Environmental information disclosure and corporate performance: Evidence from Chinese listed companies

Abstract

Corporate energy consumption and emissions are major contributors to pollution and greenhouse gas emissions. Therefore, corporate energy conservation and emission reduction are essential for sustainable development and low-carbon transformation in China. With pressing global environmental issues and the mounting pressure for carbon neutrality, it is increasingly important for firms to disclose environmental information. However, research on the relationship and mechanisms between corporate environmental information disclosure (EID) and corporate performance is insufficient. This study examines the effect of EID on corporate environmental performance (EP) and financial performance (FP) using a two-way fixed-effect model. For this purpose, this study considers the panel data of 1125 Chinese A-share listed companies from 2009 to 2021. Additionally, we explore the underlying mechanisms using mediation models. The results reveal that EID can significantly improve corporate performance through green innovation (GI). Moreover, EID can enhance corporate GI, which improves the financial performance of high-polluting firms and the environmental performance of non-high-polluting firms. According to these results, it is imperative to continuously improve corporate EID systems and encourage GI in enterprises. Thus, firms should take the initiative to disclose environmental information. There is a pressing need to enhance the effectiveness of the capital market, therefore, firms with higher levels of EID and better environmental performance can gain greater benefits.

1. Introduction

The escalation of environmental challenges has aroused public concern worldwide. Currently, China is under huge pressure to achieve carbon neutrality, and sustainable development has become a critical issue. As one of the primary contributors to greenhouse gas emissions and pollutants, firms have great potential to reduce emissions [1], and governance at the firm level would bring about significant environmental improvement.

The growing concern for environmental issues and sustainable development has resulted in a shift in stakeholders’ expectations for corporate information and a change in the investment philosophy of capital markets. In recent years, environmental, social, and governance (ESG) investments have grown rapidly and become the focus of international capital markets [2]. It integrates environmental, social, and corporate governance into the traditional investment principles which primarily consider profitability and financial performance. Environmental information disclosure (EID) is a key focus of ESG investments, calling for firms to proactively take on environmental responsibility. It also serves as an important tool to enhance the transparency of corporate information and enables stakeholders to assess corporate environmental performance.

Corporate EID refers to the disclosure of various types of environmental information, such as internal environmental management, pollution monitoring data, and environmental behaviours, that have a significant impact on the public and investors or can pose market risks or affect public and investor interests. Environmental information is typically included in regular or interim announcements attached to corporate annual reports or independently released social responsibility reports. In recent years environmental information disclosure, as a typical example of informal environmental regulation, has gradually become an integral part of the governmental environmental governance system [3]. In 2008, the Shanghai Stock Exchange formulated the Guidelines for Environmental Information Disclosure of Listed Companies, which was the first time in China that listed firms were encouraged to reveal environmental information associated with investment and finance. In 2010, the Ministry of Ecology and Environment (MEE) released the Guidelines for the Environmental Information Disclosure of Listed Companies, providing general guidance on EID to all A-share listed firms. In 2021, the MEE issued the Reform Plan for the Legal Environmental Information Disclosure System, introducing new requirements and identifying new directions for corporate EID in China in the new era.

Accurate, genuine, and complete disclosure of corporate environmental information is essential for promoting the modernization of environmental governance systems. However, the following issues require further investigation: can firms benefit from EID? Can EID contribute to corporate environmental performance and help them achieve better financial performance? There exist numerous studies on the relationship between corporate EID and corporate performance, however, the results of these studies vary widely based on different theories, including signaling theory and legitimacy theory. Some studies have examined the relationship between EID and corporate financial performance and found that EID can enhance financial performance. Cormier and Magnan [4] suggested that EID can enhance the quality of analysts' information contexts and lead to better financial forecasts. Hu et al. [5] discovered that corporate EID has a positive effect on the available loan size. Wang et al. [6] arrived at the same conclusion, supporting the signaling theory and asymmetry information theory. However, contradictory findings have been reported in other studies. Ren et al. [7] and Tao et al. [8] identified a negative relationship between EID and financial performance using a sample of high-polluting Chinese listed firms, suggesting that the market may interpret corporate EID as a sign of potential environmental expenses. Xi et al. [9] found that the quality of EID has an intertemporal positive effect on Chinese listed banks’ financial performance. Siddique et al. [10] believed that the impact of EID on corporate financial performance changes over time, with a negative impact in the short term and a positive impact in the long term. However, Qiu et al. [11] found no significant relationship between EID and financial performance.

