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Environmental disclosure and idiosyncratic risk; exploring the role of governance

Mahboob Khan (Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan)
Mazhar Iqbal (Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan)

Social Responsibility Journal

ISSN: 1747-1117

Article publication date: 9 December 2022

Issue publication date: 18 October 2023




This study aims to explore the moderating role of corporate governance index between environmental disclosure and idiosyncratic risk.


Governance index constructed on the basis of principle component analysis (PCA) that comprised Board Duality (BD), Board Size (BS), Board Independent (BI) and Board Meeting (BM). Collected panel data of 103 nonfinancial companies listed in stock exchanges of Pakistan and India for the period 2013–2020. To address the issue of endogeneity, this study used generalized methods of moments (GMM).


This study revealed that corporate governance index negatively modifies the relationship between environmental disclosure and idiosyncratic risk for both Pakistan and India scenario. Findings of the study also disclosed environmental disclosure has positive significant impact on idiosyncratic risk in case of Pakistan, whereas it has a negative significant impact in case of India.

Research limitations/implications

The major limitation of the study is availability of environmental disclosure data, future researchers may extend time period and add other emerging economies for analysis. Moreover, assumption of objectivity in the evaluation of environmental disclosure is another limitation of the study. Future research should examine the standard of environmental actions that businesses declare. This study used CAPM model to measure idiosyncratic risk, and future studies suggest measure idiosyncratic risk by using Fama & French four and five factors model for better results and robustness.

Practical implications

Study provides guidelines to investors for choosing stock for investment and also helpful for management to minimize agency problems through better governance mechanisms. Furthermore, study has deep implications for CEOs, portfolio managers, researchers and academics.


The study intended to empirically examine the moderation of Corporate Governance Index between the relationship of Environmental Disclosure and Idiosyncratic Risk.



Khan, M. and Iqbal, M. (2023), "Environmental disclosure and idiosyncratic risk; exploring the role of governance", Social Responsibility Journal, Vol. 19 No. 8, pp. 1435-1450.



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