The effects of carbon disclosure and carbon performance on agency cost: International evidence

Abstract

This study examines the relationships among carbon disclosure (CD), carbon performance (CP), and agency cost (AC) using a global sample across major industries. Employing Partial Least Squares Structural Equation Modelling (PLS-SEM) via WarpPLS, we find that increased carbon disclosure reduces agency cost, while improved carbon performance may increase it, likely due to the capital-intensive nature of environmental investments. Carbon disclosure is shown to mediate the relationship between carbon performance and agency cost. Firms in countries with emissions trading schemes and higher environmental performance indices tend to perform better in carbon management. Unlike previous studies focused solely on firm performance, this research contributes to the literature by examining how carbon-related practices influence agency costs, using comprehensive CDP-based measures and agency theory, stakeholder theory, and instrumental stakeholder perspectives.

Keywords Agency cost, Asset utilization ratio, Carbon disclosure, Carbon performance, Carbon-regulated institutional context