Regarding the correlation between EID and environmental performance, there exist varying results. Latridis [12] found a positive correlation between EID and corporate environmental performance, suggesting that high-quality environmental disclosers indicate effective corporate governance. Wu et al. [13] obtained similar results. However, using a sample of top international firms, Aragon-Correa et al. [14] found that firms with better records of EID have worse environmental performance, possibly because firms seek legitimacy for their environmental activities through voluntary disclosure. Lv et al. [15,16] argued that companies with worse environmental performance are more willing to disclose information to alleviate stakeholder concerns. Furthermore, Dawkins and Fraas [17], Shen et al. [18] and Li et al. [19] identified non-linear relationships, revealing a U-shaped correlation between EID and corporate environmental performance.

In terms of research samples, existing studies primarily focus on certain industries such as high-polluting firms, whereas other industries have been studied inadequately. Additionally, most studies on EID rely on extracting data from annual reports and developing subjective index systems to score corporate EID, which may not be reliable. Several studies considered only financial or environmental performance and did not analyze both comprehensively. Moreover, research on the mechanisms through which EID affects firm performance remains limited. Therefore, to address the research gap, this study focuses on the following: First, a sample of 1125 A-share listed firms was selected, and we used a two-way fixed effects model to analyze the effect of EID on corporate financial and environmental performance, achieving an industry-wide coverage. Second, we use the Bloomberg EID scores to evaluate corporate EID, which is more authoritative and reliable than sorting out environmental information from corporate reports. Furthermore, a heterogeneity analysis was conducted, and we explored the mechanisms of green innovation (GI), extending Porter's hypothesis that environmental regulation enhances corporate financial performance to the dimension of environmental performance. The results showed that EID can improve corporate performance, in which GI plays an important mediating role.

The rest of the paper is organized as follows. In Section 2, the literature review is presented, and the hypotheses are derived. Section 3 describes the data sources and methodology. Section 4 discusses the empirical findings and robustness tests. Finally, conclusions, limitations, and recommendations for future research are presented in Section 5.

2. Literature review and hypothesis development

2.1. Environmental information disclosure and environmental performance

The basic purpose of an EID system is to increase firms’ awareness of environmental protection and enhance their autonomy in reducing greenhouse gas emissions, thereby regulating their environmental behaviour, improving their environmental performance, and promoting corporate low-carbon transformation. The EID systems and relevant policies can stimulate environmental investment, boost clean production, and significantly improve corporate environmental performance [[20], [21], [22]]. The level of corporate EID reflects institutional [3] and stakeholder pressures [23] at the firm level, and firms expect their disclosures to be beneficial for themselves. The corporate EID system implemented in China is a combination of mandatory and voluntary. Mandatory EID requirements target high-polluting firms. According to legitimacy theory, legitimacy is a key resource for the survival and growth of organizations, and EID is a legitimate strategy for companies [24]. Under an increasingly strict and refined EID system, high-polluting firms enhance their EID levels to improve public goodwill and present their legitimate image [25,26]. Firms are also internally motivated to improve their environmental performance because of the pressure to disclose information, which contributes to better environmental performance. For non-high-polluting firms, EID is mostly voluntary. According to signaling theory, non-high-polluting firms can distinguish themselves from firms with poorer environmental performance by proactively disclosing more environmental information [13], and firms are motivated to further improve their environmental performance under the pressure of the EID system and stakeholder concerns. It has been over a decade since China introduced relevant policies requiring enterprises to disclose environmental information in 2008; therefore, it is of practical significance to examine whether corporate EID can contribute to environmental performance improvement. Based on the above discussion, we formulate the first hypothesis as follows:

H1

Environmental information disclosure is positively related to corporate environmental performance.

2.2. Environmental information disclosure and financial performance

Several studies have been conducted on the relationship between corporate EID and corporate financial performance, and the results based on different theories vary widely. According to signaling theory, corporate EID can effectively demonstrate commitment and actions towards environmental protection, send positive signals to the outside world, and contribute to the enhancement of corporate reputation, which in turn improves financial performance [27]. Richardson et al. [28] assumed that EID affects firm value through three channels: market process, cash flow, and discount rate effects. Studies based on the legitimacy theory mostly find a negative relationship, suggesting that EID imposes additional costs on firms [29] and is detrimental to their financial performance. In recent years, China's efforts in developing its EID systems and capital markets have led to an increase in corporate environmental awareness and information disclosure. Consequently, the public and stakeholders are now more concerned about companies' environmental performance. Therefore, this study assumes that corporate EID can elicit positive responses and lead to greater financial benefits. In this context, we propose the following hypothesis:

H2

Environmental information disclosure is positively related to corporate financial performance.

