Imperative of Environmental Cost on Equity and Assets of Quoted Manufacturing Firms in Nigeria

International Journal of Trend in Scientific Research and Development (IJTSRD)
Volume 7 Issue 4, July-August 2023 Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470
@ IJTSRD | Unique Paper ID – IJTSRD59695 | Volume – 7 | Issue – 4 | Jul-Aug 2023 Page 344
Imperative of Environmental Cost on Equity and
Assets of Quoted Manufacturing Firms in Nigeria
Dr. Odogu, Laime Isaac; Dadiowei, Opritari Maxwell
School of Commerce and Managent, Bayelsa State Polytechnic,
Aleibiri Ekeremor Local Government Area, Bayelsa State, Nigeria
ABSTRACT
This study examine the imperative of environmental cost on equity
and assets of quoted manufacturing firms in Nigeria. The study
adopts ex-post facto, content analysis and regression research design.
The research adopts secondary source of data in obtaining all the data
needed for the study, extracted from the audited financial statements
of the sampled manufacturing firms, which is meticulously examined
and relevant data extracted from the period of 2011-2018 for
analysis, in line with the main objective. Hypothesis is tested and the
results reveals that environmental cost has a significant effect on
return on equity and return on assets of quoted manufacturing firms
in Nigeria. In consonance with this study’s findings, it is
recommended that, Firms in Nigeria should invest reasonable amount
on environmental issues and report same in their financial reports for
the various stakeholders to see. This will create a good relationship
with the host community which will enable growth in production and
increase in turnover.
KEYWORDS: equity, assets turnover, environmental cost, component
How to cite this paper: Dr. Odogu,
Laime Isaac | Dadiowei, Opritari
Maxwell "Imperative of Environmental
Cost on Equity and Assets of Quoted
Manufacturing Firms in Nigeria"
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INTRODUCTION
Environmental costs have been expanded to account
as product design for sustainability, recycling and
disassembly; process design to reduce environmental
impact of operations; worker training; research and
development. The various government regulations,
societal pressure groups and green consumer pressure
are some of the current trends and recent
developments reawakening corporate attention to the
strategic and competitive role of a firm’s
environmental responsibility to corporate
performance (Ifurueze, Lyndon & Bingilar, 2013).
Although voluntary, financial reports of firms that are
without adequate disclosure of environmental cost
information may be seen to be incomplete.
Commitment to the natural environment has become
an important variable (Unamuno, 2011), behaving in
a socially responsible manner is increasingly seen as
essential to the long term survival of companies
(Adams and Zutshi, 2014). This is because failure to
include environmental cost information in financial
reports might affect the abilityof various stakeholders
of the firm to make sound decisions. Activities of
business organizations especially those in the
manufacturing sector have led to such environmental
pollutions. Also, unsustainable use of natural
resources by the firms has caused increase in the
emission of greenhouse gases in our society. This
consequently results in depletion of the ozone layer
and global warming. As a result of this, the role of
companies in addressing environmental and
sustainability issues is deemed very vital (Adams &
Busola, 2015). Sequel to the global awareness on
environmental issues, firms have come under intense
pressure to meet up with the requirements of the
current generations without compromising the
capacity of the subsequent generations by engaging in
environmental engineering activities which has led to
additional cost on them (Deegan, 2010). Hence, firms
are expected to show accountability of their conducts
and activities that took place in the society and the
natural atmosphere. However, it is worth taking into
consideration by organizations that being
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environmentally responsible will increase costs to the
organization which in turn reduces the level of
company’s performance (Nadeem, 2012). Bassey,
Effiok and Eton (2013) states that environmental
accounting is referred to as the way and manner by
which firms communicate the environmental effects
of their activities and how they have tried to resolve it
in the best interest of all relevant stakeholders.
Deegan (2010) further stated that, firms through the
process of communication of environmental
accounting information may seek to influence the
public’s perception towards their operations and
create a good image. Firms also incur environmental
costs by contributing to both corporate public
relations and media campaigns on environmental
issues. Also, being environmentally responsible may
direct firms to better resources and increase their
employee’s motivation which results in creation of
unforeseen opportunity within the organization (Ness,
2012).When environmental costs are not adequately
allocated by firms, cross-subsidization occurs
between products (Nadeem, 2012). Most companies
do not know the extent to which their environmental
cost information can influence their heir activities on
the environment which in so doing will put them in
the good books of other stakeholders and will have an
effect on their corporate performance. Susi (2019);
De Viviers performance and thus tend to
underestimate them. This means that if they are not
assessing such information, it implies that they are
not monitoring and reporting them.
Manufacturing firms in Nigeria need to be fully
accountable for the true cost of the impact of there
activities, Staden (2010); Galani (2011) all carried out
their studies on environmental cost disclosure and
corporate performance using content analysis and
found out mixed results on environmental cost
disclosure in the annual reports of firms and corporate
performance. Uwalomwa, (2014); Ajibolade and
Uwalomwa, (2013) used the mixture of both survey
and regression research design to explain the effect of
environmental cost disclosure on corporate
performance of firms and they too found out mixed
results. As a result of the methodology employed by
past authors and their mixed results, this study will
assess the imperative of environmental cost on equity
and assets of quoted firms in Nigeria using both
content analysis and regression research design.
Objective of the Study
The main objective of this study is to examine the
imperative of environmental cost on the equity and
assets of quoted manufacturing firms in Nigeria. The
specific objectives include to;
Examine the impact of environment cost on return on
equity of quoted manufacturing firms in Nigeria.
Determine the impact of environment cost on return
on asset of quoted manufacturing firms in Nigeria.
The following hypotheses is formulated to be tested
in this study:
Ho1: Environmental cost has no significant impact on
return on equity of quoted manufacturing firms in
Nigeria.
Ho2: Environmental cost has no significant impact on
return on asset of quoted manufacturing firms in
Nigeria.
LITTERATURE REVIEW
This part deals with review of related literature in this
other: Theoretical Framework, Conceptual
Framework; And Empirical Review.
Theoretical Framework
This work is discussing three theories to back up our
theoretical background but the main anchor is the
stakeholder theory.
