Introduction

Do political connections encourage listed companies to accurately disclose environmental information? Do these connections encourage them to produce quantitative and monetary environmental information report? When companies disclose environmental information, are they motivated by environmental protection, or do they seek to obtain additional benefits? This paper aims to analyze the above questions.

Corporate environmental information disclosure (CEID) refers to companies publicly disclosing information on environment-related objectives, management, investments, technology, and compliance with environmental regulations. Companies publish CEID in their corporate social responsibility report or annual financial report. Most developed countries have environmental information disclosure systems. Countries like the United Kingdom, France, and the United States require both listed and non-listed companies to disclose environmental information, and Germany has implemented a voluntary disclosure system (Barbu et al. 2014).

In 2007, China instigated “Environmental Disclosure Rules (Trial),” which explicitly stipulates that governments and companies should disclose their environmental information. In 2010, The Guideline of Environmental Information Disclosure for Listed Companies (referred to as The Guideline below) once again mandated companies from heavily polluted industries to periodically disclose their environmental information. Environmental information disclosure, which depends on the power of public opinions and public oversight to manage environmental pollution, is considered as a breakthrough in environmental policy and is an effective practice of “command-and-control” environmental management. Chinese listed companies do abide by regulation requirements, and they actively disclose environmental information, but the quality remains controversial.

Corporate political connection is a widespread phenomenon in the world. In Faccio’s (2002) study, which surveyed 532 firms in 42 countries, 59.8 % of top directors and 40.2 % of major shareholders have political connections, and China is no exception. Over 40 % of Chinese listed companies have hired employees who had held senior government official posts as top managers. Of the top 100 Chinese listed companies, 41 companies have retired government officials as independent directors. Political connection is more common in developing countries (Faccio 2006), like China. In Chinese culture, becoming a government official is extremely competitive and Chinese citizens are willing to be a government official not only because of instrumental reasons such as social and financial capital, but also non-instrumental reasons such as prestige.

Political connection may be one of the motives behind CEID in China. First, it is normal for state-owned enterprises to have political connections and cooperate with the government. Governments in China normally possess considerable control over the allocation of resources through their control of state-owned enterprises and the power to nominate, appoint, and review managers—especially senior ones (Wang et al. 2014; Zhang and Zhong 2011; Zhou 2009). Second, because of the high degree of control exercised by these governments and imperfections in product and credit markets, private businesses cannot fully rely on the markets to secure resources (Li et al. 2006). Most owners of private enterprises are more concerned about securing and maintaining their relationship with officials or Chinese People’s Political Consultative Conference (CPPCC) members (Wu and Jin 2008). Political connections play a role in the economic system by influencing enterprises’ decision-making processes. Zhang et al. (2014) found that political connection could improve financial performance, which will in turn lead to better fulfillment of social responsibility.

Rent-seeking strengthens the effects of political connection and promotes non-market behavior, which refers to companies making use of political channels to obtain resources such as political reputation and economic benefits (Wang et al. 2014). In order to avoid fines, companies with political connections will more actively disclose their environmental information. Political connection is a double-edged sword, especially when officials’ work performance (such as local economic growth, social management, environmental protection, etc.) is placed under review. If the official fails to meet one of the metrics, he or she will be restricted from promotion. This policy is known as the “One-Vote Veto” and increases incentives for political rent-seeking.

In 2011, the “Twelfth Five-Year-Plan of Environmental Protection” had proposed that government should develop environmental protection indicators and implement the “One-Vote Veto” policy to assess officials’ environmental protection performance. Since 2012, Hubei, Heilongjiang, etc. provinces have already started implementing the “environmental protection One-Vote Veto” policy. For example, Xi’an city government implemented a “One-Vote Veto” policy to reduce haze pollution in 2013.Footnote 1 The city evaluated and ranked the air quality of its 16 districts and used it as a factor to promote leaders. Because district leaders ranked in the bottom three would risk demotion and punishment, this creates more incentive for rent-seeking within politically connected companies. Government officials have to cooperate with firms (especially the state-owned firms) to work on environmental issues, especially when pollution control has a large proportion in the assessment index system. For example, during the 2014 APEC meeting in Beijing, the city had clear, blue skies and the air quality was close to the level of excellent which was called “APEC Blue.”Footnote 2 This was due to the government reducing production on heavily polluted industries; the government stopped production completely at 69 firms and limited production at 72 firms, most of which are state-owned.

