Journal of Cleaner Production xxx (xxxx) xxx

Contents lists available at ScienceDirect

Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Are third-party assurances preferable to third-party comments for

promoting financial accountability in environmental reporting?
Kimitaka Nishitani a, *, Mohammad Badrul Haider b, Katsuhiko Kokubu c
a
Research Institute for Economics and Business Administration, Kobe University, 2-1 Rokkodai Nada Kobe, 657-8501, Japan
b
Institute of Business and Accounting, Kwansei Gakuin University, 1-155 Uegahara Ichiban-Cho Nishinomiya, 662-8501, Japan
c
Graduate School of Business Administration, Kobe University, 2-1 Rokkodai Nada Kobe, 657-8501, Japan

a r t i c l e i n f o a b s t r a c t

Article history: The purpose of this paper is to provide empirical insights into whether third-party reviews such as
Received 4 June 2019 comments and assurances promote financial accountability in environmental reporting by ensuring the
Received in revised form credibility of reported information. This paper empirically tests the hypothesis, based on voluntary
19 September 2019
disclosure theory, that companies proactively improving their environmental performance and man-
Accepted 6 November 2019
Available online xxx
agement enhance their shareholder value by reporting environmental information with high credibility.
The main findings from a regression analysis of data from Japanese manufacturing companies selected
Handling editor: Mattias Lindahl from the Nikkei 500 Index for the period 2007e2015 are as follows. Although companies proactively
improving their environmental performance and management are more likely to report environmental
Keywords: information voluntarily, those that do so are unlikely to have any higher shareholder value than com-
Environmental reporting panies that do not report this information. However, if companies report more credible information
Third-party comments through third-party reviews, especially third-party comments, they improve their shareholder value
Third-party assurances more than companies that merely publish their own environmental information. These findings support
Environmental performance and
the view that third-party reviews promote financial accountability in environmental reporting. In other
management
words, environmental reporting fulfills the financial accountability role assumed by voluntary disclosure
Voluntary disclosure theory
theory only after the credibility of reported information is ensured by third-party reviews. Note that this
does not apply to third-party assurances. Therefore, our findings imply that the improvement of envi-
ronmental performance and management alone is insufficient to enhance shareholder value; companies
should also report credible environmental information through third-party comments. On the other
hand, this does not mean that any kind of third-party review is positively evaluated by the stock market.
An expectation gap in third-party assurances may exist.
© 2019 Elsevier Ltd. All rights reserved.

1. Introduction activities have been conventionally regarded as external disecon-

Environmental reporting and other sustainability reporting
became much more common in the late 1990s. Such reporting
practices address the information needs of a broad range of
stakeholders. However, environmental information has recently
become as important as financial information for investment de-
cisions by shareholders and investors (Said et al., 2013). This is
because shareholders and investors increasingly recognize the
long-term financial impacts of environmental performance and
management, although environmental issues caused by business
* Corresponding author.
E-mail address: kimitakan@rieb.kobe-u.ac.jp (K. Nishitani).
omies (Jensen and Berg, 2012). This is evidenced, for example, by
the assertion by the International Integrated Reporting Council
(IIRC) that integrated reporting of economic, social, and environ-
mental sustainability factors is necessary as a basis for investment
decisions (de Villiers et al., 2014; IIRC, 2013). In this situation,
especially where integrated reporting has not yet become the main
form of corporate reporting, it is expected that environmental
reporting by companies proactively improving their environmental
performance and management is motivated by a desire to be
evaluated highly by the stock market.
This motivation can be explained by voluntary disclosure theory,
which focuses on financial accountability to improve decision-
making by shareholders and investors (Nishitani et al., 2017).
Because voluntary disclosure theory assumes that companies with

https://doi.org/10.1016/j.jclepro.2019.119199
0959-6526/© 2019 Elsevier Ltd. All rights reserved.

Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
2 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
better environmental performance and management are more
likely to report environmental information voluntarily, demon-
strating the presence or absence of such a relationship will indicate
whether financial accountability motives underlie company envi-
ronmental reporting practices. However, although many empirical
studies in the sustainability accounting field have analyzed the role
of environmental reporting, few have found this role to be consis-
tent with voluntary disclosure theory (e.g., Al-Tuwaijri et al., 2004;
Clarkson et al., 2008). If anything, a relatively large number of
studies in the sustainability accounting field have found environ-
mental reporting to be consistent with sociopolitical theories,
including political economy, legitimacy, and stakeholder theories,
which focus on social acceptance (e.g., Bewley and Li, 2000; Cho
et al., 2012; Clarkson et al., 2011; Guidry and Patten, 2012;
Hughes et al., 2001; Patten, 2002).
Because voluntary disclosure theory and sociopolitical theories
have conventionally been considered alternatives, there remains a
lack of consensus on the role of financial accountability in envi-
ronmental reporting that voluntary disclosure theory supposes.
However, financial accountability only functions when share-
holders and investors evaluate the environmental reports highly.
This implies that the relationship between environmental perfor-
mance and management and environmental reporting may not be
independent of the evaluations of shareholders and investors.
Accordingly, a relationship is expected between environmental
performance and management, environmental reporting, and
shareholders’ and investors’ evaluations, and the role of environ-
mental reporting in financial accountability is determined by this
triadic relationship (Al-Tuwaijri et al., 2004).
To establish such a relationship, the credibility of environmental
information reported by companies may be important, because
environmental reporting is generally voluntary and frequently
criticized for its lack of credibility (Adams, 2004; Adams and Evans,
2004; O’Dwyer and Owen, 2005). Specifically, shareholders’ and
investors’ perceptions of the value of corporate reporting could be
affected by their perceptions of its credibility (Coram et al., 2009).
On this basis, including third-party reviews such as assurances and
comments is one way of ensuring the credibility of environmental
reporting (Haider and Kokubu, 2015). Indeed, 54% of our sample
companies that had published environmental reports had also
confirmed the environmental information using third-party re-
views. Formal third-party assurances are the most common
method of providing assurances globally. According to KPMG
(2015), third-party assurances are an established standard prac-
tice in environmental reporting, especially for leading global
companies. On the other hand, general third-party comments have
declined in popularity, in particular among Japanese companies,
which are among the most proactive environmental reporters
(Haider and Kokubu, 2015). However, because the (main) role of
environmental reporting is not considered to be financial
accountability, relatively few credibility or third-party reviews of
environmental reports have been examined in terms of their
accountability motives (Haider and Kokubu, 2015; Wong and
Millington, 2014). Furthermore, third-party assurances and third-
party comments differ in quality, as detailed in Section 2.2, and
the difference in their influence on evaluations of shareholders and
investors also remains unclear.
Therefore, the purpose of this paper is to provide empirical in-
sights into whether third-party reviews (and the different third-
party reviews) promote financial accountability in environmental
reporting practices by ensuring the credibility of reported infor-
mation. This paper empirically tests the hypothesis, based on
voluntary disclosure theory, that companies proactively improving
their environmental performance and management enhance their
shareholder value by reporting environmental information with
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
high credibility. The study uses data from Japanese manufacturing
companies selected from the Nikkei 500 Index between 2007 and
2015. We consider this sample selection to be appropriate, because
the context of this paper is important to provide a new insight into
environmental reporting practices for the following reasons. Japan
is one of the world’s largest stock markets, it has long-standing
traditions of corporate environmental reporting, and its com-
panies adopt not only third-party assurances but also third-party
comments.
The remainder of this paper is organized as follows. Section 2
discusses a research framework for this study with a literature re-
view and develops our hypotheses. Section 3 explains the research
design. Section 4 presents the estimation results and Section 5
discusses our findings. Section 6 concludes.
2. Research framework and hypothesis development
2.1. The financial accountability role of environmental reporting
Although a number of environmental accounting studies have
analyzed the relationship between environmental performance
and management and environmental reporting, their results are
inconsistent. For example, Al-Tuwaijri et al. (2004) and Clarkson
et al. (2008) found a positive relationship, whereas Bewley and Li
(2000), Braam et al. (2016), Cho et al. (2012), Clarkson et al.
(2011), and Patten (2002) found a negative relationship. In addi-
tion, early studies such as those by Freedman and Jaggi (1982),
Hughes et al. (2001), and Wiseman (1982) found no relationship.
Two alternative theoriesdvoluntary disclosure theory and so-
ciopolitical theoriesdwere generally used to explain such con-
flicting findings. Voluntary disclosure theory focuses on the
financial accountability role of environmental reporting, whereas
sociopolitical theories focus on social acceptance. There is a lack of
consensus concerning the voluntary disclosure theory or the role of
environmental reporting in financial accountability. This is
reasonable if shareholders and investorsdespecially institutional
investorsdgenerally prefer companies with poorer environmental
performance and management, as Friedman and Heinle (2016)
suggest. However, the number of shareholders and investors that
regard environmental performance and management as intangible
assets that add value to a company (by providing future cash flow)
is increasing (Jensen and Berg, 2012). In this situation, it is possible
that the financial accountability role of environmental reporting
(and thus the applicability of voluntary disclosure theory) has been
strengthened.
The voluntary disclosure theory used in environmental report-
ing studies has its origins in the financial reporting literature. A
company only reports information above a threshold determined
by the proprietary costs associated with reporting it (i.e., a reduc-
tion in future cash flows attributable to the report), and withholds
it otherwise (Dye, 1985; Lang and Lundholm, 1993; Verrecchia,
1990). This characterizes the partial reporting equilibrium in
which a company follows a strategy of reporting only successes.
That is, the fundamental premise of voluntary disclosure theory is
that companies will report information with a lower proprietary
cost and withhold information with a higher proprietary cost. Thus,
shareholders and investors will be uncertain about what has
actually occurred within a company (i.e., uncertain whether infor-
mation is withheld to avoid reporting bad news or to avoid incur-
ring proprietary costs, despite the withheld information containing
good news).
In the environmental reporting literature (e.g., Al-Tuwaijri et al.,
2004; Clarkson et al., 2008), the notions of voluntary disclosure
theory are modified to enable empirical statistical analysis in the
environmental context; the modified theory is that better (worse)
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
environmental performance and management incur lower (higher)
proprietary costs where shareholders and investors are uncertain
about occurrences within a company. Therefore, the theory as-
sumes that companies voluntarily report environmental informa-
tion to signal unobservable improvements in environmental
performance and management and to differentiate themselves
from other companies, thus reducing the information asymmetry
between the company and its shareholders and investors (Cho
et al., 2012; Clarkson et al., 2008, 2011). Hence, companies that
improve their environmental performance and management are
believed to be more likely to report objective environmental in-
formation voluntarily, and this practice is difficult for weaker per-
formers to mimic (Clarkson et al., 2008). Such reporting may
improve evaluations of better-performing companies, because
shareholders and investors infer that the expected financial bene-
fits of environmental performance and management for these
companies outweigh their costs (Al-Tuwaijri et al., 2004; Bewley
and Li, 2000; Clarkson et al., 2008). Accordingly, voluntary disclo-
sure theory predicts a positive relationship between environmental
performance and management and environmental reporting.
For example, Clarkson et al. (2008) conducted a Tobit analysis of
191 US companies from the five most polluting industries in 2003
and found a positive relationship between environmental perfor-
mance measured by the percentage of treated, recycled, or pro-
cessed toxic waste in relation to total toxic waste and the level of
discretionary environmental reporting in stand-alone environ-
mental reports and on company websites. Using data from 195
companies listed in the Bloomberg European 500 index in 2013,
Hummel and Schlick (2016) found that companies with better
sustainability performance reported higher-quality sustainability
information, whereas companies with worse performance reported
lower-quality information. They suggested that voluntary disclo-
sure theory and sociopolitical theories simultaneously explained
the quality of sustainability information reports.
This paper assumes that the financial accountability motive for
environmental reporting is embodied in the maintenance of equi-
librium between environmental performance and management,
environmental reporting, and the evaluations of shareholders and
investors. In other words, a triadic relationship between them is
expected to be established in practice (Al-Tuwaijri et al., 2004;
Clarkson et al., 2013). This is because the financial accountability
motive for environmental reporting would only function when
shareholders and investors evaluated it highly. Environmental
reporting that reduces the information asymmetry between a
company and its shareholders and investors enables them to esti-
mate more precisely the long-term financial impacts of direct
synergy between environmental performance and management,
economic performance, and possible exposure to future environ-
mental risk (Baas, 2007; Bachoo et al., 2013; Cormier and Magnan,
2007; Kokubu and Kitada, 2015; Nakano and Hirao, 2011; Nishitani
and Itoh, 2016; Nishitani et al., 2011). On this basis, if shareholders
and investors consider environmental reporting to be important in
enhancing corporate value, they should react by estimating the
present value of discounted future cash flows, which would be
reflected in shareholder value (Konar and Cohen, 2001).
Indeed, an increasing number of studies have reported a positive
relationship between environmental reporting and shareholder
value (e.g., Aerts et al., 2008; Bachoo et al., 2013; Clarkson, 2013;
Cormier and Magnan, 2007; Dhaliwal et al., 2011, 2014; Griffin and
Sun, 2013; Plumlee et al., 2015), although they independently
analyzed the relationship between environmental performance,
management and environmental reporting. However, because
shareholder value has several aspects, different studies have used
different terminology and proxies such as market value, firm value,
and the cost of equity capital. For example, Plumlee et al. (2015)
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
3
focused on specific aspects of firm value, namely the expected
future cash flows and cost of equity. They empirically analyzed US
companies across five industries from 2000 to 2005 and found that
the quality of a company’s voluntary environmental reporting was
associated with firm value through both cash flow and the cost of
equity. According to the original voluntary disclosure theory, if
anything, shareholder value (from the viewpoint of environmental
reporting) has a strong association with cash flow. Friedman and
Heinle (2016) argued that the market reaction to sustainability
performance and related corporate reporting was driven by in-
vestors’ preferences and the related shareholder base effect.
Although all shareholders valued cash flow equally, sustainability
performance was valued only by a fraction of shareholders and
investors, including long-term institutional investors and socially
responsible investors. It was the trades of the latter group that
caused sustainability to influence prices. The market would
respond positively only when a significant portion of a company’s
investors valued sustainability.
2.2. Third-party reviews of reported environmental information
If environmental information reported by a company is assured,
its credibility and quality are enhanced, so such information further
reduces the information asymmetry between a company and its
stakeholders, including shareholders and investors (Wallace, 1987;
Watts and Zimmerman, 1986). In fact, the role of environmental
reporting in reducing information asymmetry can be amplified by
adding assurance provisions to enhance user confidence in re-
ported information (Casey and Grenier, 2015). Some studies, such
as those of Moroney et al. (2012) and Pflugrath et al. (2011), found
that assurances affect the credibility of nonfinancial reporting.
Velte and Stawinoga (2017) suggested that environmental report-
ing assurance may enhance the credibility of the information,
especially from the point of view of shareholders and investors.
Assurances of reported environmental information can take
different forms. Current methods used by companies, especially in
Japan, include internal audits (implemented by the companies
themselves) and third-party reviews, including third-party (gen-
eral) comments and third-party (formal) assurances. Therefore, in
addition to methods implemented by companies internally, other
third-party methods are being introduced. This suggests that to
increase the credibility of reported environmental information, its
objectivity should be assured to a certain extent via evaluation by
third parties.
Among the various alternatives, third-party assurances are the
most common method globally. Third-party assurances are defined
as “an engagement in which a practitioner expresses a conclusion
designed to enhance the degree of confidence of the intended users
other than the responsible party about the outcome of the evalu-
ation or measurement of a subject matter against criteria”
(International Federation of Accountants, 2012, p.16). Specifically,
third-party assurances in environmental reporting are intended to
add credibility to environmental information in the same way as a
financial audit adds credibility to financial information, by exam-
ining data and claims from an independent position (Park and
Brorson, 2005). The number of large companies seeking assur-
ances of sustainability reports has increased significantly in recent
years (KPMG, 2015). In 2015, 63% of the top 250 companies listed on
the Fortune Global 500 independently assured their sustainability
information. This figure was more than double that just 10 years
previously.
As for practical business trends regarding environmental
reporting, companies are increasingly focusing on environmental
information that has high materiality for their own company, partly
because the G3 Sustainability Reporting Guidelines of the Global
4 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
Reporting Initiative (GRI) introduced the materiality principle in
2006. Because materiality is the standard by which information to
be reported is selected, the process by which a company de-
termines it is also important information for stakeholders
(AccountAbility, 2008). Accordingly, the foci of third-party assur-
ances have come to include not only the veracity, accuracy, and
completeness of reported (quantitative) data and claims, but also
the materiality determination process (AccountAbility, 2006).
Given these issues, studies have reported a wide variation in
terms of demand for assurances (Jones and Solomon, 2010; Kolk
and Perego, 2010; Sierra et al., 2013; Simnett et al., 2009; Zorio
et al., 2013), quality of assurance statements (Ball et al., 2000;
Deegan et al., 2006; O’Dwyer and Owen, 2005, 2007), and providers
of assurance services (Edgley et al., 2010; O’Dwyer, 2011; O’Dwyer
et al., 2011; Perego, 2009; Simnett et al., 2009).
For example, regarding demand for assurances, while KPMG’s
surveys (e.g., KPMG, 2015) show that European countries such as
Denmark, Spain, Italy, and France are in general more likely to
provide assurances, empirical studies such as those of Kolk and
Perego (2010) and Simnett et al. (2009) found that demand for
assurances was higher in stakeholder-oriented countries and in
those with weaker legal systems. In addition, Casey and Grenier
(2015) found that the sustainability assurance market in the US
was fundamentally different from international markets. Unlike
their international counterparts, finance and utilities industries in
the US market were no more likely than other industries to obtain
assurances of sustainability information.
