ENVIRONMENTAL ACCOUNTING PRACTICE: DETERMINANTS AND EFFECTS ON FINANCIAL PERFORMANCE OF LISTED COMPANIES IN RWANDA STOK EXCHANGE (2018-2022)

Abstract

As environmental problems are increasingly large and widespread at the local, regional, national, and global levels, Environmental disclosure plays a very important part to assure competitive advantages for companies in a world where most investors are getting more and more attracted by green investments, customers are more and more interested in Eco-friendly products and nations are more and more concern in setting up environmental regulations. This study examines the relationship between environmental disclosures with the firms’ financial performance of the listed companies in Rwanda stock exchange from 2018 to 2022. Based on both causal and exploratory research design, it aimed at determining the effect of environmental accounting in terms of environmental disclosures to firm profitability measured as net profit margin, earning per share and return on equity. From a global perspective, our findings reveal that the nature of environmental disclosure observed among listed companies in RSE, seems to be rather voluntary than compulsory and even though some firms disclose not too much environmental information in their annual reports, they disclose in parallel the same or even more information on their websites, including sustainability and social reports. Furthermore and as expected manufacturing firms followed by financial institutions disclose more environmental information (Bralirwa :0.75, Cimerwa : 0.74 and KBC: 0.70). From regression models, we have found that larger firms operating as manufacturer, listed in RSE for quite a long time and with a significant board of directors members number are more likely to disclose more environmental information. Regarding the relationship between environmental disclosure and financial performance as proxied by Return on equity (ROE), Net profit margin (NPM) and Earnings per share (EPS), the results indicated that environmental accounting disclosure, by itself and as moderated by industry type and board size has positive and significant effect on net profit margin. Furthermore, results reveal that none of the control variables has significant impact on ROE. Environmental accounting disclosure, by itself and as moderated by, firm size, board size, number of years listed in the PSE, Board size and financial leverage, has no significant effect on Return on Equity and finally the variables board size , the variable EAD itself and moderated by board size affect negatively and significantly Earning per share.