2.3. The mediating effect of green innovation

The Porter Hypothesis [30] asserts that well-designed environmental regulations can encourage innovation and significantly improve firms' benefits and competitiveness. In recent years, China's corporate EID system has improved with increasingly stringent requirements. The EID system pressurizes firms through regulators, which encourages them to disclose more information and improve their performance through GI [31]. However, the disclosure of environmental information attracts investors who care about corporate sustainability [32] and environmentally sensitive customers [33], raising the demand for environmentally friendly products and clean technologies, forcing firms to make green investments and bring about more GI [[34], [35], [36]]. Green innovation is not only effective in promoting pollution control and emissions reduction, improving corporate environmental performance [37,38], expanding the production of environmentally friendly products, and gaining consumer preferences [39] but also in improving the efficiency of resource use and creating a good corporate image [40]. A firm's operating costs can be partially offset by innovation which can lead to higher profits [41]. Several studies have observed the positive effect of GI on firm performance [[42], [43], [44]]. In this context, we propose the following hypothesis:

H3

Green innovation mediates the relationship between environmental information disclosure and corporate environmental and financial performance.

3. Data and methodology

3.1. Data collection and sample

This study considered the sample of Chinese A-share listed companies (Shanghai and Shenzhen Stock Exchanges) with EID scores graded on the Bloomberg Financial Terminal. The EID data were scored by Bloomberg based on the extent of corporate EID without considering environmental performance, with scores ranging from 0 to 100. Corporate environmental performance data were derived from the SSI ESG Rating Index. Corporate financial data were obtained from the China Stock Market and Accounting Research database (CSMAR), and corporate GI data were obtained from the Chinese Research Data Services Platform (CNRDS). The sample ranges from 2009 to 2021, with 462 firms in 2009 and 1125 in 2021, forming an unbalanced panel containing 10,402 firm-year observations. Firms with missing financial information or abnormal operating conditions were excluded (marked ST,*ST, or PT). To avoid the effects of extreme values and ensure the robustness of the results, all financial variables are winsorized at the 1 % level in both tails.

3.2. Measures

3.2.1. Dependent variables

Corporate environmental and financial performance are the two dependent variables in this research. The Sino-Securities Index (SSI) launched Chinese ESG ratings, considering the reality of the Chinese capital market and the characteristics of various listed firms, and setting 44 key indicators for ESG performance evaluation [45]. The E ratings under ESG were used to measure corporate environmental performance (EP) in this study and Table 1 presents the indicators. The E ratings include five main themes and 26 key indicators as listed in Table 1, which evaluate corporate efforts and achievements to reduce the negative environmental impact of business operations, given environmental risk exposure. The environmental ratings are divided into nine grades, namely C, CC, CCC, B, BB, BBB, A, AA, and AAA, and the dependent variable EP is constructed based on the environmental ratings using the assignment method; the nine grades from C to AAA are assigned as 0–8, that is, when the rating is C, EP = 0, when the rating is CC, EP = 1, and so on. The ROE and ROA are accounting-based proxies that are frequently used to evaluate a firm's financial performance [46], whereas Tobin's Q is commonly used as a market-based proxy [47]. Hence, ROE was used to measure corporate financial performance in this research for the primary analysis and Tobin's Q for the robustness test.

Table 1.

Indicators for corporate environmental performance.

Theme	Key indicators
Climate change	GHG emissions and paths to reduction, tackling climate change, sponge city, green finance.
Resource utilization	Land use and biodiversity, water consumption, materials consumption.
Environmental pollution	Industrial emissions, hazardous waste, e-waste.
Environmentally friendly	Renewable energy, green building, green factory.
Environmental governance	Sustainability certification, supply chain management, environmental punishment

3.2.2. Independent variable

Table 2 presents all the variables and definitions. The core independent variable was corporate EID. The reliability of the data affects the reliability of the results. Currently, there is a lack of authoritative institutions in China that can rate corporate EID. To measure EID, most studies extract information from corporate annual reports and develop their own index systems, which may not be credible. Bloomberg provides ESG disclosure scores graded by several international authorities, including the S&P, Ideal Ratings, Sustainalytics, and CDP. Bloomberg has assigned ESG disclosure scores of worldwide listed companies comprehensively based on data collected via multiple sources, including annual reports, standalone sustainability reports, and company websites. Therefore, the EID data used in this study were the E scores developed by Bloomberg, which are more comprehensive and authoritative. The selection and explanation of other variables in this study are also explained in Table 2.