Stakeholder Theory: Stakeholder theory was
embedded in the management discipline in 1970 and
gradually developed, incorporating corporate
accountability to a broad range of stakeholders. The
basic proposition of the stakeholder theory is that the
firm’s success is dependent upon the successful
management of all the relationships that a firm has
with its stakeholders. When viewed as such, the
conventional view that the success of the firm is
dependent solely upon maximizing shareholders
wealth is not sufficient because the entityis perceived
to be a nexus of explicit and implicit contracts
(Jensen & Meckling, 2016) between the firm and its
various stakeholders. The stakeholder theory asserts
that corporation’s continued existence requires the
support of the stakeholders and their approval must be
sought and the activities of the corporation adjusted to
gain that approval (Chan, 2016). The more powerful
the stakeholders, the more the company must adapt.
Environmental reporting is thus seen as part of the
dialogue between the company and its stakeholders
(Gray, Kouhy & Lavers, 2015). The definition of
stakeholder has altered substantially over the past
four decades. At one end of the spectrum, the
shareholder was considered the sole or principal
stakeholder. This definition was based on arguments
proposed by Freeman (2012) that the corporation’s
foremost objective is to maximize the wealth of its
owners. That is, it was borne out of a reaction to the
traditional research approach (Freeman, 2012) which
presumes that in valuing the behaviour of firms, we
only need to take into account the shareholders’
interest. Kassinis and Vafeas (2016), however,
expand the definition of stakeholder to include a
broader selection of constituents including adversarial
groups such as interest groups and regulators. Both

the narrow (shareholder) and the expanded definition
of stakeholders have been adopted in the development
of voluntary environmental disclosure regulations for
corporations. Stakeholders control or have the ability
to affect (directly or indirectly) control of resources
required by the corporation (Tapang & Bassey, 2017).
Thus, stakeholder’s power is determined by the level
of control they have over the resources. Therefore,
stakeholder theory is generally concerned with the
way an organization manages its stakeholders. It is a
theory that is based on the notion that companies have
several stakeholders defined as groups and
individuals who benefit from or are harmed by, and
whose rights are violated or respected by corporate
actions (Freeman, 2016), with an interest in actions
and decisions of companies. Within these contexts,
different strands of stakeholder theory can be
discerned (Branco& Rodrigues, 2017).
Legitimacy Theory: Legitimacy theory was
exposited by Dowling and Pfeffer in (1975) and is
commonly described as the congruence between an
organization’s value system and that of the larger
social system of which the organization is a part.
Legitimacy is a generalized perception or assumption
that the actions of an entity are desirable, proper, or
appropriate within some socially constructed system
of norms, values, beliefs and definitions. Dowling and
Pfeffer (2015) state that organisations seek to
establish congruence between the social values
associated with or implied by their activities and the
norms of acceptable behaviour in the larger social
system of which they are a part. Insofar as these two
value systems are congruent, we can speak of
organisational legitimacy. Using the legitimacy
perspective, firms voluntarily disclose environmental
information to show that they are conforming to the
expectations and values of the society within which
they operate. Guthrie and Parker's (2018) are one of
the early and very influential authors in the corporate
social reporting literature. They argue that if the
legitimacy explanation holds true, then corporate
disclosure policies will react to major social and
environmental events. On the other hand, Deegan and
Rankin (2016) suggest that social expectation no
longer rests upon mere generation of profit but has
broadened to include health and safety of employees
and local communities as well as concern for the
natural environment. Therefore, firms need to provide
voluntary environmental information to meet the
broad expectations of society relating to employees’
welfare, community and the treatment of the natural
environment. they suggest that legitimacy theory is
useful in analysing corporate behaviour. This is
because legitimacy is important to organisations,
constraints imposed by social norms and values and
reactions to such constraints provide a focus for
analysing organisational behaviour taken with respect
to the environment. The legitimacy theory argues that
organisations seek to ensure that they operate within
the bounds and norms of society. Society's
expectations have changed to expect businesses to
make outlays to repair or prevent damage to the
physical environment, to ensure the health and safety
of consumers, employees, and those who reside in the
communities where products are manufactured and
wastes are dumped (Tinker & Niemark, 2017).
Corporate environmental disclosures are an important
way for organisations to establish and maintain their
legitimacy, providing an explanation why
organisations make environmental disclosures.
Legitimacy can be considered as “a generalized
perception or assumption that the actions of an entity
are desirable, proper, or appropriate within some
socially constructed system of norms, values, beliefs
and definitions”. To this end, organisations attempt to
establish congruence between “the social values
associated with or implied by their activities and the
norms of acceptable behaviour in the larger social
system of which they are part”. Consistent with this
view, Richardson (2017) asserts that environmental
disclosures is legitimating institution and provides a
“means by which social values are linked to economic
actions”. Organisational legitimacy is not a steady
state, but variable. This variability is not only
temporal, but also spatial or across stakeholder and
cultural groups. Therefore, depending on an
organisation’s perception of its state or level of
legitimacy, an organisation may employ legitimation
strategies (Lindblom, 2019). Organisational
legitimacy can be constructed or enhanced through
the use of symbols or symbolic action communicating
a public image. This image is aligned with the
organisations’ primary goals, methods of operation or
output. (Tinker & Niemark, 2017).and Lindblom
(2019) suggest four broad legitimation strategies that
organisations may adopt when faced with a threat to
their legitimacy or a perceived legitimacy gap. A
legitimacy gap occurs when corporate performance
does not match the expectations of relevant public or
stakeholders. In a bid to restore, maintain or enhance
organisational legitimacy, an organisation may: a)
Change its output, methods or goals to conform to the
expectations of its relevant publics, and then inform
these relevant publics of the change; b) Not change its
output, methods or goals, but demonstrate the
appropriateness of its output, methods or goals
through education and information; c) Try to alter the
perceptions of relevant publics by associating itself
with symbols that have a high legitimate status; and
d) Try to alter societal expectations by aligning them

with the organisation’s output, goals or methods. By
definition, corporate environmental disclosure should
conform to at least one of the above strategies as the
implementation of any legitimation strategy must
involve both communication (disclosure) by the
organisation as well as addressing norms, values or
beliefs of relevant publics. This is consistent with a
legitimacy explanation of managerial motivation for
corporate environmental disclosures. The multiplicity
of legitimacy dynamics creates considerable latitude
for managers to manoeuvre strategically within their
environments. Admittedly, no organisation can
completely satisfy all audiences, and no manager can
completely step outside of the belief system that
renders the organisation plausible to itself as well as
to others. Though, at the margin, managerial
initiatives can make a substantial difference in the
extent to which organisational activities are perceived
as desirable, proper, and appropriate within any given
cultural context; it is seen as one of the strategies used
by companies to seek acceptance and approval of
their activities from society. In addition, it is also seen
as an important tool in corporate legitimation
strategies, as it may be used to establish or maintain
the legitimacy of the company by influencing public
opinion and public policy. It is pertinent to note that
although the legitimacy theory appears to be the most
widely used theory to explain environmental
disclosure practices of a firm (Guthrie & Parker,
2019; Adams, Hill & Roberts, 2018; Wilmhurst &
Frost, 2020) suggested that the existence of and size
of legitimacy gap may be difficult to measure where a
disparity exists between the expectations of the
corporation and those of its relevant.