With China’s ongoing anti-corruption campaign, many senior executives in state-owned enterprises are being investigated for corruption. These investigations reduce incentives for environmental rent-seeking behaviors, since officials are under close scrutiny. PetroChina, for example, is the dominant state-owned enterprise in the Chinese oil and gas industry. PetroChina disclosed environmental information in its 2014 Corporate Social Responsibility Report,Footnote 3 but mostly included qualitative description on its accomplishments rather than quantitative results on environmental performance. In addition, it omitted negative environmental information, such as major pollution mishaps that PetroChina was directly responsible for like three mishaps of air pollution caused by ethylene side leakage, equipment failure, and ammonia leakage from August 2014 to January 2015 in PetroChina’s Lanzhou factory, especially water pollution for the reason of oil pipe leakage in Lanzhou City during April 2014. This is the environmental rent-seeking of state-owned enterprises under the protection of political connection.Footnote 4 Along with the implementation of “Environmental Protection Laws” in 2015, which was viewed the strictest regulations in China’s environmental protection history, the possibility of environmental rent-seeking will be increasingly less. Therefore, the study of corporate environmental behaviors from the perspective of political connection is critical.

Most of researches on CEID in China borrowed the model and theory from developed countries and ignore the characteristics in economic transition of China (Yang 2014). Scholars are less concerned about the influence that the political connection has on company environmental information disclosure level, especially in China. Company will play an increasingly important role in environmental protection, and political connection will have a huge impact on corporate environmental behavior because governments control the majority of listed companies. Hence, studying the influence of political connection on environmental behavior is necessary and important.

From an empirical research standpoint, most of the previous studies use 3–5 years of panel data on listed companies in Europe and America to quantitatively describe corporate environmental information and its influencing factors. This paper provides an in-depth analysis to reveal whether political connection has significantly positive effect on company’s CEID practices, and whether the relationship varies with ownership type and region. We find that political connections have positive effect on the quality of CEID, especially in state-owned enterprises located in the eastern and western regions of China. This finding can enrich existing literature, reveal the motivation behind environmental information disclosure, and also provide practical implication for developing countries to strengthen their environmental information disclosure systems.

Literature Review

Determinant Factors of CEID

Previous studies in Western countries (most of them are from North America and European countries) use institutional theory, stakeholder theory, and agency theory as theoretical foundation (e.g., Charl and Charis 2010; Cho and Pattern 2007; Gisbert and Navallas 2013). Researchers have examined various determinant factors of CEID, which includes both external and internal factors, although researchers have not reached an agreement on which factor is dominant.

External factors mainly include pressure of laws and regulations, stakeholder needs, and competitive market pressure requirements. Pressure of laws and regulations can be defined as government regulatory requirements that significantly improve CEID level (Aerts et al. 2008; Staden and Hooks 2007). Stakeholders require companies to disclose more detailed environmental information (Branco and Rodrigues 2006; Charl and Charis 2010). Based on competitive market pressure, environmentally sensitive companies disclose more information than less-sensitive corporations, and those with industrial peers engaged in environmental information disclosure are more likely to disclose environmental information (Hassan and Ibrahim 2012).

Internal factors include managers, firm governance characteristics, and firm performance. Managers play an important role in explaining the diversity of environmental practices. Younger managers who are more educated are inclined to disclose more detailed environmental information (Lewis et al. 2013; Robertson and Barling 2013). In firm governance, characteristics such as firm size, firm age, and audit committee are significantly positively correlated with CEID level (Cormier et al. 2005; Hossain and Reaz 2007; Kansal et al. 2014; Webb 2004). The effects of environmental performance and economic performance on CEID remain debatable since recent studies reported mixed results (Al-ruwaijri et al. 2004; Clarkson et al. 2008; Latridis 2013; Patten 2002b; Prencipe 2004).

