Purpose: The main purpose of this research is to identify the relationship between carbon performance and VCD by analyzing the disclosure practices of affected Korean companies under the Korean ETS. This can be achieved mainly through the lens of a strategic disclosure perspective. A further goal of this study is to articulate the relationship that could be moderated by two external (strategic) factors including foreign sales ratio and media visibility. In doing so, the focus is mostly on ascertaining how ETS affected companies recognize the uncertainties and growing pressures presented by an ETS and adapt to them and how they disclose their carbon emission-related information.
Main Theories: Drawing on companies under the Korean ETS with the contents analysis of their sustainable reports, this research primarily seeks to combine carbon performance (internal factor) with external factors (foreign sales ratio and media visibility) in order to achieve its research purposes. This study is mainly framed within two competing theories, the legitimacy theory vs the voluntary disclosure theory. Institutional theory is explored as a complementary theoretical background which lays the foundation of a proactive and strategic disclosure approach.
Methodology and Data Sources: The companies analyzed in this study were (a) part of the Korean Emission Trading Scheme (ETS) and the Korean Target Management System (TMS) from 2015 to 2019, (b) listed on the Korean Exchange (KRX), and (c) those that had published a sustainable report during the same period. In total, the sample comprised of 421 yearly GHG emission data sets and 397 reports from 94 companies between 2015 and 2019. This study derived the dependent variable, the quality of VCD, from sustainable reports of those South Korean companies affected by the Korean ETS. In order to measure the independent variable, carbon (reduction) performance, the Korean Greenhouse Gas Inventory and Research Center database was used as a source for companies affected by the Korean ETS. To attain this study's objectives, hierarchical Ordinary Least Square (OLS) regression analysis was used to infer causality between carbon performance and VCD and assess it, and also to establish the moderating effects of foreign sales ratio and media visibility on this relationship.
Findings: In the context of inconclusive association between carbon performance and VCD, the Korean ETS ultimately appeared to lie with a proactive corporate carbon management approach by shifting from a passive and reactive approach to a strategic one. This study has empirically proved a positive relationship between carbon performance and VCD which means the affected companies under the Korean ETS are likely to disclose more when they have favorable carbon reduction performance. Furthermore, this link tends to be enhanced for companies with a high percentage of foreign sales, while the role of media visibility interacts differently with carbon performance in influencing VCD. Put another way, it is more inclined for disclosure to be adopted in a more strategic way. Companies with high media exposure appear to be larger in size, emit more pollution in general and come under a higher level of external scrutiny. They have little to gain by much more highlighting their carbon performance and would rather withhold disclosure because they are already meeting the basic level of performance expectations.
Research Contribution & Implications of Research Impact: The current research, under the Korean ETS, sought to combine the internal factor (carbon performance) and the external factors (foreign sales and media visibility), that has rarely been attempted in this field to clarify a strategic disclosure approach. The findings of this attempt make it possible to assist policy makers in understanding that affected companies have a similar pattern of disclosure through isomorphism and they are likely to enjoy anonymity in a given industry sector. It means that companies choose to basically aim to meet, rather than exceed, the expectations of institutional stakeholders and social actors under an ETS. Additionally, the findings presented by this study will be useful for suggesting areas of carbon disclosure wherein further development is essential since it identified which aspects of carbon related disclosures are falling short of investor expectations. Lastly, given the scant amount of studies in the field of the nexus between an ETS and VCD in Asian contexts, this research will also give meaningful insights to academics and researchers.