Table 2.

Variable definitions.

Variables	Names	Symbols	Definitions
Dependent variable	Corporate financial performance	FP	Corporate ROE (return on equity)
	Corporate environmental performance	EP	E scores by Sino-Securities Index Information Service (Shanghai) Co.Ltd
Independent variable	Corporate environmental information disclosure	EID	Corporate Environmental information disclosure score from Bloomberg
Control variables	Equity nature	State	State = 1 if the company is state-owned, and State = 0 vice versa.
	Asset-liability ratio	Leverage	Total liability/Total asset
	Corporate size	Size	Logarithm of the total assets
	Growth ability	Growth	Growth rate of operating income
	Shareholding ratio of the largest shareholder	Holder1	Shares held by the largest shareholder/number of total outstanding shares
Mediating variable	Corporate green innovation	GI	Logarithm of (1+green patents applied by enterprises in the given year)

3.2.3. Mediating variable

This study uses corporate GI as a mediating variable to explore the indirect mechanism underlying the impact of EID on corporate performance. The GI is expressed as the logarithm of (1+green patents applied by enterprises in a given year).

3.3. Regression models

A multiple linear regression model is used to analyze the panel data. ${\omega }_i$ and ${\tau }_t$ are unobserved firm-specific fixed effect and year-specific fixed effect respectively, which can address potential endogeneity issues arising from unobservable factors that do not change over time or individually. ${\epsilon }_{it}$ is the disturbance term independent and identically distributed across firms and over time. Robust regressions are performed to address heteroscedasticity.

The models are formulated as follows: Models (1) and (2) explore the direct effects of EID on corporate environmental and financial performance, respectively. To examine the mediating effect of GI, we use models (3) and (4) with reference to Wang and Ge [22] and Wu et al. [48]. Model (3) tests the effect of EID on corporate GI, and Model (4) examines the effect of GI on corporate performance. If the coefficients c₁ and d₁ are significant, it implies that GI plays a mediating role between EID and corporate performance.

$${EP}_{it}=a_0+a_1\bullet {EID}_{it}+\sum a_2\bullet {Controls}_{it}+{\omega }_i{+{\tau }_t+\epsilon }_{it}$$ (1)

$${\text{FP}}_{it}=b_0+b_1\bullet {EID}_{it}+\sum b_2\bullet {Controls}_{it}+{\omega }_i{+{\tau }_t+\epsilon }_{it}$$ (2)

$${GI}_{it}=c_0+c_1\bullet {EID}_{it}+\sum c_2\bullet {Controls}_{it}+{\omega }_i{+{\tau }_t+\epsilon }_{it}$$ (3)

$${{EP}_{it}(FP}_{it})=d_0+d_1\bullet {GI}_{it}+\sum d_2\bullet {Controls}_{it}+{\omega }_i{+{\tau }_t+\epsilon }_{it}$$ (4)

4. Results and discussions

4.1. Descriptive analysis

Table 3 presents the results of the descriptive analysis of the 10,402 firm-year observations. Enterprises’ EID scores varied significantly. The average EID score of the sample firms is 7.394, which is low. The highest score is 71.25 and the lowest score is 0. In general, the corporate EP scores are also concentrated at a relatively low level with an average score of 1.176.

Table 3.

Descriptive analysis.

VARIABLES	Observations	Mean	Sd	Min	Max
EID	10,402	7.394	11.030	0	71.25
EP	10,402	1.176	1.292	0	8
FP	10,402	0.103	0.103	−0.304	0.419
State	10,402	0.519	0.500	0	1
Leverage	10,402	0.483	0.204	0.0703	0.929
Size	10,402	4.769	1.322	2.152	9.126
Growth	10,402	0.201	0.415	−0.497	2.673
Holder1	10,402	37.25	16.55	8.180	77.35
GI	10,402	1.160	1.360	0	7.074

Fig. 1 and Fig. 2 depict the distribution of the EID scores and corporate environmental performance of listed firms from 2009 to 2021, respectively. Generally, the level of corporate EID improved significantly over the 13 years. In the years leading up to 2016, the average score for corporate EID was below 5, indicating a slight improvement each year. After 2017, the EID improved significantly, and the average industry-wide EID score in 2021 reached 18.64, approximately 10 times the 2009 level. Although the current average EID level remains low, notable progress has been made over the years, reflecting increased corporate concerns regarding environmental issues and information disclosure. Corporate EP has also improved in recent years; however, its progress has not been as noticeable as that of EID. The EP of different enterprises varies significantly, and most firms are rated at a low level of C ∼ CCC.