Current research on CEID in China uses existing theories and models in Western countries (Yang 2014). Abundant research shows that current Chinese environmental disclosures are still mainly qualitative description, more disclosure on positive rather than negative information, more disclosure on social performance, less on profit or environmental performance, the usability is poor for information users (Ane 2012; Liu and Liu 2011; Lu and Li 2010; Meng et al. 2013), and 84.6 % of the reports did not disclose any negative information in 2011 at all.Footnote 5 The most important factors are government’s environmental concerns and government ownership (Huang and Zhou 2012; Liu and Anbumozhi 2009; Meng et al. 2013; Shen and Feng 2012; Zeng et al. 2012). Other factors such as stakeholders and characteristics of firms (like firm age, audit committee) have weak effect on CEID, which is inextricably linked with the institutional environment the corporations are operating in.

China’s firms had experienced more than 30 years of planned economy after the founding of the People’s Republic of China. Government and state-owned enterprises maintained close relationship. In planned economy, all production orders come from the national government, and state-owned enterprises are motivated to expand their influence and political stature rather than profit (Peng and Luo 2002; Scott 2002). Political factors were accumulated in firms called political gene under the planned economy, which was expressed by the ownership of government, and the political identity of executives in state-owned enterprise objectively was expressed by the thinking patterns of firms such as the non-market behaviors of non-state-owned enterprises subjectively (Wang et al. 2014). Political factors still effect the decision making of firms, especially the environmental behaviors in the marketing process. CEID level improved significantly after China instigating “Environmental Disclosure Rules (Trial)” in 2007 (Tang and Li 2008; Zeng et al. 2012); the present CEID strategy of Chinese listed companies is oriented to fill up the government’s environmental concerns (Huang and Zhou 2012; Liu and Anbumozhi, 2009; Lu and Li 2010).

Corporate Political Connection

Political connection takes many different forms and is typically defined as follows. Boubakri et al. (2008) consider that a company is politically connected if at least one member of its board of directors or its supervisory board is or was a politician, a member of parliament, a minister, or any other top appointed bureaucrat. Faccio (2007, 2006, 2002) defined political connection as a company that is connected to a politician if (at least) one of the company’s large shareholders (i.e., anybody directly or indirectly controlling at least 10 % of votes) or top directors (i.e., the CEO, president, vice-president, or secretary) is a member of the parliament, a minister (including the prime minister), or the chief of the state (i.e., dictator, president, king, or queen), or is “closely-related” to a top politician.

Political connection has positive effects, such as easier access to debt financing, lower taxation, and stronger market power, regulatory protection, and government aid to financially troubled firms (Agrawal and Koneber 2001; Faccio 2007, 2006, 2002). Meantime, political connection also has its negative effects. According to Faccio (2002), Khwaja and Mian (2005), and Boubakri et al. (2008), politically connected (but publicly traded) firms have higher leverage ratios than their peers, which will reduce their profitability, and politically connected firms exhibit poorer accounting compared to their non-politically connected counterparts.

Political connection is more common in developing countries and emerging markets (Boubakri et al. 2008; Faccio 2006), which have weak legal systems and imperfect market-supporting institutions (Bliss and Gul 2012) like China, Malaysia, and Indonesia. In accordance with institutional economic theory, when the market and the institution are imperfect, social relations become the key governance mechanism (Peng 2003). Government controls the allocation of political connection in weak legal systems which will extract firm’s economic rents and encourage business owners to enter politics for private gains(Li et al. 2006; Wu and Jin 2008). Firms build political connection through owners’ participation in politics, providing industry information for governments, donations, and even bribery (Hillman et al. 2004; Okhmatovskiy 2010). These factors influence and determine the market environment and reduce uncertainty, since firms can benefit from government favors and preferential treatment (Capron and Chatain 2008; Henisz and Zelner 2003; Rajwani and Liedong 2015).The difference between the influence of political connection in developed and developing countries shows the mutual substitution of political connection and market institution (Zhao and Ma 2011).

