Agency Theory and Carbon Disclosure in Australian Companies

This research emphasizes the effects of the companies on the environment and the influence of the leadership attributes of the companies on carbon disclosure. The data has been collected for this research with the help of a survey. Statistical analysis tool SPSS version 20 has been used for the analysis of the data.

Running Head: AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN
COMPANIES
Agency Theory and Carbon Disclosure in Australian Companies
Name of the Student
Name of the University
Author Note

1AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Acknowledgement
I certify that I have carefully reviewed the university’s academic misconduct policy. I understand
that the source of ideas must be referenced and that quotation marks and a reference are required
when directly quoting anyone else’s words.

2AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Table of Contents
Introduction......................................................................................................................................3
Literature Review............................................................................................................................3
Practical Motivation.....................................................................................................................5
Theoretical Motivation................................................................................................................5
Conceptual Model............................................................................................................................6
Hypothesis.......................................................................................................................................6
Data Collection............................................................................................................................7
Data Analysis – Descriptive............................................................................................................7
Data Analysis – Inferential............................................................................................................13
Hypothesis Testing........................................................................................................................14
Discussion......................................................................................................................................17
Limitations and Further Research..................................................................................................18
References......................................................................................................................................20

3AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Introduction
There have been extensive effects of the corporate companies on the environment. This
creates a global crisis. It is extremely important to deal with this crisis. The reason why this
global crisis has occurred is due to the harmful gases that are emitted from the manufacturing
companies (Buniamin et al. 2010). The businesses of the companies are controlled and directed
by the corporate governance and their activities. The companies are provided with a lot of
restrictions and measurements by the corporate governance so that the emission of harmful gases
especially carbon dioxide is minimized. The businesses are also forced to take part in various
environmental activities such as tree plantation (Ioannou and Serafeim 2017).
The main aim of this research will be to emphasize the effects of the companies on the
environment. Thus, the main focus of this research will be towards the influence of the
leadership attributes of the companies on carbon disclosure. A new concept has been introduced
so that the actions can be taken for managing the opportunities and the risks that can be faced by
the company in the future years. Quantitative analysis will be performed to understand the effect
(Saka & Oshika 2014). The data has been collected for this research with the help of a survey.
Statistical analysis tool SPSS version 20 has been used for the analysis of the data. The dataset
contained information about almost 5000 industries but for all the industries, information was not
available completely. 306 industries have been found having valid information which will be
used for the study.
Literature Review
Australia is nowadays facing serious challenges with the rapid advancements of
technology. This has resulted in economic growth and development of the country. There has

4AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
been gradual growth of the Australian economy over the years. However, this growth in the
economy is challenged with the fall in the stock prices and the growth in the emission of the
harmful gases in the environment. These environmental issues include emission of solid waste,
air pollution, water pollution as well as water management. According to a research by Chang,
Yeh and Liu (2015), it has been known that the emission of these waste products will increase in
a considerable amount by the year 2020. This has created a challenge to achieve the sustainable
economy. As pointed out by Herold and Lee (2018), the environmental issues that are caused by
the industries are deforestation, dumping of wastes which are hazardous to the environment and
polluting the air and the water as well. Considering all these factors, the government has
considered taking various measures to keep the environment protected from any types of
pollution. Decomposition and trend analysis is usually constructed in order to understand the
relationship between the economic growth of the country and the environmental outcomes.
The corporate governance framework in place in Australia spreads beyond mere
submissions with regulatory requirements with main voluntary elements. More so, an extensive
number of provision throughout the federal and state legislation makes the corporate directors
accountable if the company fails to adhere to the multitude of requirements (Juliet 2015). There
are laws and guidelines that run a corporate which include the non-binding guidelines, soft law
and the hard law, together with the market and agency prospects, form a framework for corporate
governance (Trireksani, T. and Djajadikerta 2016). Satisfying the best practice of commercial
leadership and commentary on the environment are a manifestation to this tow, but
interconnected spheres of presentation. The concept that was introduced in a report in the 1966
tell companies and organization not only to be financially sound but also environmentally
account so as to ensure the rights future generation are taken into consideration. Taking of the

5AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
right measurements to ensure the protection of the environment will reduce already caused
damage and therefore reduce the long-term effects to the next generation.
Practical Motivation
The most important crisis that is currently of major interest to the world as well as the
industries is the environmental pollution. This pollution supposedly affects the elements of
nature. Thus, the companies are forced to take part in activities to save the environment. It is
believed by several scientists that as environmental pollution increases with the emission of
harmful gases, people are getting more exposed towards environmental dangers. The carbon
release in the environment is increasing each day and this in turn increases the level of carbon
dioxide in the atmosphere. Thus, it is extremely important to reduce these emissions by the
companies. The companies have the potential to reduce the carbon emissions by their companies
by adopting necessary changes. The boards, stakeholders and the managers of the companies can
take the necessary decisions that will be helpful in controlling the amount of pollutant the
company releases in the atmosphere. Significant risks are brought to an organization as a result
of this emissions as well as to the investments of the shareholders. The organization is affected
either directly or indirectly by climatic changes indicated by natural calamities.
Theoretical Motivation
The motivation of the research stands to investigate whether good corporate leadership
practices are important in illustrating environmental responsibility of organizations in Australia.
The corporate governance framework in place in Australia spreads beyond mere submission s
with regulatory requirements with main voluntary elements. More so, an extensive number of
provision throughout the federal and state legislation makes the corporate directors accountable

6AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
if the company fails to adhere to the multitude of requirements. Corporate sustainability is a main
concern that of the modern corporations to today, most environmental reporting is done
voluntarily, there has been an increase in the number of writers who have argued about the
effects of the corporate activities on the environment, and the feel that the companies should be
held accountable for their mistakes at a larger audience than just its stakeholders. The current
economic predicament has added a new phase of change which requires being instant rather than
that of a certain period. Increased competition, global competition, new technologies and fast-
changing environments call for a change in the management in organizations.
Conceptual Model
Hypothesis

7AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Based on the literature review, the following hypothesis statements has been framed. The
Null Hypothesis and the Alternate Hypothesis that will be required in order to conduct the study
is described as follows:
Null Hypothesis (H0): There is no significant difference between the voluntary disclosure scores
on the basis of the organizational initiatives.
Alternate Hypothesis (HA): There are significant differences between the voluntary disclosure
scores on the basis of the organizational initiatives.
Data Collection
There is information about 306 different organizations in the dataset. All these
organizations had taken part in the survey conducted for the Carbon Disclosure Project (CDP).
More than 5000 industries had taken part in this survey. The information shared by the rest of the
industries over the selected years 2011 – 2016 has been found to be incomplete and thus has
been eliminated for the purpose of the survey. Three different variables from the entire dataset
has been considered suitable for this research. These include the carbon disclosure scores over
the years, the scope of the amount of carbon emissions by the companies over the years and
whether the organization has taken any initiatives against this problem of carbon emission.
Generalization of the results have been done as the results are available over time and only one
variable has been considered for each of the factors. Thus, the average of the disclosure scores,
adoption of different strategies and the emission of carbon over the years have been considered
as the measure for each of the variables. The necessary statistical analysis has been done on these
three transformed variables in order to test the stated hypothesis.
Data Analysis – Descriptive

8AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
The theoretical description of the data considered for the analysis is provided in table 2.
Depending on the nature of the variables as described in the table below, the following analysis
has been performed.
Table 2: Theoretical Description of the Data Considered
Theoretical
Construct
Proxy Measure
Dependent (DV),
Independent (IV) or
Control Variable
(CV)
Source
Disclosure Score
(Ratio scale)
Carbon Disclosure
score in CDP Survey
from the year 2009 to
2015
Dependent
(DV)
CDP Survey –
Disclosure Score
Scope 1 and 2 carbon
emission (Ratio scale)
Gross Global Scope 1
and Score 2
emissions mentioned
in CDP survey for all
1047 countries
Independent (IV) CDP Survey – Gross
Global Scope 1 and
Score 2 emission
figures in metric
tonnes units
Organizational
Initiatives (Nominal
Scale)
All the initiative
taken by the
organization in
categorical values
(Yes = 2 and No = 1)
Control Variable
(CV)
CDP Survey – Did
you have emissions
reduction initiatives
that were active?

9AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
According to the nature of the variables described, organizational initiatives is a nominal
variable and thus the variable is summarized with the help of a frequency table. Here “1”
indicates that the companies have taken initiatives to reduce carbon emission and “0” indicates
the companies have not taken any initiatives in reducing the carbon emissions.
Table 3: Summary of Organizational_Initiative
Frequency Percent Valid Percent Cumulative Percent
Valid
1 299 97.7 97.7 97.7
2 7 2.3 2.3 100.0
Total 306 100.0 100.0
It can be seen from the frequency table recorded in table 3 that out of 306 Australian
Companies that has been considered for the study, 299 has been found to have taken initiatives
against the carbon emission by the firms which is 97.7 percent of the companies on an average.
Only 7 companies, that is, 2.3 percent of the Australian Companies have not yet taken any
initiatives against the carbon disclosure and reduction in their percentages. It can be said from
the discussion that the companies are aware of achieving their sustainability and the approaches
that will be helping them in achieving a sustainable environment. Hence, approaches have been
taken to fulfil the demands that the investors make from the companies. Diagrammatic
representation of this data is shown with the help of a pie chart in figure 1.

10AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Figure 1: Pie Chart Showing whether the companies have initiatives in reducing Carbon
Emissions
Other than the variable organizational initiatives, there are two other variables that have
been considered for the study. These are the carbon disclosure scores of the companies and
emissions of carbon by the companies. Both of these variables are presented in the ratio scale in
the dataset and thus can be used to evaluate the descriptive measures. Table 4 shows the
descriptive measures for the variables “carbon disclosure scores” and “carbon emissions”.
The disclosure scores of the companies are scored between “0” and “100”. The firm’s
position in the financial reports each year are indicated by the disclosure scores of the company
in that particular year. For the simplicity of the analysis, median scores of the carbon disclosure
scores over the years 2009 to 2015 have been considered. Considering the values in table 4. It
can be observed that the average disclosure score has been obtained as 78.44. Thus, it can be said
that the Australian companies are ranked around 78.44 in the financial reports. This can be said
as the standard deviation of the scores have been found to be 17.22, which is very less. Further, a
median score of 82 has been observed which indicates that 50 percent of the Australian
companies have a carbon disclosure score above 82 which is very commendable. It can also be

11AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
seen from the skewness value that the data is not symmetric and is negatively skewed. This
indicates that the assumptions of normality have not been satisfied and also can be said that the
disclosure scores do not follow any distribution. Diagrammatic representation of this data is
shown with the help of a histogram in figure 2.
Another variable that has been considered is the emission of carbon from the companies.
The values of the variables are given in metric tonnes. For the simplicity of the analysis, average
of the amount of emission of carbon from the companies over the period of 2011 to 2017 have
been considered. Considering the values in table 4, it can be observed that the average amount of
carbon emission by the companies has been obtained as 12386.56. Thus, it can be said that the
Australian companies have a huge variation in the emission of carbon. This can be said as the
standard deviation of the emissions have been found to be 179438.62, which is very high.
Further, a median emission amount of 14.85 metric tonnes has been observed which indicates
that 50 percent of the Australian companies have a carbon disclosure score below 14.85 metric
tonnes. From the difference between the average emission amount and the median emission
amount, it can be said there are presence of outliers in the data. It can also be seen from the
skewness value that the data is not symmetric and is positively skewed. This indicates that the
assumptions of normality have not been satisfied and also can be said that the amount of carbon
emitted by the companies do not follow any distribution. Diagrammatic representation of this
data is shown with the help of a histogram in figure 3.
Table 4: Measures of Descriptive Statistics for Carbon Emission and Carbon Disclosure Scores
Disclosure_Scores Carbon_Emission
N Valid 306 306
Missing 0 0
Mean 78.4412 12386.5591
Std. Error of Mean .98446 10257.82293

12AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Median 82.0000 14.8481
Mode 84.00 .00a
Std. Deviation 17.22107 179438.61615
Variance 296.565 32198216966.671
Skewness -2.023 17.319
Std. Error of Skewness .139 .139
Kurtosis 6.165 301.795
Std. Error of Kurtosis .278 .278
Range 100.00 3130307.40
Minimum .00 .00
Maximum 100.00 3130307.40
Sum 24003.00 3790287.08
Percentiles
25 71.0000 5.1600
50 82.0000 14.8481
75 91.0000 86.0583
a. Multiple modes exist. The smallest value is shown
Figure 2: Histogram showing the carbon disclosure scores

13AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Figure 3: Histogram showing the emission of carbon from the companies
It has been already discussed that the data obtained as a result of the survey does not
follow the regression assumption of normality. Thus, in order to express the relationship between
the carbon disclosure scores and the carbon emissions by the company, the correlation analysis is
the only appropriate analysis measure for this dataset. It can be seen from the coefficient of the
Spearman’s correlation given in table 5 that the value of correlation coefficient has been obtained
to be – 0.18. This indicates that there is a very weak negative relationship between the variables
carbon disclosure scores and amount of carbon emissions by the companies. It can also be seen
from the table that relationship is insignificant as the significance value is 0.759, which is higher
than the level of significance (0.05). Thus, it can be said that an insignificant relationship exists
between the variables Carbon disclosure scores and amount of carbon emission by the
companies.

14AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Table 5: Correlation Coefficients Showing relationship between the Disclosure Scores and Carbon
Emissions
Disclosure_Scores Carbon_Emission
Disclosure_Scores
Pearson Correlation 1 -.018
Sig. (2-tailed) .759
N 306 306
Carbon_Emission
Pearson Correlation -.018 1
Sig. (2-tailed) .759
N 306 306
Data Analysis – Inferential
According the hypothesis that has been framed, the average difference between two
categories of a variable, that is the average difference in the disclosure scores of carbon has to be
tested. The most appropriate approach to test the difference between these two groups would
have been the independent sample t-test, but it cannot be applied in this sample as the data
obtained does not belong to any particular distribution.
In order to avoid this problem, non-parametric tests need to be performed. The test that
can be used as an alternative to the t-test in the non-parametric setup is the Mann-Whitney U
Test. Here, the dependent variable, carbon disclosure scores is in ratio scale and the independent
variable or the control variable, Initiatives taken by the organization is in nominal scale of “yes”
or “no”.
To test the hypothesis framed, a both-tailed test has to be performed. It can be concluded
from the analysis that there is or is not any existence of difference in the carbon disclosure scores
of the two group of companies. The results of the analysis are presented in the following section.
Hypothesis Testing
As already described above, the null and the alternate hypothesis are given as follows:

15AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
Null Hypothesis (H01): There is no significant difference between the voluntary disclosure
scores on the basis of the organizational initiatives.
Alternate Hypothesis (HA1): There are significant differences between the voluntary disclosure
scores on the basis of the organizational initiatives.
The results of the Mann-Whitney U Test are given in table 7. It can be seen from the
table that asymptotic significance level is found to be 0.025, which is less than the stipulated
level of significance (0.05). Thus, it can be said that the null hypothesis is rejected and there
exists significant difference in the relationship between the carbon disclosure scores of the
companies that have adopted and have not adopted any initiatives to decrease the carbon
emission.
Table 6: Ranks
Organizational_Initiative N Mean Rank Sum of Ranks
Disclosure_Scores
1 299 155.24 46416.50
2 7 79.21 554.50
Total 306
Table 7: Test Statisticsa
Disclosure_Scores
Mann-Whitney U 526.500
Wilcoxon W 554.500
Z -2.248
Asymp. Sig. (2-tailed) .025
a. Grouping Variable: Organizational_Initiative
It can be seen here that there are only 7 companies out of the selected 306 companies that
have not taken any initiatives for reducing the carbon emissions and increasing the carbon
emission scores. As 7 companies is to little a number that can be used for comparison, these can

16AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
be considered as the outliers to the data. Thus, it can be said that the companies have mostly
adopted some initiatives to reduce the carbon emissions.
Further analysis has been conducted after removing the 7 companies that have not
adopted any initiatives for reducing the carbon emissions. In this case, it has been tested whether
there are any significant differences in the carbon disclosure scores in different types of
industries. The null and the alternate hypothesis to conduct this test can be framed as follows:
Null Hypothesis (H02): There is no significant difference between the voluntary disclosure
scores on the basis of the industries.
Alternate Hypothesis (HA2): There are significant differences between the voluntary disclosure
scores on the basis of the industries.
Again the most appropriate method to test this difference is with the help of Analysis of
Variance (ANOVA) test. Since the normality assumptions are not satisfied by this data, the non-
parametric test will be used to test the difference. Here, the most appropriate non-parametric test
is the Kruskal-Walis test. From the results of the test, it can be seen that the significance value is
0.779, which is higher than the level of significance (0.05). This indicates that the null
hypothesis is rejected and the carbon disclosure scores differ in different types of industries.
The ranks obtained for industries such as health care, consumer discretionary and
information technology have shown higher ranks than the other types of industries. This
indicates that the disclosure scores in these industries are high and thus, the initiatives taken by
these industries are efficient in reducing the carbon emissions and thereby increasing the
disclosure scores. On the other hand, the ranks of the industries such as Materials, consumer
staples, telecommunication services, utilities, energy have shown lesser ranks and this indicates
that the disclosure scores in these industries are low. Thus the initiatives taken by these industries

17AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
are not that sufficient in reducing the emissions. More sustainable measures need to be taken by
these industries in order to increase the disclosure scores.
Table 8: Ranks for Kruskal-Walis Test
Industries N Mean Rank
Disclosure_Scores
Consumer Discretionary 30 163.02
Consumer Staples 27 135.28
Energy 6 143.83
Financials 19 147.00
Health Care 21 172.55
Industrials 77 149.29
Information Technology 53 160.91
Materials 35 133.14
Telecommunication Services 14 135.75
Utilities 17 143.74
Total 299
Table 9: Test Statistics for Kruskal-Walis Test
Disclosure_Scores
Chi-Square 5.597
df 9
Asymp. Sig. .779
a. Kruskal Wallis Test
b. Grouping Variable: Industries
Discussion
From the analysis conducted so far, it has been observed that there is difference in the
disclosure scores between the companies that have adopted initiatives to reduce carbon emissions
and the companies that have not taken initiatives in reducing carbon emissions. Also, it has been
observed that the amount of carbon emissions has reduced considerably after taking the
initiatives. The reduction in the carbon emission will reduce the environmental pollution and

18AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
thus, the risks for the people as well as for the companies will also reduce. The stakeholders will
also not be at risk for their investment. The environmental pollution provides climatic changes
and natural calamities which in turn affects the performance of the companies. If the
performance of the companies falls, the investment done by the stakeholders will also be at risk.
Thus, this reduction is beneficial to both the companies as well as to the stakeholders.
Thus, it can be seen clearly that the agency theory is not directly related to the carbon
emissions. The effect of carbon emissions and disclosure scores are risking the stakeholder’s
investments and thus affecting the company. Thus the agency theory is affected by the
stakeholder theory.
Table 10: Summary of Hypothesis Testing
Null Hypothesis Test Sig. Decision
1
The distribution of Disclosure
Scores is the same across
categories of Organizational
Initiatives
Independent
Samples Mann-
Whitney U Test
0.025
Reject the Null
Hypothesis.
2
The distribution of Disclosure
Scores is the same across
categories of Industries
Independent
Samples
Kruskal-Walis
H-Test
0.779
Reject the Null
Hypothesis
Asymptotic significances are displayed. The significance level is 0.05.
Limitations and Further Research

19AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
In this study, differences between the carbon disclosure scores has been assessed based
on the initiatives taken by the organizations and on the different types of industries. Significant
differences have been observed in case of both the tests. To conduct this test only 306 companies
have been considered across the world which is very small percentage. Thus, from here, it can be
said that the results can be different if more industries are considered.
In the study the difference in the disclosure scores have been assessed only on the basis
of initiatives taken by the organizations and also on the basis of different types of industries. This
might not be sufficient criterion to understand the differences. The climatic conditions are also
responsible for the differences in the disclosure scores which has not been considered in the
study.
Thus, this study can be proceeded further by considering a larger sample size of
companies containing data on the most recent years. Comparison can be conducted on the
difference in the carbon disclosure scores and carbon emissions of the companies before
adopting and after adopting any initiatives to reduce the emissions. This will help in
understanding how much the initiatives taken has been significant for the companies. Climatic
changes can also be a factor for the differences in the disclosure scores. Thus the study can be
specified to different geographical regions or countries and be compared accordingly.

20AGENCY THEORY AND CARBON DISCLOSURE IN AUSTRALIAN COMPANIES
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