Fig. 1.

Corporate EID from 2009 to 2021.

Fig. 2.

Corporate EP from 2009 to 2021.

The sample firms were categorized into high-polluting firms (HP) and non-high-polluting firms (NHP) based on the 2012 Industry Classification Standard established by the China Securities Regulatory Commission and [49]. In the following section, a heterogeneity analysis is conducted based on whether firms are high-polluting or not.

4.2. Pearson correlation analysis

The correlations between the variables are presented in Table 4. Corporate EID is significantly and positively correlated with EP (p < 0.01), which tentatively supports H1. Corporate EID is significantly and positively correlated with FP (p < 0.01), confirming H2. However, to obtain more reliable results on the effects of EID on EP and FP, it is necessary to include control variables and conduct further analyses.

Table 4.

Pearson's correlation matrix.

	EID	EP	FP	State	Leverage	Size	Growth	Holder1
EID	1.000
EP	0.209***	1.000
FP	0.061***	−0.014	1.000
State	−0.026***	0.047***	−0.149***	1.000
Leverage	0.024**	0.114***	−0.162***	0.222***	1.000
Size	0.289***	0.182***	0.006	0.234***	0.557***	1.000
Growth	0.005	−0.074***	0.284***	−0.100***	0.032***	−0.027***	1.000
Holder1	0.006	−0.029***	0.095***	0.231***	0.029***	0.123***	0.007	1.000

Note: *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

4.3. Regression analysis

4.3.1. Environmental information disclosure and environmental performance

Table 5 presents the results of a multiple regression analysis examining the impact of EID on EP using a two-way fixed-effects model. Only the explanatory variable EID is employed in column (1) and the control variables are added to test the effect of EID on EP in column (2). Columns (3) and (4) categorize the firms based on whether they are high-polluters or not, and perform separate regression analyses. The results indicate that EID significantly enhances EP (p < 0.01) in both high-polluting and non-high-polluting firms, suggesting that EID policies in China have been effective and that the positive response of listed firms to these policies has contributed to the improvement of corporate EP across all industries. Larger firms tend to have better EP, as they possess greater financial resources to support their efforts to improve environmental issues. The revenue growth rate has a significant negative correlation with environmental performance, possibly because of the lower priority given to environmental issues by firms with rapid growth.

Table 5.

The effects of EID on EP.

VARIABLES	(1)	(2)	(3)	(4)
	EP	EP	EP HP	EP NHP
EID	0.0117***	0.0110***	0.0085***	0.0126***
	(5.3904)	(5.1005)	(2.7145)	(4.3791)
State		0.2776**	0.4259*	0.1871
		(2.4224)	(1.7432)	(1.4366)
Leverage		−0.1252	0.0115	−0.1242
		(-0.8621)	(0.0488)	(-0.6800)
Size		0.1221***	0.1100	0.1379***
		(2.9076)	(1.5396)	(2.7190)
Growth		−0.0759***	−0.0006	−0.0904***
		(-3.4890)	(-0.0119)	(-3.6486)
Holder1		−0.0012	−0.0001	−0.0015
		(-0.4950)	(-0.0172)	(-0.4492)
Constant	0.6598***	0.1815	−0.0273	0.2161
	(14.4483)	(0.8785)	(-0.0814)	(0.8203)
Obs	10,402	10,402	3289	7113
R2	0.097	0.102	0.121	0.097
Firms	1125	1125	373	812
Firm FE	YES	YES	YES	YES
Year FE	YES	YES	YES	YES

Note: t-statistics are presented in parentheses. *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

4.3.2. Environmental information disclosure and financial performance

Table 6 demonstrates the impact of EID on corporate financial performance. Only EID is included in column (1). In column (2), the control variables are added to test the effect of EID on financial performance. To examine the effect of EID on FP, columns (3) and (4) categorize firms based on whether they are high polluters. As shown in columns (1) and (2), EID has a significant positive effect on corporate financial performance. The equity of listed firms is significantly correlated with FP. State-owned enterprises have a lower level of FP, as shown below, which is consistent with prior research stating that state-owned enterprises are generally inefficient in resource allocation [50,51] leading to poorer financial performance. The correlation between leverage and corporate FP is negative (p < 0.01), whereas the size and growth of firms show a positive correlation with corporate FP (p < 0.01). These results are consistent with real-world scenarios.

