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The paper assesses the relation between firms' CO2 emissions as per the CDP (formerly known as Carbon Disclosure Project) platform and their environmental disclosure quality, as mediated by two monitoring mechanisms: media legitimacy (external) and firm governance (internal). Legitimacy theory as well as the monitoring dimension of agency theory underlie the empirical investigation. The sample comprises Canadian and U.S. firms, for which a governance disclosure score and media legitimacy information are available from Bloomberg. Relying on structural equations modelling, results are the following. First, CDP disclosing firms exhibit an environmental disclosure score that is twice as high as non-disclosing firms. Second, media legitimacy, expressed by the Janis-Fadner index, is significantly lower for CDP disclosing firms. This may explain why high CO2 emission firms are less inclined to disclose CDP emission data. Third, the direct effect of the decision to disclose CDP emissions of CO2 (full sample) on environmental disclosure quality is positive and significant. Consistent with our hypotheses, we observe an indirect (mediating) effect on this relationship of media legitimacy (external monitoring) and corporate governance (internal monitoring). This suggests that media legitimacy and corporate governance enhance the positive impact of the decision to disclose CDP emissions of CO2 on environmental disclosure quality. Fourth, the direct effect of CDP emissions of CO2 (reduced sample) and environmental disclosure quality is positive and significant. Also consistent with our hypotheses, we observe an indirect effect on this relationship from media legitimacy and corporate governance.
Cormier et al. (Tue,) studied this question.