Regarding quality of assurance statements and providers of
assurance services, unlike financial audits, a variety of organiza-
tions and individuals are engaged to provide assurance of envi-
ronmental reports (KPMG, 2008). Assurances are usually provided
by certification bodies, specialist consultancies, and accounting
firms (Corporate Register, 2008; KPMG, 2008; O’Dwyer et al., 2011).
Major accounting firms, in particular, have dominated the market
over the years, and in 2015, 65% of the leading global companies
that assured sustainability information used assurance services
from such firms (KPMG, 2015).
A number of studies have focused on whether third-party
assurance is used by accounting firms and whether it follows
standards such as the AA1000 Assurance Standard (Casey and
Grenier, 2015; Junior et al., 2014; Kolk and Perego, 2010; O’Dwyer
et al., 2011; Perego, 2009; Simnett et al., 2009). For example, Al-
Hamadeen (2007) suggested that the majority (63%) of UK
FTSE100 companies engaged consultancy firms to provide assur-
ance of their sustainability reports. Perego (2009) found that
companies in countries with weaker governance systems were
more likely to use accounting firms as assurance providers. In an
analysis of companies in Australia, the US, and the UK in 2007,
Pflugrath et al. (2011) found that the credibility of sustainability
information was greater when it was assured and when the assurer
was a professional accountant. Casey and Grenier (2015) empiri-
cally analyzed US companies that issued sustainability reports from
1993 to 2010 and found that sustainability reports with assurance
reduced the cost of capital, and this reduction was significantly
greater when the assurance was provided by an accounting firm.
However, Cho et al. (2014) examined the association between
sustainability report assurance and firm value in US companies and
failed to find any relationship between assurance practices and
shareholder value.
Fazzini and Dal Maso (2016) investigated the value relevance of
environmental reporting and assurance in the Italian market dur-
ing the period 2008e2013. Although environmental reporting was
found to be significantly related to companies’ market value, there
was no incremental increase in value relevance when such infor-
mation was assured. In contrast, Birkey et al. (2016) considered the
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
benefits of assurance from a different perspective. Based on a
sample of 351 company-year observations, they examined the
relationship between assurance and the corporate environmental
reputation scores of the greenest companies in the US. The study
found that the assurance of sustainability reports significantly
influenced stakeholders’ perceptions of companies’ environmental
reputations. This positive relationship held for assurance provided
by both accounting firms and other players, which suggests that “it
is the presence of assurance, as opposed to assurer type, that im-
pacts assessments of corporate environmental reputation” (p. 144).
Based on an international sample of 1466 companies, Dal Maso
et al. (2017) found that reporting on stakeholder engagement was
positively perceived by investors in countries characterized by low
embeddedness, low hierarchy, and high mastery. This suggested
that national culture played a mediatory role in the relationship
between market value and sustainability reporting.
On the other hand, third-party comments are a unique method
especially used by Japanese companies (Haider and Kokubu, 2015).
Third-party comments involve declarations (including evaluations
and recommendations) regarding reported environmental infor-
mation as well as comments regarding the company’s activities
covered in the information from an independent position, from
parties such as institutions or experts rather than certification
bodies, specialist consultancies, or accounting firms. Although
third-party assurances are a stricter form of review than third-party
comments according to the above definitions, few Japanese com-
panies appreciate this difference. For example, although all the
large companies now regularly publish sustainability reports, de-
mand for assurance services is relatively low. Indeed, Haider and
Kokubu (2015) reported that although the number of Japanese
companies listed on the Nikkei 225 publishing environmental re-
ports with third-party comments increased between 2006 and
2010, the number publishing environmental reports with third-
party assurances decreased. KPMG (2008) noted that only one-
quarter of the top 100 Japanese companies attached assurance
statements in 2008, and that instead of using “formal assurances,” a
large number of Japanese companies preferred to attach general
comments or views by external parties, including academics, in-
dividual experts, and stakeholder panels. Whereas only 18% of the
top 100 companies in 22 countries adopted third-party comment
practices in 2008, 54% of the leading Japanese companies con-
ducted these practices using the services of nonprofessional
assurance providers.
However, previous studies on sustainability assurances have
largely ignored this practice, for which there are several possible
reasons. For example, in his study on UK sustainability assurance
practices, Al-Hamadeen (2007) expressed concern about the limi-
tations of such evaluation statements, including inadequately sys-
tematic approaches, an absence of a specific set of standards, and
unclear opinions/conclusions. Citing the examples of a number of
environmental (sustainability) reports of Japanese companies,
Haider and Kokubu (2015) found that third-party comments were
based merely on reading the sustainability reports without col-
lecting substantive evidence or following guidelines or standards; if
anything, these third-party comments mainly applauded the per-
formance of companies and identified areas for future improve-
ments without drawing any specific conclusions. Observing a
similar lack of quality in assurance engagement, Wilson (2003)
considered this type of third-party comment or celebrity
endorsement of a report to be unsubstantiated assurances.
Accordingly, because third-party comments are viewed as no more
than a general statement (not a systematic, documented, and
evidence-based process), and consequently such practices have not
been considered the same as third-party assurances, the literature
focusing on third-party comments is limited (Cheng et al., 2015;
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
Haider and Kokubu, 2015).
Thus, practices concerning third-party reviews of Japanese
companies contrast with those in other countries. However, such
unique practices should be considered when analyzing the link
between assurances of environmental information and the
decision-making of shareholders and investors, especially in the
Japanese context. Although third-party reviews, including assur-
ances and comments, do not directly evaluate actual environmental
performance and/or management, a review assures a certain de-
gree of objectivity and credibility regarding the reported informa-
tion through evaluation by third parties. Accordingly, it is expected
that shareholder value will be enhanced when environmental in-
formation is voluntarily reported and increased further when the
credibility of the reported environmental information is enhanced
by the inclusion of third-party reviews of the information.
Furthermore, because third-party assurances and third-party
comments differ in quality, the difference in influence between
them is another issue to be analyzed.
2.3. Hypothesis development
From the above discussion, it is possible to derive a hypothesis
regarding the relationship between environmental performance
and management, environmental reporting, and the evaluation of
companies by shareholders and investors; that is, companies pro-
actively improving environmental performance and management
enhance their shareholder value via reporting environmental in-
formation with high credibility. This paper will test the following
three hypotheses to verify this claim.
Hypothesis 1. Companies that proactively improve their envi-
ronmental performance and management are more likely to report
environmental information voluntarily.
Hypothesis 2. Companies that voluntarily report environmental
information are more likely to have higher shareholder value than
those that do not report this information.
Hypothesis 3. Among companies that voluntarily report envi-
ronmental information, those that include third-party reviews
(third-party comments and/or third-party assurances) are more
likely to have higher shareholder value.
Hypotheses 1 and 2 propose the following relationship: (1)
better environmental performance and management / (2)
voluntary environmental reporting / (3) higher shareholder
value. Hypothesis 3 proposes that the relationship (2) / (3)
strengthens when the credibility of the disclosed environmental
information is enhanced. These relationships are described in Fig. 1.
3. Research design
3.1. Empirical models
We use a treatment effects model to test our hypotheses. This is
because if the environmental report publication dummy used as a
proxy for environmental reporting is endogenous, an ordinary least
squares (OLS) estimation captures the reverse causality whereby
companies with higher shareholder value are more likely to report
environmental information proactively.1 Thus, the estimation re-
sults from a treatment effects model are more reliable than those
from OLS if the environmental report publication dummy is
endogenous, although OLS is more reliable otherwise. As shown in
1
If a proxy for environmental reporting is a continuous variable, the two-stage
least squares and three-stage least squares methods should be used.
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
5
Section 4, the environmental report publication dummy is actually
endogenous. In contrast, the ISO 14001 years variable used as a
proxy for environmental performance and management is regar-
ded as exogenous, because ISO 14001 years are predetermined
when a company initially adopts the certification (Nishitani, 2009;
Nishitani et al., 2016).2
The general formulation of the treatment effects model is as
follows:
ER*it ¼ a0 þ a1 EPMit þ a2 GCit þ a3 Controlit þ εit (1)
SVit ¼ b0 þ b1 EPMit þ b2 ERit þ b3 Controlit þ dit (2)
SVit ¼ g0 þ g1 EPMit þ g2 ERit þ g3 ERit  TPRit þ g4 Controlit þ uit
(3)
where ER* is the latent variable of environmental reporting; EPM is
environmental performance and management; GC is the United
Nations Global Compact (UNGC) signature, which is an instru-
mental variable3 that directly influences ER* but not SV; SV is
shareholder value; ER is environmental reporting (¼ 1 if ER* > 0 and
0 otherwise); TPR is the inclusion of third-party reviews; Control is
the control variable(s); a, b, and g represent estimation parameters;
ε, d, and u are error terms; and i and t, respectively, represent the
company and time.
Equation (1) shows the relationship between environmental
performance and management and environmental reporting and
will be used to test Hypothesis 1. Equation (2) shows the relation-
ship between environmental reporting (and environmental per-
formance and management) and shareholder value and will be
used to test Hypothesis 2. Equations (1) and (2) are estimated
simultaneously. Equation (3) shows the relationship between the
credibility of environmental reporting (and environmental perfor-
mance and management) and shareholder value and will be used to
test Hypothesis 3. Equations (1) and (3) are also estimated simul-
taneously. Note that the difference between Equations (2) and (3) is
the inclusion of interaction terms for environmental reporting and
third-party reviews. By including the additional interaction terms
in Equation (3), the influence of environmental reporting with
third-party reviews (relative to environmental reporting without
them) can be estimated.
3.2. Sample selection
The data used for empirical analyses are pooled data from 2007
to 2015 for 174 Japanese manufacturing companies listed in the
Nikkei 500 Index. Holding companies and companies with missing
values are excluded from the sample. Consequently, the total
number of observations for the analyses is 1533 company-years.
3.3. Variable measurements
The variable for measuring shareholder value is Tobin’s q. The
variable for environmental reporting is the ER (environmental
report) publication dummy. The three dummy variables used for
measuring the effect of third-party reviews of environmental
reporting by interacting with the ER publication dummy
2
Three companies in our sample initially adopted ISO 14001 during the esti-
mation period. However, there is hardly any difference between the estimation
results with or without these companies in the sample.
3
For statistical estimations of the simultaneous equations, the instrumental
variable(s) that directly influence the endogenous variable but not the dependent
variable must usually be included in the regression.
6 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
Fig. 1. Research framework of the relationship between environmental performance, management, environmental reporting, and third-party reviews.
respectively denote the following: a comment (¼ 1 if a comment is
included, 0 otherwise); an assurance (¼ 1 if an assurance is
included, 0 otherwise); and both a comment and assurance (¼ 1 if
both a comment and an assurance are included, 0 otherwise). Thus,
the interaction terms of the ER publication dummy and third-party
reviews are ER with a comment, ER with an assurance and ER with
both a comment and an assurance.4 The variable for environmental
performance and management is ISO 14001 years. The instru-
mental variable that influences environmental reporting but does
not directly influence shareholder value is the UNGC signature. The
control variables are the natural logarithm of the number of em-
ployees (ln(employees)), advertising expenditure ratio, return on
assets (ROA), debt ratio, proportion of shares held by foreign in-
vestors, proportion of shares held by financial institutions, industry
sector dummies, and year dummies. The selection of these control
variables is based on previous research on environmental reporting
and shareholder value (Table 1).
The definitions of these variables are given in Table 1, the
descriptive statistics are listed in Table 2, and the correlation matrix
is shown in Table 3. There is no multicollinearity among indepen-
dent variables because the strongest correlation is 0.497.
3.4. Databases
To create the aforementioned variables, Tobin’s q data were
obtained from the NEEDS-Cges database. Environmental report
publication data were obtained from the websites of sample com-
panies. Environmental reports without or with third-party reviews
(comments and assurances) were classified by checking each
environmental report downloaded from these websites. ISO 14001
data were obtained from the Japanese Standards Association, Japan
Accreditation Board for Conformity Assessment, and company
websites. Other data were obtained from the Nikkei NEEDS
FinancialQUEST database.
4
Note that we employ the interaction terms of the ER publication dummy and
different types of third-party reviews to resolve the endogeneity issue of the ER
publication dummy. It is not necessary to create an interaction term if the ER
publication dummy is exogeneous.
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
4. Estimation results
Table 4 summarizes the estimation results used to test our hy-
potheses. According to the results of a Wald test, the estimation
results from the treatment effects model are more reliable than
those from OLS in both Models 1 and 2. Panel A shows estimation
results for Equation (1), and Panel B shows those for Equations (2)
and (3). Thus, Model 1 in Panels A and B is one set of simultaneous
estimations, and Model 2 in these panels is another. Although all
regressions include the industry sector and year dummies, these
are omitted from the table owing to space limitations.
First, we examine the estimation results in Models 1 and 2 of
Panel A. These models show the same results. The ISO 14001 years
coefficient is significantly positive at the 1% level. This suggests that
companies that proactively improve environmental performance
and management are more likely to report environmental infor-
mation voluntarily, which supports Hypothesis 1.
The results for instrumental and control variables show that
UNGC signature, ln(employees), and the proportion of shares held
by financial institutions are significantly positive at the 1% level,
and the ROA and proportion of shares held by foreign investors are
significantly negative, at least at the 5% level. This suggests that
companies that sign the UNGC, are large, have large proportions of
shares held by financial institutions, have low profitability, or have
small proportions of shares held by foreign investors are more
likely to report environmental information voluntarily. The pro-
portion of shares held by foreign investors has a negative influence.
This implies that environmental reporting is determined not by
direct pressure from shareholders and investors but by financial
accountability to shareholders and investors, at least when the
environmental report publication dummy is used as a proxy for
environmental reporting.
Second, we examine the estimation results in Model 1 of Panel
B. The ER publication dummy does not have a significant influence.
This suggests that companies voluntarily reporting environmental
information are unlikely to have any higher shareholder value than
companies that do not report this information, which does not
support Hypothesis 2. On the other hand, the influence of the ISO
14001 years variable is significantly negative at the 1% level. This
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx 7