Table 6.

The effects of EID on FP.

VARIABLES	(1)	(2)	(3)	(4)
	FP	FP	FP HP	FP NHP
EID	0.0010***	0.0007***	0.0005*	0.0006***
	(5.5973)	(4.3001)	(1.8347)	(2.6502)
State		−0.0317***	−0.0289	−0.0257*
		(-2.7250)	(-1.4565)	(-1.8180)
Leverage		−0.1794***	−0.1761***	−0.1556***
		(-9.9503)	(-5.4805)	(-7.4948)
Size		0.0258***	0.0225***	0.0264***
		(6.9239)	(2.7724)	(6.1449)
Growth		0.0583***	0.0695***	0.0517***
		(17.8273)	(10.6387)	(14.1163)
Holder1		0.0006**	−0.0002	0.0008***
		(2.4707)	(-0.4111)	(2.8325)
Constant	0.1400***	0.1069***	0.1492***	0.0825***
	(36.6497)	(6.6815)	(4.9943)	(4.1639)
Obs	10,402	10,402	3289	7113
R2	0.068	0.188	0.186	0.202
Firms	1125	1125	373	812
Firm FE	YES	YES	YES	YES
Year FE	YES	YES	YES	YES

Note: t-statistics are presented in parentheses. *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

4.4. Mediating effect analysis

According to previous theoretical analyses, EID may enhance the level of GI of firms, which may, in turn, promote firms' performance. To test this mechanism, we use the number of corporate green patent applications as a proxy for a firm's GI level and examine the role of EID in firm performance by influencing GI. Columns (1) and (2) of Table 7 present the estimated results for the impact of EID on firms' GI. The results indicate that the coefficients of EID are 0.0066 and 0.0047, statistically significant at the 5 % level, indicating that EID can significantly improve corporate GI in both high-polluting and non-high-polluting firms. These findings support the weak Porter hypothesis and align with those of [31,32,52].

Table 7.

The mediating effect of green innovation.

VARIABLES	(1)	(2)	(3)	(4)	(5)	(6)
	GI HP	GI NHP	EP HP	EP NHP	FP HP	FP NHP
EID	0.0066**	0.0047**
	(2.3716)	(2.4340)
GI			0.0028	0.0776***	0.0042*	−0.0011
			(0.1036)	(3.5572)	(1.6712)	(-0.6609)
State	0.0410	0.2304*	0.4241*	0.1731	−0.0291	−0.0253*
	(0.2540)	(1.6912)	(1.7400)	(1.2816)	(-1.4860)	(-1.7754)
Leverage	−0.0306	0.0286	−0.0204	−0.2006	−0.1775***	−0.1591***
	(-0.1279)	(0.1610)	(-0.0853)	(-1.0887)	(-5.5494)	(-7.6440)
Size	0.2729***	0.3245***	0.1283*	0.1497***	0.0223***	0.0285***
	(4.1352)	(7.5228)	(1.7999)	(2.8810)	(2.7173)	(6.5801)
Growth	−0.0430	0.0160	0.0008	−0.0933***	0.0697***	0.0517***
	(-1.1985)	(0.6558)	(0.0181)	(-3.7034)	(10.6846)	(14.0692)
Holder1	−0.0017	0.0005	−0.0007	−0.0009	−0.0002	0.0009***
	(-0.4382)	(0.1318)	(-0.1919)	(-0.2689)	(-0.4815)	(2.9474)
Constant	−0.5743*	−0.9540***	−0.0449	0.1788	0.1507***	0.0762***
	(-1.6801)	(-3.5647)	(-0.1341)	(0.6733)	(5.0125)	(3.8627)
Obs	3289	7113	3289	7113	3289	7113
R2	0.191	0.252	0.116	0.093	0.186	0.200
Firms	373	812	373	812	373	812
Firm FE	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES

Note: t-statistics are presented in parentheses. *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

