Decision Usefulness of Corporate

Environmental Reporting and Firm

Performance: Evidence from Sri Lanka
D M M B Dissanayake* and E M A S B Ekanayake**

The study attempts to assess the degree to which Corporate Environmental Reporting
(CER) contributes to firm performance in Sri Lanka. Four qualitative characteristics of
financial information as stated in the Conceptual Framework for Financial Reporting (i.e.,
relevance, faithful representation, understandability and comparability) and three
performance indicators (i.e., ROA, ROE and EPS) have been used to measure the decision
usefulness of CER information and firm performance, respectively while three variables,
namely, growth, firm size and leverage, were controlled in the study. For this purpose, top
30 companies based on the market capitalization in the Colombo Stock Exchange (CSE)
of Sri Lanka were selected as the sample. Data were gathered from the annual reports of
these companies during the period from 2013 to 2016, and data analysis was carried out
using content analysis, descriptive statistics, Pearson correlation coefficient and multiple
regression analysis. The findings show that scores for the two fundamental characteristics
(i.e., relevance and faithful representation) were relatively lower than those of the
enhancing qualitative characteristics (i.e., comparability and understandability), indicating
a lower level of decision usefulness. With regard to the association between CER reporting
and firm performance, it was evident that there is a positive association between the two
variables. The findings of the study have significant policy implications such as the
importance of provision of environmental information for decision making purposes rather
than merely satisfying the stakeholders of companies.

Introduction
Sri Lankan industrial sector has expanded rapidly through local and foreign investments since
the liberalized open economic policies were introduced in the late 1970s (Pathfinder Foundation,
2015). As a result, free trade zones, multinational companies and local manufacturing companies
have emerged and a large number of factories in various types of industries have been established.
Even though this industry evolution has largely contributed to the growth of the economy, the
operations of these factories caused damages to the environment in a number of ways such as

* Intern, Uzabase Inc., Access Towers II, 278/4, Union Place, Colombo 02, Sri Lanka; and is the corresponding
author. E-mail: maleesha.bashini@gmail.com
** Senior Lecturer, Department of Business Finance, Faculty of Management, University of Peradeniya,
Peradeniya, Sri Lanka. E-mail: athulae@pdn.ac.lk

© 2018 IUP.
Decision All Rights
Usefulness Reserved. Environmental Reporting
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and Firm Performance: Evidence from Sri Lanka