Table 1
Definitions of variables.

⁃ Tobin’s q: the aggregate market price of stock plus debt divided by total assets. Because Tobin’s q indicates the ratio of a company’s market value to the replacement
value of its assets, a high value implies that shareholders and investors evaluate the present value of a company’s expected future net cash flows positively (Konar and
Cohen, 2001; Nakao et al., 2007; Nishitani and Kokubu, 2012).
⁃ ER (environmental report) publication dummy: a dummy variable that takes a value of 1 if a company publishes an environmental report, and 0 otherwise. Because
environmental reports are the main global medium for reporting environmental information voluntarily, especially in Japan, this paper focuses on the publication of
stand-alone environmental reports as a proxy for environmental reporting (de Villiers et al., 2014; Haider and Kokubu, 2015). Environmental reports strive for
accountability concerning the state of environmental management and performance in the company. They reveal environmental information about a company’s
business activities, regardless of the report’s name (e.g., “CSR report” or “sustainability report”), whether it includes information on other topics, or the medium through
which it is published. Environmental reports provide useful information that influences stakeholder decisions and facilitates environmental communication (Japanese
Ministry of the Environment, 2007). Their content is generally in accordance with the environmental reporting guidelines of the Japanese Ministry of the Environment
and the GRI, but the choice of information to include is fundamentally at the discretion of each company. The ER publication dummy is expected to influence shareholder
value positively.
⁃ A comment: a dummy variable that takes a value of 1 if a third-party comment is included, and 0 otherwise.
⁃ An assurance: a dummy variable that takes a value of 1 if a third-party assurance is included, and 0 otherwise.
⁃ A comment and assurance: a dummy that takes a value of 1 if both a third-party comment and a third-party assurance are included, and 0 otherwise.
⁃ ER with a comment: the interaction term of ER publication dummy and a comment. This variable is expected to influence shareholder value positively.
⁃ ER with an assurance: the interaction term of ER publication dummy and an assurance. This variable is expected to influence shareholder value positively.
⁃ ER with both a comment and an assurance: the interaction term of ER publication dummy and both a comment and an assurance. This variable is expected to influence
shareholder value positively.
⁃ ISO 14001 years: the number of years since the company initially adopted the ISO 14001 certification, which is the most widely recognized international standard for
environmental management systems, certified by the International Organization for Standardization. Because an environmental management system provides an
environmental management framework based on the principles of continuous improvement using a series of Plan, Do, Check, and Act cycles, companies following the
framework for years are more likely to improve environmental performance and management proactively. The ISO 14001 years variable is expected to influence the ER
publication dummy and shareholder value positively.
⁃ United Nations Global Compact (UNGC) signature: a dummy variable that takes a value of 1 if a company has signed the UNGC, and 0 otherwise. The UNGC is the
world’s largest corporate sustainability initiative, and it was proposed by the UN Secretary General Kofi Annan in 1999. Companies that sign the UNGC implement
various activities following the senior management’s own commitment to satisfy the 10 principles of the UNGC on human rights, labor, the environment, and
anticorruption measures. Because the UNGC is an initiative to encourage innovation based on accountability and transparency, companies that sign the UNGC are
expected to report environmental information. On the other hand, because shareholders and investors evaluate not the UNGC signature but rather the environmental
information that is thereby encouraged, it is unlikely that signing the UNGC directly influences shareholder value. Signing the UNGC is expected to influence the ER
publication dummy positively.
⁃ Ln(employees): natural logarithm of the number of employees. This measures the influence of company size (e.g., Al-Tuwaijri et al., 2004; Bewley and Li, 2000; Cho and
Patten, 2007; Cho et al., 2010, 2012; Clarkson et al., 2008, 2011; Nishitani and Kokubu, 2012; Patten, 2000, 2002). ln(employees) is expected to influence the ER
publication dummy and shareholder value positively.
⁃ Advertising expenditure ratio: advertising expenditure divided by total sales. It is thought that business-to-consumer (B-to-C) companies have higher ratios of
advertising expenditure to total sales, so this variable controls for the influence of the company’s position in supply chains (e.g., Konar and Cohen, 2001; Nishitani and
Kokubu, 2012). However, companies are not obligated to disclose advertising expenditure if this does not exceed 5% of their selling, general, and administrative expenses
(SG&A). Accordingly, if advertising expenditure values are missing, they are calculated as 5% of SG&A to supplement the data. The advertising expenditure ratio is
expected to influence the ER publication dummy positively and to influence shareholder value either positively or negatively.
⁃ Return on assets (ROA): net earnings before taxes divided by total assets. The ROA measures the influence of profitability (e.g., Al-Tuwaijri et al., 2004; Bewley and Li,
2000; Cho et al., 2010, 2012; Clarkson et al., 2008, 2011). The ROA is expected to influence the ER publication dummy either positively or negatively, and to influence
shareholder value positively.
⁃ Debt ratio: total liabilities divided by equity capital. The debt ratio measures the degree of financial leverage (e.g., Cho et al., 2012; Clarkson et al., 2008, 2011). The debt
ratio is expected to influence the ER publication dummy either positively or negatively, and to influence shareholder value positively.
⁃ Proportion of shares held by foreign investors: shares held by foreign investors divided by total shares outstanding. Most foreign investors in the Japanese stock
market are institutional investors (Ahmadjian, 2007), so this variable measures the influence of institutional investors (i.e., Anglo-American-style corporate gover-
nance) (e.g., Nishitani and Kokubu, 2012). This variable is expected to influence the ER publication dummy and shareholder value positively.
⁃ Proportion of shares held by financial institutions: shares held by financial institutions divided by total shares outstanding. This indicates the influence of financial
institutions, including major banks (i.e., Japanese-style corporate governance) (e.g., Nishitani and Kokubu, 2012). Japanese-style corporate governance emphasizes
stakeholders rather than shareholders as the primary beneficiaries of corporate activity (Yonekura et al., 2012). This variable is expected to influence the ER publication
dummy and shareholder value positively.
⁃ Industry sector dummies: dummy variables that take a value of 1 for companies that belong to the corresponding industry, and 0 otherwise. In this study, the industries
are: foods, textiles and apparel; pulp and paper; chemicals; pharmaceuticals; oil and coal products; glass and ceramics products; iron and steel; nonferrous metals; metal
products; machinery; electrical appliances; transportation equipment; precision instruments; and other products. These are based on the Tokyo Stock Exchange
classifications. These variables control for the influence of each industry (e.g., Bewley and Li, 2000; Cho et al., 2010, 2012; Clarkson et al., 2008, 2011; Konar and Cohen,
2001; Nishitani and Kokubu, 2012; Patten, 2002).
⁃ Year dummies (2007e2015): the dummy variable for year 2007 equals 1 if the year is 2007, and 0 otherwise, etc. These variables control for the influence of
macroeconomic shocks.

suggests that companies proactively improving environmental
performance and management are more likely to have lower
shareholder value, which is consistent with Friedman and Heinle’s
(2016) suggestion that institutional investors generally prefer
companies with weaker environmental performance and man-
agement. Thus, against our expectations, environmental perfor-
mance and management do not improve shareholder value directly
or indirectly through environmental reporting, at least when
environmental reporting is proxied by the environmental report
publication dummy.
Concerning the control variables, the ROA and proportion of
shares held by foreign investors are significantly positive at the 1%
level, and ln(employees) and the proportion of shares held by
financial institutions are significantly negative, at least at the 5%
level. This suggests that companies that have high profitability,
have large proportions of shares held by foreign investors, are
small, or have a small proportion of shares held by financial in-
stitutions are more likely to have higher shareholder value.
Third, we examine the estimation results in Model 2 of Panel B.
This model includes additional interaction terms for combinations
of the ER publication dummy with different types of third-party
review dummy variables to analyze the credibility of environ-
mental information. For that reason, the coefficient of the ER
publication dummy in this model indicates the influence of envi-
ronmental reporting without third-party comments and assur-
ances, and the coefficients of the interaction terms indicate

Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
8 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx

Table 2
Descriptive statistics.

Observations Mean S.D. Min Max

Tobin’s q 1533 1.236 0.479 0.619 5.907

ISO 14001 years 1533 12.751 4.185 0 20
ER publication dummy 1533 0.887 0.317 0 1
ER with a comment 1533 0.297 0.457 0 1
ER with an assurance 1533 0.111 0.314 0 1
ER with both a comment and an assurance 1533 0.067 0.250 0 1
Ln(employees) 1533 8.094 1.105 3.332 11.210
Advertising expenditure ratio 1533 0.012 0.015 0.000 0.147
ROA 1533 0.040 0.071 1.047 0.606
Debt ratio 1533 1.286 1.369 0.036 24.966
Proportion of shares held by foreign investors 1533 0.266 0.113 0.035 0.742
Proportion of shares held by financial institutions 1533 0.337 0.104 0.064 0.613
UNGC signature 1533 0.199 0.399 0 1
Industry sector dummy
foods 1533 0.035 0.184 0 1
textiles & apparels 1533 0.023 0.151 0 1
pulp & paper 1533 0.012 0.108 0 1
chemicals 1533 0.141 0.348 0 1
pharmaceutical 1533 0.073 0.260 0 1
oil & coal products 1533 0.007 0.084 0 1
glass & ceramics products 1533 0.033 0.178 0 1
iron & steel 1533 0.043 0.203 0 1
nonferrous metals 1533 0.047 0.212 0 1
metal products 1533 0.012 0.108 0 1
Machinery 1533 0.127 0.333 0 1
electric appliances 1533 0.249 0.433 0 1
transportation equipment 1533 0.128 0.334 0 1
precision instruments 1533 0.047 0.212 0 1
other products 1533 0.023 0.151 0 1
Year dummy
y2007 1533 0.108 0.311 0 1
y2008 1533 0.111 0.314 0 1
y2009 1533 0.111 0.314 0 1
y2010 1533 0.112 0.316 0 1
y2011 1533 0.112 0.315 0 1
y2012 1533 0.112 0.315 0 1
y2013 1533 0.111 0.314 0 1
y2014 1533 0.110 0.312 0 1
y2015 1533 0.114 0.318 0 1

Table 3
Correlation matrix.

