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For more than two decades, the link between environmental accounting information and
firm performance has attracted considerable research attention. The effect of economic
rationality seems especially within the context of voluntary accounting disclosures and
weak state regulation experienced in developing economies. Consequently, the effect of
environmental accounting on market performance has motivated quite a number of empirical
studies (Bowman and Haire, 1975; Vance, 1975; and Abbot and Monsen, 1979) done as
early as the 1970s. Arguably, management has a primary responsibility to shareholders,
and their continued relevance depends on their ability to generate returns on investment.
However, the cost of business activities to the environment must be factored into the
firm’s cost and should be accounted for rather than perceived as an opportunity cost for
corporate profiteering.
The rationale behind the long-standing negligence of firms of their environmental
implications is depicted within the context of the stakeholder-shareholder debate. The idea
which underlies the ‘shareholder perspective’ is that the only responsibility of managers is
to serve the interests of shareholders in the best possible way, using corporate resources to
increase the wealth of the latter by seeking profits (Freedman, 1998; and Jensen, 2001). In
contrast, the ‘stakeholder perspective’ suggests that besides shareholders, other groups or
constituents are affected by a company’s activities (such as employees or the local community),
and have to be considered in managers’ decisions, possibly equally with shareholders (Werhane
and Freeman, 1999).
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