Hypothesis Development

Background

Companies in China may develop their political capital through their interactions with the party and government. In Fan et al.’s (2007) study, almost 27 % of CEOs in a sample of 790 newly partially privatized firms in China are former or current government bureaucrats. The Communist Party of China still maintains a very strong influence over the legislature, largely by being able to recommend candidates and appoint the executives of state-owned enterprises. Party membership in China implies a measure of political status and, more importantly, represents an important affiliation with the only ruling party in China.

Party members and managers of former public firms (state-owned enterprises) have a natural advantage in terms of their perceived reliability. They have already established their position in the bureaucratic system since only “politically reliable” people can join the Party or become executives at public companies (Li 2006). Party members and former public company executives may have also cultivated personal relationships through their numerous interactions with government leaders. They also have an information advantage, having developed formal and informal communication channels with government officials (Li and Meng 2008). Thus, we accept that entrepreneurs who are party members are more likely to get promoted.

Furthermore, being a party member and becoming acquainted with other party members and government officials create an avenue toward higher political status. Higher political status means that officials in government hold more resources and power to distribute those resources (Li 2006; Li and Meng 2008). The achievement enhances the possibility of more revenue, but with the creation of stricter evaluation mechanisms; officials and senior managers in state-owned enterprises face more risk in their promotion.

Political Connection and CEID

The positive effects of political connection can be seen as rent-seeking. Krueger (1974) originally described the rent-seeking theory as when “people seek wealth transfer activities carried out by virtue of government protection.” From this perspective, political connections enable companies’ rent-seeking activities. When disclosing environmental information, companies may hide “bad” information such as sewage charges and exaggerate “good” information such as environmental investment in order to create a responsible image. Rent-seeking is also a way of maintaining close relationship with the government and gaining more preferential policies and government resources.

The influence of political connections is magnified in a weak institutional environment. China has published a list of environmental regulations, which mandates heavily polluted companies to disclose environmental information. As discussed before, environmental regulation system can positively and significantly influence the level of CEID, despite the lack of a standardized regulation system. For example, “The Guideline"Footnote 6 only requires “Listed companies to accurately and thoroughly disclose environmental information to the public, and should not disclose false, misleading statements or material omissions.” It lacks specific standards for disclosure content, environmental auditing, assessment mechanisms, and relevant accounting standards. The content of environmental information disclosed is primarily qualitative description rather than profit or environmental performance, and companies disclose more positive information than negative information. This informed our first hypothesis that political connection will increase the quantity but not quality of CEID.

H1

Political connection will increase the quantity but not quality of CEID.

Ownership Type and the Relation of Political Connection and CEID

Ownership type is one of the determinants of CEID level. China has a large group of listed state-owned enterprises. According to the 2014 “Overall Analysis of Listed Companies’ Annual Report in Shanghai Stock Market,” state-owned enterprises account for more than 60 % of all listed companies, most of these companies belong to petroleum, chemical, and other heavily polluted industries. In the Chinese context, the regulations have more influence on state-owned enterprises than private firms since SOE is often used as a pilot for implementing new regulations. Political connection aggravates the influence.

Political connection on CEID in state-owned and private enterprises is different. Compared to private enterprises, state-owned enterprises have more political relations, softer budget constraints, and easier access to government support (Zhang and Zhong 2011; Zhou 2009). State-owned enterprises have natural political gene (Wang et al. 2014), first is government accounts for 51 % or more in company ownership structure; second is that executives of state-owned enterprises are part of government structure, and they have political identity. All of them are the Chinese Communist Party, having administrative level and appointed by the government (Wang, et al. 2014; Zhang and Zhong 2011; Zhou 2009). Therefore, state-owned enterprise itself reflects the willingness of government. According to the efficiency of state-owned enterprises’ theory, excessive political interference would disrupt management objectives of executives (Shleifer and Vishny 1994). In addition to profitability goals, state-owned enterprises have many social goals like social management, solving unemployment, et al., which are sometimes in conflict with efficiency ones. Executives with political connections are more concerned about the “political product” rather than economic interests. Hence, state-owned enterprises tend to disclose more environmental information to create “green image” to meet the local officials’ performance objectives and executives’ personal promotion.

Private enterprises have no such institutional arrangement. There exists a large part of state-owned enterprises in China, compared to private enterprises; the effects of political connection will be more significant in state-owned enterprises.