Voluntary Disclosure Theory: Voluntary disclosure
theory has its roots from agency theory, Brammer and
Pavelin, (2018). Voluntary disclosures are attempts to
remove informational asymmetries between the firm
and external agents, primary agents in the investment
community. Voluntary disclosures theory is based on
the agency theory perspective which explains the
level of disclosure of information. The voluntary
disclosure theory predicts that organisations which
have a good environmental performance do not hide
the environmental impacts of their operations and are
willing to inform stakeholders about their
environmental activities. Voluntary disclosure
predicts that the information risk for current and
potential investors will be lowered (Brammer &
Pavelin, 2018). Voluntary disclosure can lead to a
competitive advantage because it highlights the
environmental Programme and the impact of
activities on the national environment. Stakeholders
receive bad news from the company along with good
news. Investments in environmental management or
programs are costly and for the short term, they will
not result in higher returns. If disclosure is absent or
low, stakeholders will assume that the current
environmental strategy adopted by the firms is
inferior (Clarkson, Li, Richardson & Vasvari, 2018).
Superior environmental performers truly disclose
issues regarding environmental affairs, the quality of
their disclosures is superior to the quality of the weak
environmental performers. The superior firms believe
that their strengths will outweigh the weaknesses and
do not fear the reaction of any stakeholder (Clarkson,
Li, Richardson & Vasvari, 2018).
Conceptual Framework
Components of Environmental Cost Disclosure
Dragomir and Anghel-ilcu (2011) identified the basic
components of environmental accounting information
disclosure. However, there is no unique component of
good environmental disclosures that can be adopted
by all companies. Companies should design and
implement strategies in the light of regulatory
framework that will produce an efficient, qualitative
and result-oriented outcome, for quality financial
reporting in the interest of stakeholders. Effective
environmental cost disclosure should be designed in
line with the circumstance surrounding each entity
and continuously reviewed according to the changing
circumstance of the time. However, for companies
which intend to compete internationally, the
following are recommended by Dragomir (2011) as
basic environmental cost disclosures components:
*Environmental Restoration *Environmental Fines
and Penalties *Environmental Donations and
Sponsorship *Environmental Compensation
*Environmental Waste Management
Environmental Restoration Cost: Environmental
Restoration cost provisions are recorded when the
company has obligations to undertake restoration,
rehabilitation and environmental work, especially,
when environmental disturbance is caused by the
development or on-going production at the
companies’ site. These costs are estimated at the
beginning of the asset’s useful life. The future
expenses in site restoration may also be derived as a
consequence of the continuous use of an asset whose
environmental impact is not negligible. However,
Price-water house coopers, considers that, whenever
environmental degradation is outside the industrial
parameters for the use of a certain asset, the
supplementary expenses should be incurred
immediately. Provisions for clean-up costs are
persistent elements, that is, they are recognized at one
point in time and may be found unaltered for several
financial years in the statement of financial position.
The following are a selection of environmental

restoration: (a) Anglo American: Obligations to
undertake restoration, rehabilitation of environmental
work when environmental disturbance is caused by
the plant; (b) Rio Tinto: Close down and restoration
expenditures incurred at the end of the relevant
operations (c) Morrison: Property provision
comprises provisions for dilapidation on lease
buildings. (d) GDF Suez: Provision for rehabilitating
land on which former plants were located (Price-
water house coopers, 2014)
Environmental Fines and Penalties: This category
comprises current operating expenditures
(immediately recognized in the income statement).
These are costs borne by an organisation for the
violation of the rule and regulation guiding specific
environmental issues. Penalty and associated costs
incurred as expense are expected to be fully disclosed
in the organisations’ financial statements. Fine and
penalty have an inverse relationship with company’s
performance; they reduce profit and the return on
assets. The following are a selection of examples
concerning environmental fines and penalties:
DANONE: Fines paid for not reducing atmospheric
waste. Aeroports de Paris: Penalties paid for not
reducing the negative environmental impact, the
treatment of surface runoff and elimination of
hazardous waste. Johnson Matthey: A violation
related to the selective screening of wastewater
samples for compliance analysis (Dragomir 2011).
Environmental Donations and Sponsorship (EDS)
This category consists of voluntary environmental
donations and sponsorship showing the companies
commitments towards the community and the natural
environment. On the other hand, taxes paid for
environmental purposes are disclosed in a manner
that demonstrates extreme attention for the
company’s public image. These payments are
mandatory for improving the companies’ public
perception. The following are a selection of
environmental donations and sponsorship: (a) Casino
Guichard: Eco-packing tax and eco- contribution on
promotional brochures; (b) Cadbury: Expenditures
incurred in respect with charitable purposes:
Education and enterprise, environment, health and
welfare (Dragomir, 2011).