[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13]

[1] Tobin’s q 1.000

[2] ISO 14001 years 0.046 1.000
[3] ER publication dummy 0.133 0.497 1.000
[4] ER with a comment 0.013 0.153 0.232 1.000
[5] ER with an assurance 0.064 0.135 0.126 0.230 1.000
[6] ER with both a comment and an assurance 0.075 0.108 0.096 0.175 0.095 1.000
[7] Ln(employees) 0.079 0.400 0.356 0.119 0.187 0.050 1.000
[8] Advertising expenditure ratio 0.179 0.224 0.136 0.008 0.043 0.032 0.209 1.000
[9] ROA 0.417 0.000 0.171 0.112 0.001 0.013 0.072 0.085 1.000
[10] Debt ratio 0.195 0.092 0.141 0.059 0.012 0.030 0.147 0.081 0.341 1.000
[11] Proportion of shares held by foreign investors 0.337 0.245 0.004 0.035 0.108 0.056 0.183 0.068 0.274 0.251 1.000
[12] Proportion of shares held by financial institutions 0.103 0.071 0.262 0.009 0.035 0.129 0.064 0.001 0.080 0.036 0.069 1.000
[13] UNGC signature 0.020 0.293 0.178 0.126 0.157 0.114 0.150 0.056 0.027 0.051 0.260 0.097 1.000

differences in the degree of influence of environmental reporting
with third-party reviews of environmental reporting without them.
The ER publication dummy does not have a significant influence.
On the other hand, the coefficient for ER with a comment is
significantly positive at the 5% level, and those for ER with an
assurance and ER with both a comment and an assurance are
significantly negative, at least at the 5% level. These results suggest
that although companies voluntarily reporting environmental in-
formation without third-party comments and third-party assur-
ances are unlikely to have higher shareholder value than
companies that do not report this information, companies whose
voluntary environmental reports are accompanied by third-party
comments are likely to have higher shareholder value than those
who publish reports without comments and assurances. In
contrast, companies voluntarily reporting environmental infor-
mation with third-party assurances and those with both comments
and assurances are more likely to have lower shareholder value
than those without (however, this does not mean that these com-
panies have lower shareholder value than companies not volun-
tarily reporting environmental information). Furthermore, linear
restriction tests suggest that the coefficient of ER with a comment is
statistically (positively) greater than those of ER with an assurance

Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx 9

Table 4
Estimation results.

Panel A (ER publication dummy) (1) (2)

Coefficient S.E. Coefficient S.E.

ISO 14001 years 0.199 0.028*** 0.199 0.028***

Ln(employees) 0.930 0.094*** 0.926 0.094***
Advertising expenditure ratio 0.194 3.572 0.010 3.593
ROA 2.681 1.331** 2.609 1.330**
Debt ratio 0.020 0.076 0.014 0.076
Proportion of shares held by foreign investors 3.645 0.685*** 3.670 0.681***
Proportion of shares held by financial institutions 4.603 0.840*** 4.651 0.834***
UNGC signature 6.262 0.333*** 6.024 0.422***
Constant 8.309 0.899*** 8.341 0.898***

Panel B (Tobin’s q) (1) (2)

Coefficient S.E. Coefficient S.E.

ER publication dummy 0.135 0.097 0.092 0.092

ER with a comment e e 0.064 0.027**
ER with an assurance e e 0.099 0.030***
ER with both a comment and an assurance e e 0.089 0.038**
ISO 14001 years 0.018 0.006*** 0.018 0.006***
Ln(employees) 0.024 0.012** 0.015 0.012
Advertising expenditure ratio 1.245 0.938 0.955 0.934
ROA 2.283 0.482*** 2.279 0.484***
Debt ratio 0.007 0.008 0.005 0.008
Proportion of shares held by foreign investors 0.912 0.121*** 0.938 0.124***
Proportion of shares held by financial institutions 0.465 0.126*** 0.437 0.123***
Constant 1.566 0.133*** 1.504 0.137***

Observations 1533 1533

Log pseudolikelihood 888.030 875.974
Wald test (p-value) 0.033 0.046
Linear restriction test
ER with a commentary ¼ ER with an assurance (p-value) e 0.000
ER with a commentary ¼ ER with both a commentary and an assurance (p-value) e 0.000
ER with an assurance ¼ ER with both a commentary and an assurance (p-value) e 0.786

Panel A estimates ER*it ¼ a0 þ a1 EPMit þ a2 GCit þ a3 Controlit þ εit (Eq. (1)), and Panel B estimates SVit ¼ b0 þ b1 EPMit þ b2 ERit þ b3 Controlit þ dit (Eq. (2)) and SVit ¼ g0 þ
g1 EPMit þ g2 ERit þ g3 ERit  TPRit þ g4 Controlit þ uit (Eq. (3)). Although all regressions include the industry sector and year dummies, these are omitted from the table. ***, **
and * imply that the coefficient is significantly different from 0 at the 1%, 5%, and 10% levels, respectively.

and ER with both a comment and an assurance. These results only
support Hypothesis 3 for companies voluntarily reporting envi-
ronmental information with third-party comments.
The ISO 14001 years coefficient is significantly negative at the 1%
level. This suggests that companies proactively improving their
environmental performance and management are more likely to
have lower shareholder value. Therefore, companies reporting
environmental information can mitigate the negative influence of
environmental performance and management by including third-
party comments.
Concerning the control variables, the estimation results are the
same as those in Model 1, except that ln(employees), which has a
significantly negative coefficient at the 5% level, becomes insignif-
icant in this model.
The variable for environmental performance and management
used in the above regressions is ISO 14001 years. However, if any-
thing, the ISO 14001 years variable seems to capture environmental
management more accurately than that of environmental perfor-
mance. Therefore, we conducted an additional robustness check of
the above regressions by using the alternative environmental score
in the Asset4 database provided by Thomson Reuters. According to
the definitions of the Asset4 database, the environmental score
measures a company’s impact on living and nonliving natural
systems, including air, land, and water, as well as complete eco-
systems. It reflects the extent to which a company uses best man-
agement practices to avoid environmental risks and capitalize on
environmental opportunities to generate long-term shareholder
value. Although we did not use the environmental performance
scores calculated by a third-party organization in the main analyses
to avoid the possibility that the score already took environmental
reporting and its credibility into account, the likelihood of this is
low for the environmental score in the Asset4 database because of
its definition.
Because the result of the Wald test suggested that the estima-
tion results using a treatment effects model are not reliable, we
independently estimated Equation (1) using a probit model, and
Equations (2) and (3) using OLS (the estimation results are not
shown owing to space limitations). The estimation results using
environmental score as a proxy for environmental performance
and management are almost the same as those derived using the
ISO 14001 years variable. The only exception is that environmental
score does not have a significant influence on shareholder value.
Although this does not suggest that companies proactively
improving environmental performance and management are more
likely to have lower shareholder value, the fact remains that envi-
ronmental performance and management do not improve share-
holder value directly.
Accordingly, the relationship between environmental perfor-
mance and management and environmental reporting, and that
between environmental reporting with and without third-party
reviews and shareholder value are robust.
5. Discussion
The purpose of this paper was to provide empirical insights into
whether third-party reviews such as comments and assurances
promote financial accountability in environmental reporting by
ensuring the credibility of reported information. Using data from

Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
10 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
Japanese manufacturing companies selected from the Nikkei 500
Index for the period 2007e2015, this study empirically tested the
voluntary disclosure theory-based hypothesis that companies
proactively improving their environmental performance and
management enhance their shareholder value via reporting envi-
ronmental information with high credibility.
The main findings from the simultaneous regression analysis are
as follows. First, companies proactively improving their environ-
mental performance and management are more likely to report
environmental information voluntarily, which supports voluntary
disclosure theory. This is consistent with the findings of Al-Tuwaijri
et al. (2004) and Clarkson et al. (2008), whose results also sup-
ported voluntary disclosure theory. Thus, it is proved that com-
panies have financial accountability motives for environmental
reporting. This is consistent with the current situation where the
number of Japanese companies publishing integrated reporting (of
investment decisions) is gradually increasing (Nishitani et al.,
2017). On the other hand, companies facing strong pressure from
shareholders and investors (institutional investors) are less likely to
report environmental information voluntarily. Because share-
holders and investors generally prefer companies not to improve
their environmental performance and management, as Friedman
and Heinle (2016) suggested, companies facing strong pressure
from shareholders and investors have no incentive to report envi-
ronmental information. These results imply that environmental
reporting is driven not by direct pressure from shareholders and
investors but by financial accountability to shareholders and in-
vestors; if there is any pressure, it is from environmentally
conscious shareholders and investors such as environmental, so-
cial, and governance (ESG) investment funds.
Second, against our expectations, companies voluntarily
reporting environmental information are unlikely to have higher
shareholder value than companies that do not report this infor-
mation. This is inconsistent with the findings of numerous studies
such as Aerts et al. (2008), Bachoo et al., 2013, Clarkson (2013),
Cormier and Magnan (2007), Dhaliwal et al. (2011, 2014), Griffin
and Sun (2013), and Plumlee et al. (2015). That is, environmental
reporting does not produce satisfactory results in terms of the
financial accountability assumed by voluntary disclosure theory.
This may be because we used an environmental report publication
dummy as a proxy for environmental reporting. It is difficult for
Japanese companies to differentiate themselves only by publishing
environmental reports when most companies already do so. In
contrast, except for Dhaliwal et al. (2011, 2014), most previous
studies that found a positive relationship between environmental
reporting and shareholder value focused on the comprehensive-
ness of the content (as one quality measure) of environmental
reporting framed by guidelines and frameworks. However, because
the function of third-party reviews (which also have a quality
aspect) is not always to assure the comprehensiveness of the con-
tent of environmental reporting, it was not appropriate for this
paper to follow these studies directly to select a proxy for envi-
ronmental reporting, given that we also analyzed the influence of
environmental reporting with third-party reviews on shareholder
value. That said, the role of third-party reviews on reporting quality
is an important issue that should be clarified, and future research
will address this limitation of this paper.
Moreover, environmental performance and management have a
direct negative influence on shareholder value, which is consistent
with Friedman and Heinle’s (2016) suggestion. Although environ-
mental reporting is expected to offset the negative influence of
environmental performance and management by highlighting such
performance to environmentally conscious shareholders and in-
vestors, merely reporting environmental information is not suffi-
cient to fulfill the financial accountability role.
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
Third, if companies report more credible information through
third-party reviews, especially third-party comments, they will
have higher shareholder value than companies that merely report
environmental information, which at least partially offsets the
negative influence of environmental performance and manage-
ment on shareholder value. Because shareholders and investors
react positively to environmental information with third-party re-
views, which enhance confidence in the reported information, it is
(generally) proved that third-party reviews promote the financial
accountability of environmental reporting (Casey and Grenier,
2015). In other words, environmental reporting performs the
financial accountability role assumed by voluntary disclosure the-
ory only when its credibility is ensured by third-party reviews. For
example, it is expected that third-party reviews contribute to
resolving the “greenwashing” issue (whereby companies that do
not sufficiently improve their environmental performance and
management disclose exaggerated information) for shareholders
and investors (Mahoney et al., 2013).
However, unlike environmental reporting with third-party
comments, environmental reporting with third-party assurances
and with both third-party comments and assurances has no greater
influence on shareholder value than environmental reporting
without them. If anything, these approaches to environmental
reporting actually have a less positive influence than environ-
mental reporting without any third-party reviews, which is con-
trary to our expectations of increased credibility from assured
reporting. As Cho et al. (2014) and Fazzini and Dal Maso (2016)
found, there was no incremental increase in value relevance even
if companies included third-party assurances. Moreover, although
Lee et al. (2017) found that Japanese companies enhanced share-
holder value by including third-party assurances and internal au-
dits simultaneously, third-party assurances alone are insufficient to
enhance shareholder value. This could be because an expectation
gap of third-party assurances between the actual and expected
performance of an assurance exists, as no consensus regarding the
criteria for third-party assurances of environmental reporting has
been reached in Japanese companies (Boolaky and Quick, 2016;
Mori Junior, 2014; Porter, 1993).
In the first place, environmental reporting for investment de-
cisions has a relatively short history. The original role of third-party
assurances in environmental reporting may not have shifted from
an assurance of legitimacy to one of financial accountability where
environmental reporting was originally regarded as a legitimacy
tool (Alrazi et al., 2015). Moreover, third-party assurances of envi-
ronmental reporting are not strictly regulated, unlike those of
mandatory financial reporting. It may be inadequate to assure the
qualitative dimensions of environmental performance with third-
party assurances framed by financial assurance models (Dando
and Swift, 2003). Indeed, there are no assurance guidelines that
adequately cover all aspects of environmental reporting (Adams
and Evans, 2004; Mori Junior, 2014). In addition, not even inter-
national standards, including the AA1000 Assurance Standard, have
become widespread in Japanese companies. Accordingly, the third-
party assurances currently used in most Japanese companies follow
their or their assurers’ own criteria. Furthermore, third-party as-
surances of environmental reporting in Japanese companies do not
cover all aspects in the reported information; they only cover the
aspect of quantitative accuracy in the reported information and the
selection of the aspect is left to the company’s discretion. This is
because the financial assurance models can be applied only to the
quantitative dimensions of environmental reporting.
These viewpoints imply that the details of credibility of envi-
ronmental reporting with third-party assurances differ between
companies. In addition, the aspects covered by third parties do not
always meet the information needs of shareholders and investors.
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
For example, shareholders and investors seek risk information
derived from the environmental aspects, but such information is
rarely reported in environmental reports even with third-party
assurances (Sullivan and Gouldson, 2012). Because the effective-
ness of third-party assurances is vague in these circumstances,
shareholders and investors cannot comprehensively and accurately
evaluate a company’s environmental reporting. For example,
shareholders and investors can be misled in terms of the credibility
of reported information in third-party assurances if the green-
washed aspect is hidden in the reported information (that aspect is
not covered by third-party assurances).
Thus, the more shareholders and investors consider that the
current criteria for third-party assurances do not adequately cover
all aspects of environmental reporting, the more the expectation
gap regarding the credibility of reported information will widen. If
anything, the current form of environmental reporting with third-
party assurances could convey the opposite impression, contrary to
its intention. For that reason, it seems that shareholders and in-
vestors place a relatively low value on the current specifications of
third-party assurances. In addition, the actual value of environ-
mental reporting with third-party assurances is 0.007
(0.092e0.099) (Model 2 in Panel B in Table 4), although this value is
not statistically significant. Even if we understand that this does not
mean that these companies have lower shareholder value than
companies that do not voluntarily report environmental informa-
tion, it may suggest that the expectation gap cannot be over-
estimated. Accordingly, Japanese companies have not yet
benefitted from the greater credibility of reported information
(fundamentally obtainable from third-party assurances), although
the possibility that the impact of assurance practices is context-
specific, as Coram et al. (2009) and Pflugrath et al. (2011) sug-
gested, cannot be ruled out.
On the other hand, the origins of the expectation gap could be
rooted in shareholders’ and investors’ recognition of the financial
assurance practices of Japanese companies, although even the
latter may not be sufficiently mature to be evaluated highly by
shareholders and investors. Indeed, Haider and Kokubu (2015)
suggest that the long-standing financial auditing and assurance
practices in Japanese companies could be related to their low de-
mand for third-party assurances in environmental reporting.
Traditionally, there has been low demand for independent external
auditing in Japan (Nakajima, 1973). The Anglo-American style of
independent auditing was first introduced into Japan after the
Second World War as part of the reform policies led by the General
Headquarters of the Allied Occupying Forces (McKinnon, 1984).
Enacted in 1947, the Securities and Exchange Law mandated the
requirement for Certified Public Accountant (CPA) auditing for
publicly listed companies (Matsumoto and Previts, 2010). Since
then, the Japanese government has taken numerous initiatives to
improve the quality of auditors and the auditing profession,
including the formation of the Japanese Institute of Certified Public
Accountants (JICPA). However, auditing and auditors still play an
insignificant role in the Japanese economy (Yoshimi, 2002). As of 31
March 2017, the total number of qualified CPAs in Japan was only
29,369, which is significantly low by Anglo-American standards
(JICPA, 2017).
Previous research explains that the traditional Japanese corpo-
