UNAIR NEWS – “Information on environmental risk should be included in the disclosure of the company’s environmental performance, so that readers of financial statements get a complete picture of the company’s condition,” said Prof. Dr. I Made Narsa, SE., M.Si., Ak., CA.
Prof. Narsa with two of his colleagues conducted research on matters considered by investors to determine the value of the company. In contrast to previous research which always only focused on environmental performance, this time Prof. Narsa and the team tried to see from the side of environmental risks.
According to him, disclosure in the annual report is not only limited to financial information, but also to non-financial aspects. This research focuses on disclosure of performance and environmental risks.
“Although environmental risk does not directly affect the company’s economic conditions, it will ultimately affect the company’s overall risk,” he said.
The samples taken in this research are 476 companies listed on the Indonesia Stock Exchange (BEI) in 2016-2018 which are included in the high profile industry category. The test results showed that the disclosure of environmental risk was responded by investors.
“Information on environmental risk will tend to be ignored by investors, if there is information about the company’s environmental performance,” he explained.
Prof. Narsa also stated that the relationship between disclosure of environmental risk and the cost of equity in this study is not in line with the theory of disclosure. The disclosure theory stated that the more disclosures made will reduce the information asymmetry and ultimately reduce the cost of equity.
“This different direction might occur because the type of information disclosed has different properties, and the response given depends on investor preferences,” he said.
Furthermore, Prof. Narsa stated that this research was also able to expand the theory of disclosure, especially in the category of the consequences of disclosure in the capital market. The disclosure of environmental risk will give consideration to investors to determine the value of the company. (*)
Author: Sandi Prabowo
Editor : Nuri Hermawan
Eriandani, R., Narsa, I.M. & Irwanto, A. (2019) Environmental Risk Disclosure and Cost of Equity. Polish Journal of Management Studies 2019; 19 (2): 124-131