Environmental Compensation Cost: Under
common law and some states and federal statutes,
companies may be obligated to pay for compensation
of "damages" suffered by individuals, their property,
and businesses due to use or release of toxic
substances or other pollutants. These liabilities may
occur even if a company is in compliance with all
applicable environmental standards. Distinct
subcategories of compensation liability include
personal injury (e.g., "wrongful death," bodilyinjury,
medical monitoring, pain and suffering), property
damage (e.g., diminished value of real estate,
buildings, or automobiles; loss of crops), and
economic loss (e.g., lost profits, cost of renting
substitute premises or equipment). Compensation
costs can be fairly minor or quite substantial,
depending on the number of claimants and the nature
of their claims. Often times, legal defense costs
(potentially including technical, scientific, economic,
and medical studies) can be substantial in handling
such claims, even when the claims are ultimately
determined to be without merit. Moreover,
responding to compensation claims can consume
management time and require expenditures in order to
control damage to corporate image. Compensation
liabilities may involve costs for remediation of
contaminated property as well as provision of
alternate water supplies, thus somewhat overlapping
the remediation category. Because of workers'
compensation and employer liability laws, payments
to compensate employees for occupational exposure
and injury from hazardous or toxic substances are not
generally determined through litigation against the
employer or considered environmental liabilities.
However, occupational claims sometimes may be
brought against another party who is not the
employer; for example, workers responding to a train
wreck have sued the shipper of hazardous wastes
released at the scene of the wreck; for the shipper,
these claims can be viewed as environmental
liabilities. Managers will want to understand the
potential costs of occupational exposure and injuries,
because actions taken to prevent or reduce
environmental liabilities may also eliminate or reduce
occupational liabilities (Dragomir & Anghel-ilcu
2011)
Environmental Waste Management Cost:
Environmental waste management involves sensing
what is there, sorting, separating, transforming,
returning to service what can be used and properly
disposing what is left (Rose, 2017). According to
Ghush, (2019) waste is inevitable human activities.
They are either a by-product of initial production
process or they arise when objects or materials are
discarded after they have been used. Disposing of
waste has a huge environmental impact and can cause
serious environmental problems. Novick (2019)
enumerated the accounting for waste management in
any community, town or city as follows: associate
cost on the reduction in the speed of sanitation related
diseases, reduction on occurrence of non-
communicable diseases and reduction on
environmental pollution (degradation of land, water
and air). All manufacturing firms are expected to

make a report on the associated cost incurred in the
management of waste. This is because stakeholders
required this information to evaluate the
organisation’s responsibilityto environmental matters
and the activities the organisation must have engaged
in, to circumvent environmental degradation.
However, the cost incurred by the organisation
reduces the organisation’s performance but these are
expenses that should be better incurred to further
accomplish the aim of satisfying consumer both in the
production of goods and services and engaging in
environmentally friendly activities.
Concept of Environmental Disclosure
Environmental accounting is an innovative
sustainability initiative that has been defined by
Steele and Powell (2012) as that aspect of accounting
which has to do with the identification, allocation and
analysis, of material streams and their related money
flows by using environmental accounting systems to
provide insight into environmental impacts and
associated financial effects. Pramanik (2017), refers
to environmental disclosure as the process by which a
corporation or an organization communicates its
information regarding the range of its environmental
activities to a variety of stakeholders. They went
further to define environmental cost disclosure as the
assessment of the impact of environmental issues on
the company’s financial performance and this
requires changes to the way the company discloses
environmental issues in their annual reports. The aim
of environmental reporting is to fulfill accountability
and transparency purposes while providing useful
information for timely and appropriate decision
making by interested parties. Moreover,
environmental reports are ways in which the company
provides information to meet the financial markets
requirement. Pramanik (2017) further expressed the
environmental cost reporting as the company’s way
for the provision of information about environmental
performance, and meeting financial markets and at
the same time providing itself with a positive
environmental image. In addition, environmental
reporting is considered as a valuable evaluation tool
for corporations and individuals, when making
investment decisions (Adediran & Alade, 2013).
While, Daferighe (2010) and Peskin (2019) viewed
environmental accounting as a tool that can be used to
determine less tangible and external costs for projects
and activities, such as bio-diversity, human health and
aesthetic values. It is also aimed at broader issues
such as implementing sustainable business practice to
conserve natural resources for future generations.
Environmental accounting must, therefore, be
designed such that it provides information enabling
users’ access to environmental behaviour of the
company and its economic consequence. Therefore,
parts of the system are both information in monetary
units (financial information) and information in
physical units (non-financial information).
Furthermore, it is necessary to ensure that different
information needs of various interested parties are
filled. It also means that the conception of
environmental accounting is based on the basic
recognition influencing the development of
accounting system in the 20th century. The method of
reflecting the business process should be
differentiated according to the users of the accounting
information and according to decision-making tasks
for support of which the accounting information is
used (Dechow & Dichev 2012). To include
environmental information in the accounting system
of a company is one way to start to include
sustainable development in everyday business
decisions. A very important function of
environmental accounting is to bring environmental
costs to the managers; therefore, motivating them to
identify ways to reduce and avoid economic costs
related to the environment and at the same time
reduces the company’s environmental impact.
Daferighe, (2010) stated that Environmental
Accounting can be broken down into three
disciplines, namely: National Environmental
Accounting (NEA); Global Environmental
Accounting (GEA); and Corporate Environmental
Accounting (CEA).
The Corporate Environmental Accounting is further
sub-divided into Environmental Management
Accounting (EMA) and Environmental Cost
Reporting (Disclosure) (ECR). The focus of this study
is on Environmental Cost Disclosure aspect of
Corporate Environmental Accounting, which
Uwalomwa (2014) describes as the process that
involves communicating the social and environmental
effects of organisations’ economic actions to
particular interest groups within the society.
Furthermore, Environmental Reporting Guidelines
(2012) defines Environmental Disclosure as the
systematic and holistic statements of environmental
burden and environmental efforts in organisations’
activities, such as environmental policies, objectives,
programs and their outcomes, organisational
structures and systems for the environmental
activities, in accordance with general reporting
principles of Environmental Disclosure, which is
published and reported periodically to the general
public. The source further revealed that
Environmental Disclosure aims at promoting
communication of organisations, fulfilling
accountability regarding environmental efforts in
their activities, and providing useful information to

decision makers and interested parties. Srinivasa
(2014) described Environmental Disclosure as the
communication of environmental performance
information by an organisation to its stakeholders.