rate governance system (i.e., with its main banks, cross-
shareholding, and employee sovereignty) is a plausible explana-
tion for the weakness of the auditing and assurance system in
Japanese companies because of its underlying characteristics (e.g.,
Komori, 2012; McKinnon, 1984; Sakagami et al., 1999). For example,
the Japanese corporate governance system is based on the Japanese
culture of interdependence and group consciousness. Japan is
considered to be more group-oriented than Anglo-American
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
11
society. Japanese society emphasizes the maintenance of harmo-
nious interpersonal and intergroup relationships, and these social
values are reflected in the financial system. Historically, the main
banks and insurance companies have played a significant role in
corporate financing in Japan (Jackson and Miyajima, 2007). In
addition, the strong presence of affiliated corporations is also seen
in corporate ownership through cross-shareholding or intercor-
porate shareholding. In this situation, the main banks and other
institutional investors (who are generally the insurance companies)
have direct access to the private accounting information of their
clients, which effectively reduces the demand for external report-
ing and auditing (Gordon, 1999).
Furthermore, such a financing system enables the formation of
company boards of directors that are almost exclusively composed
of internally promoted managers and representatives from the
main banks and affiliated companies (Jackson and Miyajima, 2007).
These internally oriented boards are seen to cooperate with man-
agement to fulfill its internal objectives rather than serve the in-
terests of shareholders and investors. In fact, the Anglo-American
style of corporate governance based on external surveillance has
not developed very far in Japan (Buchanan, 2007; Gordon, 1999).
Thus, even after the introduction of external auditing, managers are
expected to protect the interests of management rather than those
of investors (McKinnon, 1984). Because the reported information
does not meet the information needs of shareholders and investors,
the demand for auditing and assurances may be low. Accordingly,
the fundamentals of the Japanese corporate governance system
may have made the third-party assurances of environmental
reporting as well as financial reporting less important.
The nonpositive influence of third-party assurances has impor-
tant implications for the practice of third-party reviews in Japanese
companies because the reviews on which many Japanese com-
panies rely are intended to assure others of the partial quantitative
accuracy of reported information and environmental performance
indices. If such partial quantitative accuracy affects the investment
decisions of shareholders and investors, the inclusion of third-party
assurances in environmental reporting must be evaluated more
favorably than the inclusion of third-party (qualitative) comments
by outside experts.
The finding that the inclusion of third-party comments en-
hances the credibility of reported information implies that the
willingness of a company to solicit reviews from third parties and
the possible future reaction to the comments (without the expec-
tation gap), rather than adding additional information as part of a
formal assurance service, may be evaluated highly. This is because
third-party comments cover all reported information, and a good
third-party comment explicitly points out the advantages and
disadvantages of the company’s current environmental perfor-
mance and management, which can identify areas for improve-
ment that the company has not yet identified. Hence, the inclusion
of third-party comments is expected to enhance readers’ under-
standing of not only the company’s current environmental perfor-
mance and management but also its future direction (Kokubu,
2008). This implies that third-party comments could play an
additional and informal role in securing the materiality determi-
nation process. Because third-party comments are more popular
than third-party assurances for ensuring the credibility of reported
information from Japanese companies, shareholders, investors, and
companies may realize their implicit advantages. Although Al-
Hamadeen (2007) and Wilson (2003) expressed concerns about
the inadequacy of third-party comments to assure environmental
reporting, such comments are actually evaluated highly in Japan.
12 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
6. Conclusion
This paper provides new insights into corporate environmental
reporting, showing that improving environmental performance
and management alone is insufficient to enhance shareholder
value. Rather, companies should also report more credible envi-
ronmental information with third-party comments. However, this
does not mean that any kind of third-party review is positively
evaluated by the stock market because of the expectation gap of
third-party assurances.
Because third-party assurances are less popular than third-party
comments in Japanese companies, we did not focus on the details of
third-party assurances such as assurers’ attributes (e.g., whether
they are accounting firms). This may be a limitation of this paper.
However, as suggested in Section 2.2, companies are moving to-
ward the focused reporting of information that has high materiality
for them. In such cases, stronger assurances of the validity of the
processes of environmental reporting and indications of the com-
pany’s future direction will be required. If companies expect third-
party assurances (as well as third-party comments) to promote the
financial accountability of environmental reporting, assurances of
the materiality determination process may be more important than
assurances of the veracity, accuracy, and completeness of (partial)
reported data and claims. It is hoped that this paper will encourage
further research to address these issues.
Acknowledgments
This paper forms part of the results of research supported by
Grant-in-Aid for Scientific Research (B) 19H01549 from the Minis-
try of Education, Culture, Sports, Science and Technology, Japan,
and the Environment Research and Technology Development Fund
(S-16) from the Environmental Restoration and Conservation
Agency, Japan.
References
AccountAbility, 2006. The Materiality Report: Aligning Strategy, Performance and
Reporting.
AccountAbility, 2008. AA1000 Assurance Standard 2008.
Adams, C.A., 2004. The ethical, social and environmental reporting-performance
portrayal gap. Account. Audit. Account. 17 (5), 731e757.
Adams, C.A., Evans, R., 2004. Accountability, completeness, credibility and the audit
expectations gap. J. Corp. Citizensh. 14, 97e115.
Aerts, W., Cormier, D., Magnan, M., 2008. Corporate environmental disclosure,
financial markets and the media: an international perspective. Ecol. Econ. 64
(3), 643e659.
Ahmadjian, C., 2007. Foreign investors and corporate governance in Japan. In:
Aoki, M., Jackson, G., Miyajima, H. (Eds.), Corporate Governance in Japan:
Institutional Change and Organizational Diversity. Oxford University Press,
Oxford, pp. 125e150.
Al-Hamadeen, R.H., 2007. Assurance of Corporate Stand-Alone Reporting: Evidence
from the UK. PhD thesis. School of Management, University of St-Andrews, UK.
Al-Tuwaijri, S.A., Christensen, T.E., Hughes, K.E., 2004. The relations among envi-
ronmental disclosure, environmental performance, and economic performance:
a simultaneous equations approach. Account. Org. Soc. 29 (5e6), 447e471.
Alrazi, B., de Villiers, C., van Staden, C.J., 2015. A comprehensive literature review on,
and the construction of a framework for, environmental legitimacy, account-
ability and proactivity. J. Clean. Prod. 102, 44e57.
Baas, L., 2007. To make zero emissions technologies and strategies become a reality,
the lessons learned of cleaner production dissemination have to be known.
J. Clean. Prod. 15 (13e14), 1205e1216.
Bachoo, K., Tan, R., Wilson, M., 2013. Firm value and the quality of sustainability
reporting in Australia. Aust. Account. Rev. 23 (1), 67e87.
Ball, A., Owen, D.L., Gray, R.H., 2000. External transparency or internal capture? The
role of third party statements in adding value to corporate environmental re-
ports. Bus. Strateg. Environ. 9 (1), 1e23.
Bewley, K., Li, Y., 2000. Disclosure of environmental information by Canadian
manufacturing companies: a voluntary disclosure perspective. In: Jaggi, B.,
Freedman, M. (Eds.), Advances in Environmental Accounting & Management.
Emerald Group Publishing Limited, Bingley, pp. 201e226.
Birkey, R., Michelon, G., Patten, D.M., Sankara, J., 2016. Does assurance on CSR
reporting enhance environmental reputation? An examination in the US
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
context. Account. Forum 40 (3), 143e152.
Boolaky, P.K., Quick, R., 2016. Bank directors’ perceptions of expanded auditor’s
reports. Int. J. Audit. 20 (2), 158e174.
Braam, G.J., de Weerd, L.U., Hauck, M., Huijbregts, M.A., 2016. Determinants of
corporate environmental reporting: the importance of environmental perfor-
mance and assurance. J. Clean. Prod. 129, 724e734.
Buchanan, J., 2007. Japanese corporate governance and the principle of “internal-
ism”. Corp. Govern. 15 (1), 27e35.
Casey, R.J., Grenier, J.H., 2015. Understanding and contributing to the enigma of
corporate social responsibility (CSR) assurance in the United States. Audit J.
Pract. Theor. 34 (1), 97e130.
Cheng, M., Green, W., Ko, J.C.W., 2015. The impact of strategic relevance and
assurance of sustainability indicators on investors’ decisions. Audit J. Pract.
Theor. 34 (1), 131e162.
Cho, C.H., Freedman, M., Patten, D.M., 2012. Corporate disclosure of environmental
capital expenditures: a test of alternative theories. Account. Audit. Account. 25
(3), 486e507.
Cho, C.H., Michelon, G., Patten, D.M., Roberts, R., 2014. CSR report assurance in the
USA: an empirical investigation of determinants and effects. Sustain. Account.
Manag. Pol. J. 5 (2), 130e148.
Cho, C.H., Patten, D.M., 2007. The role of environmental disclosures as tools of
legitimacy: a research note. Account. Org. Soc. 32 (7), 639e647.
Cho, C.H., Roberts, R.W., Patten, D.M., 2010. The language of US corporate envi-
ronmental disclosure. Account. Org. Soc. 35 (4), 431e443.
Clarkson, P.M., Fang, X., Li, Y., Richardson, G., 2013. The relevance of environmental
disclosures: are such disclosures incrementally informative? J. Account. Public
Policy 32 (5), 410e431.
Clarkson, P.M., Li, Y., Richardson, G.D., Vasvari, F.P., 2008. Revisiting the relation
between environmental performance and environmental disclosure: an
empirical analysis. Account. Org. Soc. 33 (4e5), 303e327.
Clarkson, P.M., Overell, M.B., Chapple, L., 2011. Environmental reporting and its
relation to corporate environmental performance. Abacus 47 (1), 27e60.
Coram, P.J., Monroe, G.S., Woodliff, D.R., 2009. The value of assurance on voluntary
nonfinancial disclosure: an experimental evaluation. Audit J. Pract. Theor. 28
(1), 137e151.
Cormier, D., Magnan, M., 2007. The revisited contribution of environmental
reporting to investors’ valuation of a firm’s earnings: an international
perspective. Ecol. Econ. 62 (3), 613e626.
Corporate Register, 2008. Assure view: the CSR assurance statement report. http://
www.corporateregister.com/pdf/AssureView.pdf/. (Accessed 3 September
2017).
Dal Maso, L., Liberatore, G., Mazzi, F., 2017. Value relevance of stakeholder
engagement: the influence of national culture. Corp. Soc. Responsib. Environ.
Manag. 24 (1), 44e56.
Dando, N., Swift, T., 2003. Transparency and assurance minding the credibility gap.
J. Bus. Ethics 44 (2e3), 195e200.
de Villiers, C., Rinaldi, L., Unerman, J., 2014. Integrated reporting: insights, gaps and
an agenda for future research. Account. Audit. Account. 27 (7), 1042e1067.
Deegan, C., Cooper, B.J., Shelly, M., 2006. An investigation of TBL report assurance