H2

The impact of political connection on CEID will be different in private and state-owned enterprises, and political connection will have positively significant impact on CEID in state-owned enterprises.

Regional Difference and the Relation of Political Connection and CEID

Market institution is the important external environment CEID faces. China began the process of marketization in 1979, but regional markets did not expand at the same pace as national economic development, and they have significant regional difference. The reform began on the east coast and gradually declined as it spread to the western region. The specific performance is different on per capita GDP, as well as the proportion of non-state-owned enterprises, urbanization, and other aspects.Footnote 7 According to “China Market Index” published by Fan Gang in 2011, Eastern regions like Beijing, Shanghai, Jiangsu, etc. have the highest degree of marketization and Western regions such as Tibet, Xinjiang, Qinghai, Ningxia, etc. have the lowest degree of marketization.

Market institution shows great differences in Eastern, Middle, and Western regions in China. The Eastern region has a stronger market, which corresponds with stricter enforcement of property rights, and a more stable legal system (Fan et al. 2011), which will diminish the effects of political connection for the enhancement of market mechanisms. In Middle and Western regions, there is a higher degree of local government intervention in the economy. Li and Meng (2008) found that political connections can help companies overcome the inefficiencies of legal system. This forms an alternative for the informal institution that is a more effective way to protect property rights.

In Eastern region with relatively well-functioning institution, state-owned and private firms have almost the same location in economy, the space of firms’ rent-seeking will be reduced, and the motivation of firms seek to political connection will decline (Zhao and Ma 2011). Hence, the impact of political connection on CEID will not be significant both in private firms and state-owned enterprises in Eastern region. In Middle and Western regions with imperfect institution, executives appointed by governments are more willing to seek rent through political connection under the policy of “One-Vote Veto,” and they will disclose more detailed and positive environmental information to create the responsible image for promotion. Considering weak legal system and imperfect supervision, managers in private enterprises have no such motivations, they may maintain the political connection with governments through other ways like donations (Jia and Zhang 2010).

H3

The impact political connection has on CEID will be different in enterprises located in the Eastern region, Central region, and Western region. Political connection will have positively significant impact on CEID in Central and Western regions, especially in state-owned enterprises in Western region.

Methodology

Sample Selection

This paper chose sampled companies from heavily polluted industries for the reason that heavily polluted industry is a primary source of the pollution. China is at the initial stage of environmental management, according to “The Guideline,” and heavily polluted industries must periodically disclose their environmental information. Moreover, studies have shown that the quality of heavily polluted industries’ environmental information disclosure is much higher than other industries (Peters and Romi 2013; Zeng et al. 2012; Zeng et al. 2010). And also, the data of companies in heavily polluted industries are more complete and easy to get.

In this study, samples come from Shanghai Stock Exchange, because Shanghai Stock Exchange issued the “The Guideline of Shanghai Listed Companies Environmental Information Disclosure” in 2008, which clearly required listed companies’ environmental disclosure. To evaluate our hypothesis, the sampled companies are all heavily polluted industries chosen from public companies in the stock “A” markets in Shanghai Stock Exchange from 2008 to 2013. The data were hand-collected by content analysis from Social Responsibility Report or Annual Report.

The data are screened according to the following three criteria: (1) deleting Special Treatment (ST) and Particular Transfer (PT)Footnote 8 of heavily polluted listed firms because of their continuous loss during the past 2 years to avoid recording those having financial abnormality and abnormal status of CEID; (2) selecting listed heavily polluted companies gone public before 2008 to avoid the “window-dressing” effect at the early stage of going public; (3) excluding those with more than two missing data of political connection, or other control variables. After the screening, 1914 valid sets of data were obtained, including 320 samples from 2008 to 2013.

Model

Dependent Variable

CEID, which measures the corporate environmental information disclosure level, is the dependent variable in this study. According to the “Disclosure Guide” and Wiseman’s (1982) study, this paper established a CEID evaluation system, which includes environmental policy, environmental certification, energy conservation and emission reduction, treatment of the Three Wastes, environmental protection investment, environmental organizations, cost of pollution, environmental benefits, environmental awards, and other expenses. This evaluation system is to assess what companies disclosed about their environmental information in Annual Report or Social Responsibility Report.