The author listed the information on environmental
performance to include the following, among others;
impacts on the environment, Performance in
managing those impacts, and Contribution to
ecological and sustainable development. Srinivasa
(2014) also stated that Environmental Cost Disclosure
can be considered a sort of small world, where many
crucial points in the relationship between a company
and its stakeholders meet together. He divided
Environmental Cost Disclosure into three categories
as follows:
Involuntary Disclosure: The disclosure of
information about a company’s environmental
activities without its permission and against its will.
Examples of involuntary disclosures are
environmental campaigns, press and media
revelations and court investigations. Mandatory
Disclosure: The disclosure of information about a
company’s environmental activities that is required
by law. Voluntary Disclosure: The disclosure of
information on voluntary basis. The voluntary
disclosure is further subdivided into confidential and
non-confidential voluntary disclosure, where
confidential disclosures are described as those
required by banks, insurers, customers and joint
venture partners that are not publicly available, non-
confidential voluntary disclosures are strategic-
potential information with strategic benefits which
helps to improve the company’s image and build
better relations with relevant stakeholder groups. As
stated by Khuntia (2014), Corporate Environmental
Cost Disclosure describes various means by which
companies disclose and communicate company’s
environmental performance and environmental
activities to the users. Corporate environmental cost
disclosure is the process by which a corporation
communicates information regarding the range of its
environmental activities to a variety of Stakeholders
including employees, local communities,
shareholders, customers, government and
environmental groups.
Performance The definition of performance and its
measurement continues to challenge scholars due to
its complexity. This study attempts to contribute to
this effort by creating and testing a subjective scale of
performance that covers the domain of business
performance in the words of (Venkatraman &
Ramanujam 2016). The conceptualization of
performance in this study is based on the stakeholder
theory, which allows distinguishing between
performance antecedents and outcomes. It also
provides a conceptual structure to define performance
indicators and dimensions. The fact that profit and
growth are relevant motives for the existence of a
business firm and must be included in any attempt to
measure performance is indisputable. The question is:
what else is relevant and should be considered as
well? In this case, stakeholder theory help by
Measuring performance under this conceptualization
which involves identifying the stakeholders and
defining the set of performance outcomes that
measure their satisfaction (winter, 2013). The
stakeholder theory offers a social perspective to the
objectives of the firm and, to an extent it conflicts
with the economic view of value maximization
(George, 2015). Such ontological discussion is within
the scope of this study. The stakeholder theory has
found its way into the corporate and academic world.
It is possible to see its influence in corporate annual
reports. The use of stakeholders’ satisfaction as firm
performance was also adopted by a large number of
different authors like (Venkatraman & Ramanujam,
2016; Varadejan & Ramanujam, 2019;). Besides
offering a way to decide what performance is in a
comprehensive way, the use of this theory allows one
to resolve the issue of differentiating between
performance antecedents and outcomes. Performance
measures assess the satisfaction of at least one group
of stakeholders. This conceptualization of firm
performance is applicable across different companies,
as acknowledged by Goerzen and Beamish, (2013),
allowing one to differentiate between high and low
performers in the eyes of each stakeholder using
indices such as profitability, increase in equity and
assets, Turnover rate and Earnings per share
(Fitzgerald & Storbeck, 2013).
Superior financial performance is a way to satisfy
investors and can be represented by profitability,
growth (Turnover rate), and market values (Earnings
per share) (Fitzgerald & Storbeck, 2013). These three
aspects complement each other. Profitability
measures a firm’s past ability to generate returns
(Waren, 2016)). Growth demonstrates a firm’s past
ability to increase its size and meets its cash demands
(Graham, 2019). Increasing size, even at the same
profitability level, will increase its absolute profit and
cash generation. Larger size also can bring economies
of scale and market power, leading to enhanced future
profitability. Market value represents the external
assessment and expectation of firms’ future
performance in terms of the firm’s ability to satisfy
shareholders. It should have a correlation with
historical profitability and growth levels, but also
incorporate future expectations of market changes and
competitive moves.

Empirical Review
Wilmhurst and Frost (2020) examined the
relationship between factors perceived as important
by chief financial officers in the decision to disclose
as well as the observed disclosure of environmental
information within the annual report. The survey
involved a selected sample from the top 500 listed
Australian companies from 1994 to 1995, which is
based on the total revenue of the trading companies.
Using stratified random sampling method, an initial
sample of 105 companies from environmentally
sensitive industry was selected. The industry groups
selected were; (1) chemical, (2) mining and resources,
(3) oil, gas and petroleum, (4) transport or tourism,
(5) manufacturing, (6) construction, and (7) food and
household. The result of the study showed that the
factors considered most important by chief financial
officers in the decision to disclose environmental
information were; Shareholders’ or investors’ right to
information (also ostensibly to provide a “true and
fair” view of operations), Legal obligations and “due
diligence” requirements; Community concerns
Daferighe and Money (2019) carried out a study on
environmental accounting practices by corporate
firms in emerging economies, with empirical
evidence from Nigeria. The study was aimed at
assessing the impact of government legislations on
environmental accounting practice and compared
current practices across firms in different sectors of
the economy. The study used chi square on 25 quoted
firms in the Nigerian stock exchange, covering
various sectors of the economy. The study revealed
that the input of plant environmental staff is important
in cost categorization and tracking of cost in
developing an environmental management system. It
was discovered that legal staff labour time and natural
resources damages are the least internal costs
included in environmental project financial
evaluation. It was established in this study that the
establishment of an Environmental Management
System (EMS) is essential for corporate firms in
Nigeria. This is an important task to ensure that all
relevant, significant costs are considered when
making business decisions. Findings revealed that
much attention has not been given to cost of natural
resources damages in project evaluation. The study
recommended that Government should step-up its
enlightenment Programme on policies and laws on
environmental protection in order to increase
awareness amongst corporations operating in the
country. Also, the relevant agencies should ensure
enforcement of and compliance with these policies
and laws. Companies should endeavor to make use of
environmental cost and performance information for
designing environmentally preferable processes or
products. This will result in improved profitability
and a reduction in environmental risk.