We then examine the effect of firm GI on firms’ environmental and financial performances, and the results are presented in columns (3)–(6) of Table 7. The results in columns (3) and (4) indicate that non-high-polluting firms can significantly improve their environmental performance by improving their GI, with a coefficient of 0.0776 (p < 0.01). This finding suggests that EID improves environmental performance by promoting corporate GI. However, this coefficient is not pronounced for high-polluting firms. This result can be explained by the following two reasons. First, it should be noted that high-polluting firms are typically energy-intensive and have a high consumption of materials because of the nature of their industries. The EP of high-polluting firms is unlikely to be improved by GI in the short term when compared to that of non-high-polluting firms, because it may take some time for their green technology and process innovation to transition from patent to practice. Second, the EP index system used in this study is highly comprehensive, however, it has certain limitations that should be considered. Although the system assigns different weights to indicators from different industries, it may fail to fully capture the industry-specific characteristics of environmental performance. Therefore, when developing indicators to evaluate future environmental performance, it is important to consider the diversity and unique environmental characteristics of each industry.

The regression results in columns (5) and (6) imply that green innovation can contribute to the financial performance of high-polluting firms. This means that the benefits of GI can partly offset the costs invested in innovation and other environmental issues for high-polluting firms, which is consistent with the findings of [53]. However, for non-high-polluting firms, the effect of GI on FP is insignificant. One reason may be that GI in non-high-polluting firms primarily includes green services or organizational behaviour, which do not significantly affect firms’ financial performance [54].

Green innovation is a crucial mechanism for EID to influence corporate performance. The EID can contribute significantly to corporate GI, which can ultimately have a positive impact on corporate performance. These results indicate that other mechanisms must be explored.

4.5. Robustness test

Certain key variables are substituted to enhance the robustness of the findings. First, the accounting-based proxy, ROE, was replaced with Tobin's Q. The effects of EID on Tobin's Q are presented in Table 8. These results are robust and consistent with those of the previous analysis, suggesting that EID has a robust and positive effect on corporate financial performance.

Table 8.

Robustness test: the effects of EID on Tobin's Q.

VARIABLES	(1)	(2)	(3)	(4)
	Tobin's Q	Tobin's Q	Tobin's Q HP	Tobin's Q NHP
EID	0.0103***	0.0121***	0.0081**	0.0152***
	(4.6215)	(5.4663)	(2.1210)	(5.6104)
State		−0.4183***	−0.2014	−0.5227***
		(-2.9894)	(-1.0166)	(-2.8657)
Leverage		0.2339	−0.0779	0.4047*
		(1.3234)	(-0.2338)	(1.9061)
Size		−0.2915***	−0.1732**	−0.3248***
		(-6.1816)	(-2.1448)	(-5.3228)
Growth		0.0999***	0.2222***	0.0483*
		(3.7798)	(3.9187)	(1.6587)
Holder1		−0.0131***	−0.0162***	−0.0112***
		(-4.8696)	(-4.2004)	(-3.0139)
Constant	2.5167***	4.2265***	4.2421***	4.0892***
	(50.9258)	(18.4341)	(11.5912)	(13.7599)
Obs	10,273	10,273	3253	7020
R2	0.131	0.152	0.154	0.164
Firms	1125	1125	372	812
Firm FE	YES	YES	YES	YES
Year FE	YES	YES	YES	YES

Note: t-statistics are presented in parentheses. *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

The previous section employed the logarithm of the total number of green patents applied annually, encompassing both green inventions and green utility models, as a metric to measure corporate GI. However, some studies have suggested that green inventions may better exemplify innovation than green utility models [55]. Therefore, we used the number of green inventions applied for by firms in a given year, represented as Ln(green inventions +1), to quantify green innovation as GI. The results presented in Table 9 align with the regression analyses in the previous sections and demonstrate the significant and robust indirect impact of GI.

Table 9.

Robustness test: replace GI with GI’.