Content analysis was used to measure the level of listed company’s environmental information disclosure (Cho and Pattern 2007; Meng et al. 2013; Wiseman 1982). It was first used by Wiseman (1982), who measured the quality of environmental disclosure in corporate annual report made by 26 firms in environmentally sensitive industries. According to Wiseman (1982)’s content analysis, each item is scored and ranges between 0 and 3. 3 was assigned to an item if it was described in monetary or quantitative terms. 2 was assigned to an item if it was described in detailed description (more than three lines of text) but non-quantitative terms. 1 was assigned to an item mentioned only in general description (less than three lines of text). 0 was assigned if no relative information was presented in the disclosure.

Independent Variables

In this paper, political connection is measured by senior managers’ political connection. As introduced before, the Chinese government possesses the right to appoint the executives in state-owned enterprises, and the executives must be communist party members if he/she wants to be appointed and promoted. According to the results from Li and Meng (2008) and Fan et al. (2007), we use the number of party members in the company’s executive board to measure the degree of political connection.

Control Variables

Previous studies showed that large companies and older companies are more likely to disclose environmental information with more detailed and quantitative descriptions (Zeng et al. 2010; Zeng et al. 2012). Share concentration has a positive effect on CEID level (Huang and Zhou 2012). The Big 4 Accounting Firms will have high quality of CEID, which also measures the degree of reliability and international level of corporate information (Wang et al. 2013). This paper uses share concentration, firm size, firm age, and whether the firm uses a Big 4 Accounting Firm for their annual report as control variables.

Share concentration was measured as the ratio of the largest shareholder divided by the total of five largest shareholding proportions. Firm size was measured by the logarithm of the total assets at the end of the year. Firm age was measured by age as of the year of listed companies. Whether the firm uses a Big 4 Accounting Firm is a dummy variable; yes is 1 and no is 0.

Moderating Variables

Since ownership type and regional difference are the main determinant factors of CEID in China, we hypothesize that the relationship between political connections and CEID level will be different between private and state-owned enterprises, and the relationship will vary depending on where the enterprise is located. We use the ownership type as a moderating variable to analyze the influence the impact political connection has on CEID in state-owned and private enterprises, and the regional difference as a moderating variable to analyze the influence in different market institutional environment.

Based on the above hypotheses and model, our conceptual model indicating the relationship between political connection and CEID is presented in Fig. 1.

Fig. 1
figure 1

Conceptual model

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Results

Description Analysis

Stata13.0 was used for the statistical analysis. Table 1 summarizes the variables. Mean value of political connection is 1.759. The frequency distribution shows significant ownership differences, 65.83 % of state-owned enterprises having political connection, and 47.43 % of private enterprises having political connection. Our results also show tiny regional differences, with 55.82 % of enterprises having political connections in the Eastern region, 64.42 % in the Central region, and 62.29 % in the Western region.

Table 1 Description and Correlation Coefficients
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Regarding the control variables, share concentration is 0.743. Because most of the enterprises in heavily polluted industries are energy enterprises in China, and energy enterprises are absolutely state-owned, the share concentration is higher. The average firm size is about 22.00 (natural logarithm of total assets at the end of the year, about more than CNY 300 million). The average age of our samples is 10.99. Only 8 % of the samples use a Big 4 Accounting Firm for their annual report, which indicates low degree of internationalization among Chinese listed companies.

In our sample, the proportion of state-owned enterprise is 66.6 %, the proportion of private enterprise is 33.4 %, companies in the Eastern region is 49.6 %, companies in the Central region is 27.55 %, and companies in the Western region is 22.9 %.

CEID Level

The mean value of CEID is 9.748 and its max value is 27. State-owned enterprise has a mean value of 10.10, which is higher than the mean value of private enterprise, which is 8.98. According to corporate environmental reporting published by International Institute for Sustainable Development and SustainabilityFootnote 9 in 1994, Chinese environmental information disclosure is currently at stage 1, which means that environmental disclosure is in the form of an annual financial report or social responsibility report. Moreover, the contents of disclosure are general sweeping statements and lack data and charts.

