Impact of institutional ownership on environmental disclosure in Indonesian companies

Abstract

Purpose This study aims to investigate the effect of the classification of origin country of institutional shareholder (domestic, developed and developing country) and its status on stock exchange (listed and unlisted) on environmental disclosure level in Indonesian companies. Design/methodology/approach The data set comprises 474 non-financial firms listed in Indonesian Stock Exchange (IDX) for the period of 2017 to 2019. The study uses an environmental disclosure checklist to measure the extent of environmental disclosure in companies’ reports. Panel regression analysis technique is adopted to investigate the association between total percentage of shares held by institutional shareholders based on the classification of origin country and the status in stock exchange, and the extent of environmental disclosure. Findings The study reveals that the extent of environmental disclosure is positively and significantly associated with institutional investors from domestic, developed countries, listed and unlisted institutional investors. Further analysis shows interesting results that institutions from developing countries have a negative and significant relationship with environmental disclosure in non-sensitive industries. Research limitations/implications The authors recognize the issue of authors’ subjectivity in the measurement process of environmental disclosure. The sample for this study encompasses Indonesian listed firms. Thus, the results may not be generalized to Indonesian unlisted firms and other countries or regions. Practical implications This study suggests managers to engage more with institutional shareholders because they have greater concern for environmental disclosure practices. The current study also suggests managers to make strong environmental policies as they are important to ensure that institutional shareholders’ investments are safe. Social implications Given the positive impact institutional shareholders have on the level of environmental disclosure, it indirectly indicates that institutional shareholders have a strong motivation to make the world a better place. Originality/value This study offers in-depth insights into the effect of institutional ownership on environmental disclosure based on the classification of origin country and listing status of institutional investors.