA?” and, second, “Do corporate characteristics influence the extent of EMA implementation?”. To answer these questions, a survey of Malaysian PLCs is drawn on. In an effort to further improve the development of Corporate Social Responsibility Reporting (CSRR) in Malaysia, as of 31 December 2007, CSRR has been made mandatory for all PLCs, requiring them to report corporate social responsibilities (CSR) activities in the annual report. At its simplest, the conveyance of companies' CSR through their philanthropic activities may well uphold the green initiatives as ‘environment’ is part of CSR dimensions.
This paper is structured as follows. The next section, Section 2, provides an overview of the relevant literature. Section 3 discusses the development of the hypotheses, followed by details of the research method in Section 4. Subsequently, the results are presented in Section 5, and Section 6 concludes with the discussion of the results, limitations of the study and suggestions for future research.
Section snippets
Environmental management accounting
EMA can be described as the identification, allocation, generation and use of physical and monetary environmental information to support business decision making to achieve a sustainable business (Frost and Wilmshurst, 2000, Bennett et al., 2002, Bartolomeo et al., 2000). It is a set of accounting tools that combines data from financial accounting, cost accounting and material flow balances to increase material efficiency, reduce environmental impacts/risks and costs of environmental protection
Hypothesis development
The hypotheses are developed using contingent theoretic arguments in which the implementation of MAS is contingent upon the context within which the company operates.
Questionnaire design
To examine the extent of EMA implementation and its association with corporate characteristics, a survey was conducted. This approach was selected for several reasons. First, it is the best option when the sample is geographically scattered and that it helps to reduce time and cost (Bryman and Bell, 2007). Second, it enables the respondents to answer at their own convenience without having pressure on immediate responses (Ferreira et al., 2010). However, a careful consideration is necessary as
Missing values, principle components analysis (PCA) and Cronbach's alpha (α)
As predicted, there were a considerable number of N/A responses in the EMA scale. However, there were no skipped responses. In terms of individual cases, 35 companies (44.9%) had no N/A responses, while the remaining 43 companies (55.1%) had marked N/A on at least one item. Six items in the EMA scale, namely, STA7, STA9, STA11, ECA2, ECA3 and ECA8, have more than 30% of N/A responses. All these items are associated with environmentally sensitive industries. A Pearson correlation analysis was
Discussion and conclusion
The results of this study highlight several interesting insights into EMA implementation among Malaysian PLCs, adding to the limited literature on EMA in developing countries. First, the extent of EMA implementation among companies was moderate, which is rather high compared to previous findings (Bartolomeo et al., 2000, Frost and Wilmshurst, 2000, Ferreira et al., 2010, Ribeiro and Aibar-Guzman, 2010, Jalaludin et al., 2011, Christ and Burritt, 2013). However, the moderate extent of
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