Compared to data from the past six years, the mean value of CEID is clearly on an upward trend. From 8.13 in 2008 to 10.66 in 2013, the annual average growth rate is about 10 %. This also shows that companies are transitioning from a system with voluntary disclosure to one with mandatory disclosure. Moreover, the most information that the corporations disclose is in relation to environmental policy (the mean value presented by percentage is 54.90 %), environmental protection investment (54.73 %), and energy conservation and emission reduction (54.03 %). There is still relatively little information on the costs of pollution (10.57 %) and environmental management certification system (24.13 %). We can conclude that, in order to establish a positive image that could be beneficial to their business, firms will selectively withhold information rather than disclosing more detailed information. In particular, because there is no mandatory disclosure policy, most firms opt for nondisclosure.

Correlation Results

Spearman rank correlation was used in this study to explore the relationship between political connection and CEID. The result indicates that political connection (r = 0.0654, p < 1 %), share concentration (r = 0.0752, p < 1 %), firm size (r = 0.2833, p < 1 %), and whether the firm uses a Big 4 Accounting Firm (r = 0.0405, p < 10 %) have significantly positively correlated with CEID, while firm age is not significantly correlated with CEID.

Multivariate Analysis

We considered the year effect in this fixed effect model, and Least Square Dummy Variable (LSDV) method was used to estimate the model. The stepwise regression results in Table 2 show that the explanatory variables account for nearly 10 % (R 2 = 0.0824) of the variance of corporate environmental information disclosure. The F test (F = 10.91, p < 1 %) shows that the explanatory variables have a significant impact on environmental information disclosure level.

Table 2 Regression results
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At 1 % significance level, t = 3.05, political connection has a significantly positive effect on CEID. Political connections lead to more environmental information disclosure in heavily polluted list companies for the reason of rent-seeking. This model also tests control variables. Firm size (t = 4.02, p < 1 %) has significantly positive effect on CEID, which indicates that firm size contributes to more detailed environmental information disclosure. Larger firms are more focused on corporate social responsibility and are more inclined to disclose detailed environmental information. Firm age, share concentration, and “whether the firm uses a Big 4 Accounting Firm” have no significant effects on CEID (Table 2).

Table 3 Robustness testing
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Political Connection Effect Including Ownership Type and Regional Difference

Using ownership type and regional difference as moderating variables, we further regress the data in different groups. The “autologous sampling method” (Bootstrap) was used to test whether the coefficient difference between the groups is significant.

The coefficient is significantly different (z = 7.30, p < 1 %). The results show that in private enterprise, the political connection effect on CEID is not significant (t = 0.79, p > 10 %). On the contrary, in state-owned enterprise, there is a significant positive relationship between political connection and CEID level (t = 2.52, p < 5 %). An increase in political connection would yield 0.24 increases in CEID. Therefore, ownership type can significantly influence the relationship between political connection and CEID. In state-owned enterprises, especially in heavily polluted industries, political connection can significantly increase the level of corporate environmental information disclosure.

Under the condition of regional difference, there is a significant difference between the coefficients of the group (z = 8.51, p < 1 %). In the Eastern and Western regions, political connection has a significantly positive correlation with CEID (t = 2.17, p < 5 %; t = 2.38, p < 5 %), but with different mechanisms. In the Eastern region of high level of marketization, companies with political connection improve environmental information disclosure quality to circumvent strict government regulation which could bring enormous environmental costs. In the Western region of low level of marketization, companies with political connection are inclined to maintain relationship with government through lots of environmental information disclosure in order to get more resources and benefits. The effect of political connection in Western region is larger than in Eastern region as political connection will bring 0.37 changes in environmental information disclosure level.

Combined Effect of Ownership Type and Regional Difference

In order to further analyze the combined effect of ownership type and regional difference, the empirical results show that there is a significant relationship between political connection and CEID in state-owned enterprises of Eastern region (t = 1.91, p < 10 %) and the same results in state-owned enterprises of Western region (t = 2.31, p < 5 %). There has not existed a significant relationship between political connections and CEID in private enterprises whether in Eastern or Western regions. Proving once again that political connection is the incentive of political rent-seeking in state-owned enterprise, CEID becomes a media of maintaining relationship between executives of state-owned enterprises and government. State-owned enterprises with political connection actively disclose their environmental information and have detailed environmental information for the reason of political connection. Corporations gain “green image” and “green company” by providing environmental reports, which will be capital of executives’ promotion.