Emenyi (2019) undertook a study on environmental
cost accounting and the cost of environmental
damages on stakeholder’s well-being in Nigeria’s
south-south geo-political zone. The study was to
examine whether oil and gas companies pay close
attention to the environment as a form of corporate
social responsibility. This was hinged on the
inadequate measurements and disclosure of the cost
effect of environmental damages on the well-being of
the inhabitants of the affected area of oil spills. A
survey research design was adopted while
information was elicited from 362 respondents with
ANOVA used to test the null hypothesis. The study
discovered that it is relevant to measure and disclose
the cost of environmental damages on stakeholder’s
well-being in the environmental reporting of
petroleum exploiting firm. The study recommended
that oil and gas companies account for the cost of
environmental damages on the well-being of the
inhabitants of the affected areas in their
environmental cost accounting and reporting. Holm
and Rikhardsson (2018) studied the effect of
environmental disclosure on investment decisions.
The results suggest that environmental information
disclosure influences investment allocation decisions.
This finding would imply that companies that are
apathetic to their environmental costs or
responsibility might experience eventual crashes on
their stock price if their investors are rational in
considering the future value of the firm based on its
present state of environmental responsibility. Hassel
et al. (2018) investigated the effect of environmental
information on the market value of listed companies
in Sweden using a residual income valuation model.
The results show that environmental responsibility as
disclosed by sampled companies has value relevance,
since it is expected to affect the future earnings of the
listed companies. Their findings have implications for
companies that pollute the environment – their future
solvency may be eroded with gradual depletion in
earnings. Turban and Greening (1997) examined the
effect of corporate social performance on
organizational attractiveness to prospective
employees. Ofoegbu (2016) investigated the
Corporate Environmental Accounting Information
Disclosure in the Nigerian Manufacturing Firms. The
study examined the influence of firm characteristics
on the quality of Corporate Environmental
Accounting Information Disclosure (CEAID) in the
Nigerian manufacturing companies. Ex-post facto and
content analysis research design were adopted. 10
quoted selected manufacturing firms from 2008-2014
in the annual reports were used in the study and

finding shows that firm financial performance has a
significant impact on the quality of CEAID but firm
size had no impact on the quality of CEAID.
Nwaiwu, and Oluka, (2018) assessed environmental
information disclosure practices of selected Nigerian
manufacturing companies. Content analysis was
adopted in analyzing the annual reports of the
selected firms with regards to their environmental
disclosure practices. Furthermore, a survey was
carried out in order to ascertain whether the
environmental disclosure practice of firms in Nigeria
has improved. The findings of the study indicated that
the environmental disclosure practices of firms in
Nigeria is still adhoc and contains little or no
quantifiable data. Waren, (2016), carried out research
on the impact of environmental cost on “Corporate
Performance: A Study of Oil Companies in Niger
Delta States of Nigeria”. The study’s main objective
was to investigate the impact of environmental cost
on corporate performance of oil companies in the
Niger Delta States of Nigeria. The field survey
methodology was utilized involving a selected sample
of twelve oil companies. The multiple regression
analysis was explored to test the hypothesis. An
investigation was undertaken into the possible
relationship between corporate performance and three
selected indicators of sustainable business practices:
Community Development Cost (CDC), Waste
Management Cost (WMC) and Employee Health and
Safety Cost (EHSC). The study revealed that
sustainable business practices and corporate
performance is significantly related; and
sustainability may be a possible tool for corporate
conflict resolution as evidenced in the reduction of
fines, penalties and compensations paid to host
communities of oil companies. The study
recommended that the management of oil companies
in the Niger Delta States of Nigeria should develop a
well-articulated environmental costing system in
order to guarantee a conflict free corporate
atmosphere needed by managers and workers for
maximum productivity and eventually improve
corporate performance.
Anyanwu (2015) in an empirical study titled
“Environmental Management Accounting Techniques
and Quality Financial Reporting” was undertaken to
assess and explain the extent to which quality
environmental reporting disclosures take place in
Nigerian listed companies in practice. The study also
identified and discussed the possible reasons for the
level of quality of reporting. The study adopted a
descriptive statistical research method. It revealed
that Nigerian companies are making more
environmental disclosures than they did five years
ago. The studies further revealed that majority of the
companies are making voluntary disclosures of
environmental and social policy statements under the
heading of Sustainability Report or Corporate Social
Reporting (CSR). The study concluded that many of
Nigerian companies do not effectively report on
environmental matters. Those who report minimal or
generic information are inconsistent. The study
recommended that Nigerian companies need to do
more to demonstrate their commitment to improving
their environmental impact via better quality
disclosures and linking this information to their
financial performance to create better value for all
stakeholders. Uwalomwa, (2014) carried out a study
on environmental costs and environmental
information disclosure in the accounting systems. The
study was aimed at examining the extent to which
companies’ measure and discloses the destructive
environmental waste. This issue should include other
cases about accounting for air pollution, water
contamination and natural resources extraction. The
study adopted descriptive statistical research method.
The study revealed that the majority of companies are
not willing to disclose the information related to
environmental costs in their financial statements,
because they believe that this practice would impose
some commitments on them. The study recommended
that companies’ managers should use company’s
financial resources in disclosing social and
environmental information as a tool to advertising
company’s favorable prestige and strengthen
company’s environmental reputation and legitimating
their activities in order to affect stakeholders.
METHODOLOGY
This study adopts ex-post facto, content analysis and
regression research design. Ex-post facto research
design involves the means of ascertaining the impact
of past factors on the present happening of event.
Agburu (2017). Content analysis will be employed to
measure the environmental cost component of firms
in line with the five (5) environmental cost criteria
adopted by Dragomir (2011). The research adopts
secondary source of data in obtaining all the data
needed for the study, extracted from the audited
financial statements of the sampled manufacturing
firms, which is meticulously examined and relevant
data extracted from the period of 2011-2018 for
analysis.