statements: UK and European evidence. Manag. Audit J. 21 (4), 329e371.
Dhaliwal, D.S., Li, O.Z., Tsang, A., Yang, Y.G., 2011. Voluntary nonfinancial disclosure
and the cost of equity capital: the initiation of corporate social responsibility
reporting. Account. Rev. 86 (1), 59e100.
Dhaliwal, D., Li, O.Z., Tsang, A., Yang, Y.G., 2014. Corporate social responsibility
disclosure and the cost of equity capital: the roles of stakeholder orientation
and financial transparency. J. Account. Public Policy 33 (4), 328e355.
Dye, R.A., 1985. Disclosure of nonproprietary information. J. Account. Res. 23 (1),
123e145.
Edgley, C.R., Jones, M.J., Solomon, J.F., 2010. Stakeholder inclusivity in social and
environmental report assurance. Account. Audit. Account. 23 (4), 532e557.
Fazzini, M., Dal Maso, L., 2016. The value relevance of “assured” environmental
disclosure: the Italian experience. Sustain. Account. Manag. Pol. J. 7 (2),
225e245.
Freedman, M., Jaggi, B., 1982. Pollution disclosures, pollution performance, and
economic performance. Int. J. Manag. Sci. 10 (2), 167e176.
Friedman, H.L., Heinle, M.S., 2016. Taste, information, and asset prices: implications
for the valuation of CSR. Rev. Account. Stud. 21 (3), 740e767.
Gordon, W.D., 1999. A Critical Evaluation of Japanese Accounting Changes since
1997. Master’s Thesis. School of East Asian Studies, University of Sheffield, UK.
Griffin, P.A., Sun, Y., 2013. Going green: market reaction to CSRwire news releases.
J. Account. Public Policy 32 (2), 93e113.
Guidry, R.P., Patten, D.M., 2012. Voluntary disclosure theory and financial control
variables: an assessment of recent environmental disclosure research. Account.
Forum 36 (2), 81e90.
Haider, M.B., Kokubu, K., 2015. Assurance and third-party comment in sustainability
reporting in Japan: a descriptive study. Int. J. Environ. Sustain. Dev. 14 (3),
207e230.
Hughes, S.B., Anderson, A., Golden, S., 2001. Corporate environmental disclosures:
are they useful in determining environmental performance? J. Account. Public
Policy 20 (3), 217e240.
Hummel, K., Schlick, C., 2016. The relationship between sustainability performance
and sustainability disclosure: reconciling voluntary disclosure theory and
legitimacy theory. J. Account. Public Policy 35 (5), 455e476.
International Federation of Accountants (IFAC), 2012. Handbook of International
Quality Control, Auditing, Review, Other Assurance, and Related Services
 K. Nishitani et al. / Journal of Cleaner Production xxx (xxxx) xxx
Pronouncements.
International Integrated Reporting Council (IIRC), 2013. The international <IR>
framework. http://integratedreporting.org/wp-content/uploads/2015/03/13-
12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf/. (Accessed 5 October
2015).
Jackson, G., Miyajima, H., 2007. Introduction: the diversity and change of corporate
governance in Japan. In: Aoki, M., Jackson, G., Miyajima, H. (Eds.), Corporate
Governance in Japan: Institutional Change and Organizational Diversity. Oxford
University Press, Oxford, pp. 1e47.
Japanese Institute of Certified Public Accountants (JICPA), 2017. Annual Report.
Japanese Ministry of the Environment, 2007. Environmental Reporting Guidelines:
Fiscal Year 2007 Version (in Japanese).
Jensen, J.C., Berg, N., 2012. Determinants of traditional sustainability reporting
versus integrated reporting. An institutionalist approach. Bus. Strateg. Environ.
21 (5), 299e316.
Jones, M.J., Solomon, J.F., 2010. Social and environmental report assurance: some
interview evidence. Account. Forum 34 (1), 20e31.
Junior, R.M., Best, P.J., Cotter, J., 2014. Sustainability reporting and assurance: a
historical analysis on a world-wide phenomenon. J. Bus. Ethics 120 (1), 1e11.
Kokubu, K., 2008. The role of third-party commentaries in CSR reports. Auditors
546, 94 (in Japanese).
Kokubu, K., Kitada, H., 2015. Material flow cost accounting and existing manage-
ment perspectives. J. Clean. Prod. 108, 1279e1288.
Kolk, A., Perego, P., 2010. Determinants of the adoption of sustainability assurance
statements: an international investigation. Bus. Strateg. Environ. 19 (3),
182e198.
Komori, N., 2012. The transformation from ‘thrifty accountant’ to ‘independent
investor’?: the changing role of Japanese women in financial management
under the influence of globalization. In: Paper Presented in Interdisciplinary
Perspectives on Accounting Conference.
Konar, S., Cohen, M.A., 2001. Does the market value environmental performance?
Rev. Econ. Stat. 83 (2), 281e289.
KPMG, 2008. KPMG International Survey of Corporate Responsibility Reporting
2008.
KPMG, 2015. KPMG International Survey of Corporate Responsibility Reporting
2015.
Lang, M., Lundholm, R., 1993. Cross-sectional determinants of analyst ratings of
corporate disclosures. J. Account. Res. 31 (2), 246e271.
Lee, K.H., Park, B.J., Song, H., Yook, K.H., 2017. The value relevance of environmental
audits: evidence from Japan. Bus. Strateg. Environ. 26 (5), 609e625.
Mahoney, L.S., Thorne, L., Cecil, L., LaGore, W., 2013. A research note on standalone
corporate social responsibility reports: signaling or greenwashing? Crit. Per-
spect. Account. 24 (4), 350e359.
Matsumoto, Y., Previts, G.J., 2010. The dual audit system for joint-stock companies
in Japan. Account. Bus. Financ. Hist. 20 (3), 317e326.
McKinnon, J., 1984. Cultural constraints on audit independence in Japan. Int. J.
Account. 20 (1), 17e44.
Mori Junior, R., 2014. Reducing the Expectation-Performance Gap in Assurance of
Global Reporting Initiative (GRI) Sustainability Reports in Brazil. PhD thesis.
Faculty of Business, Education, Law and Arts, University of Southern Queens-
land, Australia.
Moroney, R., Windsor, C., Aw, Y.T., 2012. Evidence of assurance enhancing the
quality of voluntary environmental disclosures: an empirical analysis. Account.
Finance 52 (3), 903e939.
Nakajima, S., 1973. Economic growth and financial reporting in Japan. Int. J. Ac-
count. Educ. Res. 9 (1), 35e41.
Nakao, Y., Amano, A., Matsumura, K., Genba, K., Nakano, M., 2007. Relationship
between environmental performance and financial performance: an empirical
analysis of Japanese corporations. Bus. Strateg. Environ. 16 (2), 106e118.
Nakano, K., Hirao, M., 2011. Collaborative activity with business partners for
improvement of product environmental performance using LCA. J. Clean. Prod.
19 (11), 1189e1197.
Nishitani, K., 2009. An empirical study of the initial adoption of ISO 14001 in Jap-
anese manufacturing firms. Ecol. Econ. 68 (3), 669e679.
Nishitani, K., Kaneko, S., Fujii, H., Komatsu, S., 2011. Effects of the reduction of
pollution emissions on the economic performance of firms: an empirical
analysis focusing on demand and productivity. J. Clean. Prod. 19 (17e18),
1956e1964.
Nishitani, K., Kokubu, K., 2012. Why does the reduction of greenhouse gas emissions
enhance firm value? The case of Japanese manufacturing firms. Bus. Strateg.
Environ. 21 (8), 517e529.
Nishitani, K., Itoh, M., 2016. Product innovation in response to environmental
standards and competitive advantage: a hedonic analysis of refrigerators in the
Japanese retail market. J. Clean. Prod. 113, 873e883.
Please cite this article as: Nishitani, K et al., Are third-party assurances preferable to third-party comments for promoting financial
accountability in environmental reporting?, Journal of Cleaner Production, https://doi.org/10.1016/j.jclepro.2019.119199
13
Nishitani, K., Kokubu, K., Kajiwara, T., 2016. Does low-carbon supply chain man-
agement reduce greenhouse gas emissions more effectively than existing
environmental initiatives? An empirical analysis of Japanese manufacturing
firms. J. Manag. Control. 27 (1), 33e60.
Nishitani, K., Unerman, J., Kokubu, K., 2017. Dynamics of factors to influence inte-
grated reporting practices: evidence from Japan and UK. RIEB Discuss. Pap. Ser.
12, 1e51. DP2017.
O’Dwyer, B., 2011. The case of sustainability assurance: constructing a new assur-
ance service. Contemp. Account. Res. 28 (4), 1230e1266.
O’Dwyer, B., Owen, D.L., 2005. Assurance statement practice in environmental,
social and sustainability reporting: a critical evaluation. Br. Account. Rev. 37 (2),
205e229.
O’Dwyer, B., Owen, D.L., 2007. Seeking stakeholder-centric sustainability assurance:
an examination of recent sustainability assurance practice. J. Corp. Citizensh. 25,
77e94.
O’Dwyer, B., Owen, D., Unerman, J., 2011. Seeking legitimacy for new assurance
forms: the case of assurance on sustainability reporting. Account. Org. Soc. 36
(1), 31e52.
Park, J., Brorson, T., 2005. Experiences of and views on third-party assurance of
corporate environmental and sustainability reports. J. Clean. Prod. 13 (10),
1095e1106.
Patten, D.M., 2000. Changing Superfund disclosure and its relation to the provision
of other environmental information. In: Jaggi, B., Freedman, M. (Eds.), Advances
in Environmental Accounting & Management. Emerald Group Publishing
Limited, Bingley, pp. 101e121.
Patten, D.M., 2002. The relation between environmental performance and envi-
ronmental disclosure: a research note. Account. Org. Soc. 27 (8), 763e773.
Perego, P., 2009. Causes and consequences of choosing different assurance pro-
viders: an international study of sustainability reporting. Int. J. Manag. 26 (3),
412e425.
Pflugrath, G., Roebuck, P., Simnett, R., 2011. Impact of assurance and assurer’s
professional affiliation on financial analysts’ assessment of credibility of
corporate social responsibility information. Audit J. Pract. Theor. 30 (3),
239e254.
Plumlee, M., Brown, D., Hayes, R.M., Marshall, R.S., 2015. Voluntary environmental
disclosure quality and firm value: further evidence. J. Account. Public Policy 34
(4), 336e361.
Porter, B., 1993. An empirical study of the audit expectation-performance gap. Ac-
count. Bus. Res. 24 (93), 49e68.
Said, R.M., Sulaiman, M., Ahmad, N.N.N., 2013. Do fund managers perceive envi-
ronmental information useful? An empirical study from Malaysia. J. Clean. Prod.
52, 281e288.
Sakagami, M., Yoshimi, H., Okano, H., 1999. Japanese accounting profession in
transition. Account. Audit. Account. 12 (3), 340e357.
Sierra, L., Zorio, A., García-Benau, M.A., 2013. Sustainable development and assur-
ance of corporate social responsibility reports. Corp. Soc. Responsib. Environ.
Manag. 20 (6), 359e370.
Simnett, R., Vanstraelen, A., Chua, W.F., 2009. Assurance on sustainability reports:
an international comparison. Account. Rev. 84 (3), 937e967.
Sullivan, R., Gouldson, A., 2012. Does voluntary carbon reporting meet investors’
needs? J. Clean. Prod. 36, 60e67.
Velte, P., Stawinoga, M., 2017. Empirical research on corporate social responsibility
assurance (CSRA): a literature review. J. Bus. Econ. 87 (8), 1017e1066.
Verrecchia, R.E., 1990. Endogenous proprietary costs through firm interdependence.
J. Account. Econ. 12 (1e3), 245e250.
Wallace, W., 1987. The economic role of the audit in free and regulated markets: a
review. Res. Account. Regul. 1, 7e34.
Watts, R., Zimmerman, J., 1986. The demand of and supply for accounting theories.
Account. Rev. 54 (2), 273e305.
Wilson, M.J., 2003. Independent Assurance on Corporate Sustainability Reports.
PhD thesis. Faculty of Environmental Design, University of Calgary, Canada.
Wiseman, J., 1982. An evaluation of environmental disclosures made in corporate
annual reports. Account. Org. Soc. 7 (1), 53e63.
Wong, R., Millington, A., 2014. Corporate social disclosures: a user perspective on
assurance. Account. Audit. Account. 27 (5), 863e887.
Yonekura, A., Gallhofer, S., Haslam, J., 2012. Accounting disclosure, corporate
governance and the battle for markets: the case of trade negotiations between
Japan and the US. Crit. Perspect. Account. 23 (4e5), 312e331.
Yoshimi, H., 2002. Auditing changes in Japan: from the minor to the major. Crit.
Perspect. Account. 13 (4), 533e544.
Zorio, A., García-Benau, M.A., Sierra, L., 2013. Sustainability development and the
quality of assurance reports: empirical evidence. Bus. Strateg. Environ. 22 (7),
484e500.