Robustness Testing

As introduced before, using the number of party members is a good way to measure political connection in Chinese listed companies. In order to improve the reliability of research findings, this paper added three new criteria to measure whether or not the person has worked for the government or the military, or is a current/former deputy or CPPCC members. Robustness test results are consistent with previous results (Table 3).

Conclusion and Discussion

This paper uses panel data from heavily polluted industries to examine the relationship between political connection and CEID and how the relationship is determined by ownership and region. The results show that political connections do encourage listed companies to disclose environmental information and increase the quantity but not quality of environmental information reports. The motivation of disclosing environmental information is political connection, and top managers seek to obtain promotion through environmental reports.

In general, after mandatory regulations were published, CEID quality continues to improve, but the usefulness and reliability of the information is unknown. Companies prefer to disclose environmental governance policies, environmental objectives, and energy conservation initiatives, what Patten (2002a) call “soft” information. They try to avoid negative pollutant emissions, pollution fines, and compensation information, i.e., “hard” information (Patten, 2002a), which reflects the real status of the environmental management. CEID in China is still at the beginning stage, and corporate disclosure activities still need specifications and guidance.

Previous research, to our knowledge, has not specifically differentiated between political connection and CEID. We conclude that political connections of executives help companies more actively disclose their environmental information, and companies disclose more detailed environmental information for the reason of political connection. Political connection may be a way to seek political rent for the top managers who may be promoted because they have won the reputation of green managers and also green companies. So CEID quality is debatable in the absence of strict constraints, and it is difficult to provide useful information for decision makers.

Considering ownership type and regional difference, we find that political connection effects in state-owned enterprises in Western region and Eastern region are more significant. In economically developed region, the degree of marketization is higher with more stringent rules and norms. Effect of executives’ political connection is greater than Central region, which will not only bring political benefits for the company, but also avoid huge loss of pollution and environmental risks. At the same time, executives of company will achieve selfish political purposes in dealing with the government. In the weak institutional constraints for the Western region, for state-owned enterprises with political background it is easier to reach agreement with the government through cheaper “rent” transaction. Despite the disclosure of environmental information, company is also in the pursuit of political interests rather than caring for the environment and reducing pollution.

This paper contributes to the understanding of corporate environmental behavior research in developing countries and emerging markets, particularly in China. Because of China’s unique political environment, this paper did not apply the research paradigm of developed countries, but instead focused on institutional characteristics specific to China (Yang 2014). Institutional characteristics like political connection, government ownership, and government concerns can significantly increase the quality of corporate environmental disclosure. These variables have strong explanatory power and should be used in the CEID analysis in developing countries and emerging markets.

The usefulness and reliability of disclosed information are debatable in the absence of strict constraints. Currently, the quality of environmental information disclosed is not enough to inform decision makers on whether the firm is meeting objectives on monitoring and protecting the environment. Mandatory disclosure is more effective than voluntary disclosure in promoting full disclosure of environmental information. There is a need for a stringent and standardized environmental disclosure mandate, which requires companies to publicize specific information such as environmental investment and spending. The current legal system on environmental information disclosure in China lacks environmental accounting standards and consistency in enforcement. There is a need for mandatory laws and regulations toward environmental information disclosure for all listed firms, and not just ones from heavy polluting industries. This will not only improve the reliability and usefulness of public environmental information, but also promote public participation in environmental protection.

This study is subject to a few limitations such as the constraint on the choice of samples and the proxies adopted, and the finding may be used as a springboard for the further research. In future studies, local and national political connection could be included. Given the complex nature of rapidly changing business environment, CEID may evolve with time and could explain the environmental management of firms. Corporate environmental information disclosure is worth being traced and evaluated periodically using multi-theoretical lens such as economic incentives and institutional theory.