Model specification. The multiple regression model
is stated thus:
ROEit = B0 + B1LogENCOSTit + B2FSIZEit + u--(1)
ROAit = B0 + B1LogENCOSTit + B2FSIZEit + u--(2)

ROA = Return on Assets
ROE = Return on Equity
LogENCOST = Log of Environment Cost
FSIZE = Firm Size
B0 = Unknown constant to be estimated
B1 = Unknown coefficients to be estimated
u = Error term
it = Cross section (i) and Time (t)
DATA PRESENTATION
Descriptive statistics
In this sub section the descriptive statistics of both the explanatory and dependent variables of interest are
examined. Each variable is examined based on their mean, median, maximum and minimum. Table below
displays the descriptive statistics for the study.
Descriptive statistics table 1
stats | retoe retoa fsize lencost
mean | 14.53509 6.277586 7.043879 .6590517
p50 | 14.065 6.585 7.02 .67
min | -229.27 -30.28 5.79 .18
max | 143.54 34.17 8.55 1
sd | 30.82438 9.702944 .6826638 .162683
skewness | -2.196878 -.7338548 .0414519 -.2497983
kurtosis | 2.136606 1.578952 2.123601 2.379646
sum | 3372.14 1456.4 1634.18 152.9
Source: Researcher Computation (2022)
The above table shows that the mean value of financial performance proxy return on equity (retoe) and return on
asset (retoa) among the sampled firms were 14.54%, 6.28% and 2.25% respectively. This implies that about
14.54%, 6.28% and 2.25% of the observation shows the level of financial performance. The median value of
environmental cost for the sampled companies was 0.67. The maximum value for the study was 1 while the
minimum value was 0.18. This therefore means that companies with higher or equal to the median value of 0.67
spend more on environmental cost while companies with the value below 0.67 spend less. In the case of firm
size, the average value was 7.04 which means company above 7.04 are considered as large firms. The
probability values of the test of normality for all the variables (retoe, retoa, lencost and fsize) are lesser than 5%.
This means that all the variables satisfied normality.
Correlation Analysis
In examining the association among the variables, the study employed the Pearson correlation coefficient
(correlation matrix) and the results are presented in the table below.
Correlate retoe retoa fsize lencost (obs=232) table 2
| retoe retoa fsize lencost
retoe | 1.0000
retoa | 0.6644 1.0000
fsize | 0.2889 0.3980 0.0803 1.0000
lencost | 0.0013 0.1110 -0.0145 -0.0554 1.0000
Source: Researcher Computation (2022)
In the results of table 2 above, we observed that environmental cost has a fairly negative relationship with firm
size (-0.055) and weakly associated with return on equity and return on asset. The financial performance
measures were positively and moderately associated with firm size and environmental cost. The above results
also show that, there exists a positive and weak association between firm size and return on equity
(FSIZE/RETOE=0.29). In the case of firm size and return on asset, there exist a positive and weak relationship
between them (FSIZE/RETOA=0.40). Similarly, from the table above we can see some of the relationships
that exist.

Unit Root Test
Panel unit root test for Dependent and Independent Variables
Stationarity of the series was checked through panel unit root test. Panel unit root test are not similar to unit root
test. Panel unit root tests are simply multiple series unit root tests that have been applied to panel data structure
(where the presence of cross sections generates ‘multiple series’ out of a single series. To check for common unit
root process, we use the Levin, Lin and Chu Panel unit root test and, for individual unit root process, we use Lm,
Pesaran & Shin W-Stat panel unit root test. At 5% level of significant, the null hypothesis will be rejected if p-
value is less than 0.05 and conclude that the series is stationary. The test where conducted based on the
following null unit root hypotheses;
Levin Lin & Chu Test: Assumes common unit root process, Lm, Pesaran & Shin W- Stat test: Assumes
individual unit root process,
The summary result of the panel unit root test of the variables are presented in the table below and the detailed
result are displayed.
Result of Panel Unit Root Tests for the Variables table 3
Variables
Levin Li and Chu Lm, Pesaran & Shin W-Stat
Statistic P-value Statistic P-value
ROE
ROA
FSIZE
LENCOST
-4.4312 0.0000
-7.6420 0.0000
4.3926 0.0000
-10.8023 0.0000
-0.9281 0.1767
-1.2555 0.1047
-3.6555 0.0001
1.1523 0.8754
In case of the common unit root test, the result shows that at 5% level of significance, reject the null hypothesis
common unit root for ROE, ROA, FSIZE, and LENCOST with their Levin Lin & Chu statistic as -4.4312, -
7.6420, -3.9010, -14.3926 and -10.8023 respectively, and their p-values are allabove 0.000. Since their p-values
are less than 0.05, it’s concluded that the test is significant and the series are all stationary at level. In case of the
individual unit root test, the result shows the test statistic as -0.9281, -1.2555, -3.6555, and -1.1523. with
associated p-values of (0.1767, 0.1047, 0.0001, and 0.8754) for ROE, ROA, so we reject the null hypothesis and
concluded that the individual proceess of the variables are stationary. Generally, we concluded that the variables
ROE, ROA, FSIZE, and LENCOST have no unit root, which implies that the series are stationary.
Co-integration Test
The panel unit root test suggested that the series were stationary. This implies that the series are integrated of
order zero and can be tested for co-integration with Engle- Granger co-integration test. The test aimed at
determining whether a long term relation exist between the series stating the null hypothesis that there is no co-
integrating relation, and if the hypothesis cannot be accepted, we test the hypothesis that there is at most one co-
integrating equation.
Co-integration Test for the Series RETOE FSIZE and LENCOST
Cointegration Test - Engle-Granger table 4
Specification: RETOE FSIZE LENCOST C
Cointegrating equation deterministics: C
Null hypothesis: Series are not cointegrated
Automatic lag specification (lag=0 based on Schwarz Info Criterion, maxlag=11)
Value Prob.*
Engle-Granger tau-statistic -34.32629 0.0001
Engle-Granger z-statistic -73.98792 0.0000
*MacKinnon (1996) p-values.
