Impact of Incentives on Carbon Disclosure Score

MGT723 Research Project
Semester 2 2018
Assessment Task 1: Research Proposal
Student Name:XXX
Draft Research Question: XXX
Title:XXX
Submission Date: XXX
Acknowledgement:
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understand that the source of ideas must be referenced and that quotation marks and a
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Literature Review– Summary
The relationship between the carbon emission and the economic activities of the firms has
been one of the most researched topic in last two decades. With increasing size and the reach
of the firms there has been significant change in the climate and it has become one of the
most significant global threat. The carbon emission from the firm, (especially from the
manufacturing sector), has affected the climate and the global temperature has increased. So,
the current research is aimed to examine impact of the incentive provided for the
management on the voluntary disclosure of the carbon emission(Behram & Özdemirci 2014;
Skaza et al. 2013).
This process is related to the agency theory of the corporate governance. According to the
agency theory there is conflict among the stakeholders and the management in the
organisation(Wiseman 2012; Duh 2010; M. Jensen & Meckling 1976; Wanyonyi & Tobias
2013). On one hand the management’s main objective is to maximize their compensation,
irrespective of the financial performance of the firm. So the managers may such decision
which may be good for the short term return but the long term return to the company and its
stakeholders are very less(Ghazouani 2013; M. C. Jensen & Meckling 1976; Vergas1 et al.
2015). On the other hand the stakeholders of the company wants to maximize the long term
returns. One of the stakeholders of the firms is the government and the local communities,
and the return for those stakeholders is the clean and safe environment. So, there is
continuous conflict among these stakeholders and the management, which led to the rise of
similar problem of agency theory. According to a recent research firms wants to produce
more and earn higher profit without caring much about the environment. Whereas the
government and the local communities wants to ensure that the firms are following the
environmental guidelines provided by the government of the international organisations.
To ensure that the firms are operating as per the given guidelines the firms are asked to
disclose their carbon emission every year. Some firms voluntarily disclose the carbon
emission, however some firms do not disclose the actual data. On the basis of the carbon
disclosure the disclosure score is determined. Many previous scholars have used this
disclosure score as the proxy for the corporate governance also. According to some research,
if the firm provide incentives to its managers for complying with the carbon emission
guidelines then the managers are expected to work towards reducing the carbon emission.
Some previous studies have shown that the carbon emission have declined in some firms
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where the managers are provided with both cash and kind incentives for reducing the carbon
emission. On the other hand if the incentives are not provided than the managers are expected
to find other ways to maximize their compensation which may be harmful to the
environment, such as usage of low quality raw material, using banned chemicals
etc(KamelMadi et al. n.d.; Najah & Cotter 2010; Reid & Toffel 2009).
So, in the current research the relationship between the incentive for the managers and the
carbon disclosure score will be analysed. There has been some previous research in the
similar area, however there is no unique conclusion from those research. Some research has
shown that increasing the incentive leads to lower carbon emission, whereas some scholars
have found that there is no effect of providing incentive. However none of the research has
shown negative impact of incentive on carbon emission.
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