VARIABLES	(1)	(2)	(3)	(4)	(5)	(6)
	GI’ HP	GI’ NHP	EP HP	EP NHP	FP HP	FP NHP
EID	0.0058**	0.0059***
	(2.4829)	(3.0088)
GI’			−0.0122	0.0905***	0.0053*	−0.0018
			(-0.3667)	(3.5019)	(1.7597)	(-0.9829)
State	−0.0400	0.2430*	0.4237*	0.1690	−0.0287	−0.0251*
	(-0.3329)	(1.9431)	(1.7391)	(1.2549)	(-1.4640)	(-1.7627)
Leverage	−0.0995	−0.1056	−0.0220	−0.1879	−0.1771***	−0.1593***
	(-0.5049)	(-0.6519)	(-0.0920)	(-1.0183)	(-5.5427)	(-7.6442)
Size	0.2307***	0.2741***	0.1321*	0.1496***	0.0222***	0.0286***
	(4.1807)	(6.6049)	(1.8564)	(2.8690)	(2.7134)	(6.6343)
Growth	0.0074	0.0045	0.0008	−0.0925***	0.0695***	0.0517***
	(0.2297)	(0.2026)	(0.0177)	(-3.6755)	(10.6313)	(14.0632)
Holder1	−0.0028	0.0001	−0.0008	−0.0009	−0.0002	0.0009***
	(-0.8847)	(0.0332)	(-0.2035)	(-0.2639)	(-0.4595)	(2.9461)
Constant	−0.4374	−0.8893***	−0.0521	0.1867	0.1506***	0.0756***
	(-1.5743)	(-3.5021)	(-0.1559)	(0.7040)	(5.0239)	(3.8285)
Obs	3289	7113	3289	7113	3289	7113
R2	0.138	0.228	0.116	0.093	0.186	0.200
Firms	373	812	373	812	373	812
Firm FE	YES	YES	YES	YES	YES	YES
Year FE	YES	YES	YES	YES	YES	YES

Note: t-statistics are presented in parentheses. *, ** and *** represent significance levels of 10 %, 5 % and 1 %, respectively.

5. Conclusions

This study evaluated the EID of listed firms in China in recent years and examined its relationship with corporate environmental and financial performance. For this purpose, we considered unbalanced panel data of 1125 A-share listed enterprises from 2009 to 2021. The mediating effect of corporate GI was further analyzed. The results indicate that although listed firms increasingly prioritize environmental concerns and information disclosure, their efforts in EID remain relatively inadequate, presenting a significant potential for enhancement. The EID can significantly improve corporate environmental and financial performances, with GI playing a crucial mediating role. Based on the results and conclusions, implications can be proposed for the future optimization of EID policy, corporate GI, and the low-carbon transition of the Chinese economy.

First, there is a significant potential for corporate EID enhancement in China. China's current EID policy lacks mandatory disclosure items and relies heavily on voluntary disclosure, resulting in insufficient motivation for firms to comprehensively disclose their environmental information. In the future, China should implement more stringent EID policies and increase the mandatory items for such disclosures. Particularly in the context of carbon peak and neutrality, the scope of disclosure entities should be expanded, and firms should disclose comprehensive information on pollutants and carbon emissions. In addition, the government should introduce appropriate incentives to encourage firms that actively disclose environmental information and penalize those that fail to do so effectively. This helps enhance firms' motivation to disclose environmental information.

Second, the significant enhancement in both the environmental and financial performance of firms resulting from EID indicates that China's EID policy has yielded satisfactory outcomes. However, the direct effect of EID on financial performance varies across industries. Therefore, it is imperative to enhance capital market efficiency continuously and encourage investors to incorporate firms' EID into their investment decision-making processes.

Third, governments should encourage green investment and innovation by providing subsidies and other preferential policies to fully leverage the direct and indirect effects of EID on corporate performance. Moreover, the government and media should enhance their efforts to promote awareness among the public and investors regarding corporate environmental information and performance, ensuring that companies that actively disclose environmental information and perform well are rewarded with greater benefits in the capital market. From a corporate perspective, managers should prioritize environmental issues, cultivate an environmentally friendly culture, and accelerate GI to maximize the return on investment in EID.

Despite several contributions, this study has some limitations. First, the mechanisms through which EID affects corporate performance are multifaceted. This study focuses solely on GI. Future research can explore other channels through which EID affects firm performance, leading to more insightful policy recommendations.

Second, although our sample covered all industries, some had a limited number of companies represented. Therefore, we analyzed heterogeneity by categorizing firms as high-polluting or non-high-polluting. This is primarily because Bloomberg has only assigned EID scores to a portion of all listed companies. The corporate environmental database should be enriched, and future research should expand the sample size and examine the impact of EID on firm performance from the perspective of industry heterogeneity.

Finally, we used EID as an antecedent of corporate performance and explored the mechanisms by which EID affects corporate performance. However, some studies suggest a mutual interaction between EID and corporate performance, which adds complexity to their relationship [56,57]. Therefore, further in-depth studies are required.

Data availability statement

Data will be made available on request.

Additional information

No additional information is available for this paper.

CRediT authorship contribution statement

Yuhan Ye: Methodology, Formal analysis. Xuan Yang: Writing – review & editing, Writing – original draft. Lei Shi: Project administration, Methodology, Conceptualization.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.