From table 4 above the Engle-Granger tau statistic and z-statistic are recorded as -34.3263 and -73.9879 with p-
values of 0.0001 and 0.0000 respectively. The Engle-Granger co-integration test is significant since the
respective p-value is less than 0.05. At 5% level of significance the Engle-Granger co-integration test rejects the
null hypothesis which means there is a long run relationship exists within the variables. Therefore, we conclude
that in model 1, the variables are co-integrated.

Co-integration Test for the Series RETOA FSIZE and LENCOST
Co-integration Test - Engle-Granger table 5
Specification: RETOE FSIZE LENCOST C
Co-integrating equation deterministic: C
Null hypothesis: Series are not co-integrated
Automatic lag specification (lag=0 based on Schwarz Info Criterion, maxlag=11)
Value Prob.*
Engle-Granger tau-statistic -4.795542 0.0324
Engle-Granger z-statistic -35.19619 0.0289
*MacKinnon (1996) p-values.
From table 5 above, the Engle-Granger tau statistic and z-statistic are recorded as -4.7955 and -35.1962 with p-
values of 0.0324 and 0.0289 respectively. The Engle-Granger co-integration test is significant since the
respective p-value is less than 0.05. At 5% level of significance the Engle-Granger co-integration test rejects the
null hypothesis which means there is a long run relationship exists within the variables. Therefore we conclude
that in model 2, the variables are co-integrated.
Test of Constant Variance (Heteroskedasticity)
The tests for constant variance were conducted via the White's Heteroskedasticity test.
White’s test is a test of the null hypothesis of no heteroskedasticity against heteroskedasticity of some unknown
general form. The Obs*R-squared statistic is White’s test statistic, computed as the number of observations
times the centered from the test regression. The null hypothesis is rejected if the test is significant at 5% level.
The tests for the models are detailed below.
Test of Constant Variance for Model 1
Model 1 Heteroskedasticity Test: White table 6
F-statistic 2.216527 Prob. F 0.0276
Obs*R-squared 19.29310 Prob. Chi-Square(10) 0.0367
Scaled explained SS 156.1859 Prob. Chi-Square(10) 0.0000
The test statistic, Obs*R-squared is given as 19.2931 with p-value of 0.0367. The p-value (0.0367) is less than
0.05, so the test is significant and the null hypothesis is rejected. We concluded that assumption
heteroskedasticity is not violated.
Test of Constant Variance for Model 2
Heteroskedasticity Test: White table 7
F-statistic 2.407504 Prob. F 0.0169
Obs*R-squared 20.50102 Prob. Chi-Square(10) 0.0249
Scaled explained SS 1614.203 Prob. Chi-Square(10) 0.0000
The test statistic, Obs*R-squared is given as 20.5010 with p-value of 0.0249. The p-value (0.0249) is less than
0.05, so the test is significant and the null hypothesis is rejected. It’s concluded that assumption
heteroskedasticity is not violated.
Test of Hypotheses
Hypothesis 1
H0: Environmental cost has no significant impact on
return on equity
H1: Environmental cost has significant impact on
return on equity
The model is given as;
Model 1; ROEit = β0 + β1LENCOSTit + β2FSIZEit +
µ
The F-statistic of 3.11 and p-value of 0.0466, which is
less than 0.05, indicates that the test is statistically
significant at 5% level. The null hypothesis is rejected
and concluded that environmental cost has a
significant effect on return on equity.
Hypothesis 2
H0: Environmental cost has no significant impact on
return on asset
H1: Environmental cost has significant impact on
return on asset.
The model is given as;
Model 2; ROAit = β0 + β1LENCOSTit + β2FSIZEit +
µ

The F-statistic of 15.17 and p-value of 0.0000, which
is less than 0.05, indicates that the test is statistically
significant at 5% level. The null hypothesis is rejected
and concluded that environmental cost has a
significant effect on return on asset.
Conclusion
In line with the main objective of the study which is
to examine the imperative of environmental cost on
equity and asset of quoted manufacturing firms in
Nigeria. Two hypotheses are tested to ascertain the
effect of environmental cost on equity and asset of
quoted manufacturing firms in Nigeria.
The first specific objective was to examine the impact
of environmental cost on return on equity of quoted
manufacturing firms in Nigeria and to achieve this,
hypothesis was tested and the results reviewed that
environmental cost has a significant impact on return
on equity of quoted manufacturing firms in Nigeria.
This finding is in line with that of Galani (2014).
In line with the second specific objective which was
to examine the impact of environmental cost on return
on asset of quoted manufacturing firms in Nigeria,
hypothesis tested reveales that environmental cost has
a significant impact on return on asset of quoted
manufacturing firms in Nigeria. This result is in line
with that of Uwalomwa (2014) who conducted a
study on Corporate Environmental Reporting
Practices using a comparative approach of Nigerian
and South African Firms. He investigated the extent
and nature of corporate environmental reporting
practice among listed firms in Nigeria and South
Africa and found out that there is a significant
positive relationship between the operating
performance, size of firms and the level of corporate
environmental cost among selected firms in Nigeria.
This is also supported by the findings of Tapang,
Bassey and Bessong (2012).
In accordiance with this study’s findings, it is
recommended that: Firms in Nigeria should invest
reasonable amount on environmental issues and
report same in their financial reports for the various
stakeholders to see. This will create a good
relationship with the host community which will
enable growth in production and increase in turnover.
The Financial Reporting Council of Nigeria (FRC)
and others alike should make environmental cost
reporting a mandatory report as this can help compel
the firms to engage in environmental conservation
activities that will mitigate the adverse effect of their
business activities on the host communities. As a
result will lead to a conducive business operating
environment and increase in profitability. Besides
shareholders interest in the report on earnings per
share. There are other stakeholders who are interested
in other information in the financial reports like the
efforts of the firms in conserving the environment in
line with global best practices. The disclosure of such
environmental cost will attract diverse investors and
this will bring about increase in the earnings report of
the firms.
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