INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
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Environmental Information Disclosure and Financial Performance of
Chinese Manufacturing Firms: Evidence from 2020–2024
Yang Zhengfa
1
*, Mary O’ Penetrante
2
Central Philippine University, Iloilo City, Philippines
*Corresponding Author
DOI: https://dx.doi.org/10.47772/IJRISS.2025.910000162
Received: 15 October 2025; Accepted: 26 October 2025; Published: 06 November 2025
ABSTRACT
This study examines the relationship between environmental information disclosure (EID) and financial
performance among 2,229 listed Chinese manufacturing firms from 2020–2024. Drawing on stakeholder,
resource-based, and institutional theories, the analysis explores how firm characteristics—asset size, workforce,
and ownership—affect disclosure behavior and financial outcomes. Using descriptive statistics, ANOVA,
Pearson correlation, and panel regression, results reveal that while overall disclosure levels remain low (38.9%),
larger and government-linked enterprises consistently outperform small and medium-sized firms. EID shows a
significant positive association with market capitalization (β = 0.18, p < 0.01), but weaker relationships with
short-term profitability (ROA, ROE). Findings suggest that environmental transparency enhances long-term
market valuation rather than immediate accounting returns. Policy implications highlight the need for tiered ESG
reporting frameworks, capacity-building programs for SMEs, and stronger regulatory incentives to align
environmental governance with China’s “Dual Carbon” goals.
Keywords: environmental disclosure, ESG, financial performance, manufacturing, China, sustainability
INTRODUCTION
The acceleration of China’s industrial modernization has come at a considerable environmental cost, prompting
an urgent call for improved environmental accountability and sustainable corporate practices. In alignment with
its “Dual Carbon” strategy—achieving carbon peaking by 2030 and carbon neutrality by 2060—China has
progressively strengthened its environmental disclosure requirements. The 2022 launch of the China Securities
Regulatory Commission’s (CSRC) ESG disclosure pilot program marked a milestone in institutionalizing
sustainability reporting, particularly within the manufacturing sector, which remains the backbone of the Chinese
economy and a major source of greenhouse gas emissions.
Environmental information disclosure (EID) serves as a key mechanism for companies to demonstrate
transparency and commitment to sustainable development. Yet, despite significant policy momentum, EID
practices among Chinese firms vary widely in both scope and quality. While large and state-owned enterprises
tend to disclose more comprehensive information due to regulatory and reputational pressures, small and
medium-sized enterprises (SMEs) often provide minimal data, constrained by resource limitations and low
technical capacity. This disparity raises critical questions regarding the effectiveness of existing regulatory
frameworks and the extent to which EID contributes to actual corporate performance.
Previous research in developed markets has found that environmental disclosure can enhance investor
confidence, reduce information asymmetry, and improve firm valuation. However, empirical evidence in
emerging economies like China remains inconclusive. Some studies suggest that disclosure improves financial
performance through better access to capital and enhanced stakeholder trust, while others argue that its benefits
are long-term and indirect, emerging only after firms internalize sustainability practices into their strategic
operations. These mixed findings indicate the need for more robust, large-scale empirical analyses in the Chinese
context.
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 1931
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This study aims to fill that gap by examining the relationship between EID and the financial performance of
Chinese manufacturing enterprises over a five-year period (2020–2024). Specifically, it investigates how firm
attributes such as asset size, workforce, and ownership structure influence disclosure behavior and whether
higher EID levels are associated with improved profitability and market valuation. By integrating institutional,
stakeholder, and resource-based theoretical lenses, this paper contributes to understanding how regulatory
pressures, organizational capacity, and stakeholder engagement collectively shape sustainability performance in
China’s rapidly evolving ESG landscape.
THEORETICAL BACKGROUND
The relationship between environmental disclosure and financial performance is best understood through an
integration of Institutional Theory, the Resource-Based View (RBV), and Stakeholder Theory, each offering
complementary insights into corporate behavior.
Institutional Theory posits that organizations operate within systems of social, legal, and normative pressures
that influence their decisions and practices. In China’s case, coercive pressures stem from government mandates
such as the “Dual Carbon” targets and the CSRC’s ESG guidelines. Firms may comply to achieve legitimacy,
yet the extent of compliance varies depending on the strength of institutional enforcement and the perceived
strategic value of environmental disclosure. While initial compliance may be symbolic, sustained disclosure
requires deeper organizational adaptation and integration into corporate governance structures.
The Resource-Based View (RBV) emphasizes that firms differ in their ability to respond to institutional
pressures based on internal resources and capabilities. Larger enterprises, with stronger financial, technological,
and human resources, are better equipped to invest in sustainability systems and formalized reporting
mechanisms. Conversely, SMEs often face financial constraints and lack specialized expertise, resulting in
inconsistent or superficial disclosures. From this perspective, EID reflects not only regulatory response but also
organizational maturity and capacity for strategic innovation.
Stakeholder Theory complements these perspectives by suggesting that firms engage in environmental disclosure
to meet the expectations of diverse stakeholders—investors, regulators, employees, and communities—whose
trust and cooperation are essential for long-term success. Transparent reporting can reduce information
asymmetry, improve corporate reputation, and signal ethical commitment, leading to potential financial
advantages. These mechanisms align with Signaling Theory, which holds that credible information disclosure
serves as a positive signal to the market about a firm’s quality, governance, and sustainability orientation.
Taken together, these theories suggest that EID can function both as a regulatory compliance mechanism and as
a strategic tool that enhances competitive advantage. The interplay of institutional pressures, resource capacity,
and stakeholder expectations determines the depth and quality of disclosure, and ultimately, its impact on
financial outcomes. This theoretical foundation provides the basis for examining whether Chinese manufacturing
firms’ disclosure practices translate into measurable economic and market benefits.
METHODOLOGY
This study employed a quantitative research design using secondary data to examine the relationship between
environmental information disclosure (EID) and the financial performance of Chinese manufacturing
enterprises. The sample consisted of 2,229 listed manufacturing firms from the Shanghai and Shenzhen Stock
Exchanges, covering a five-year period from 2020 to 2024. The selection of this period coincides with the
implementation of China’s “Dual Carbon” policy and the 2022 ESG disclosure pilot program by the China
Securities Regulatory Commission (CSRC), providing a relevant timeframe to observe the evolution of
environmental disclosure practices. The study focused on publicly listed firms because they are required to
disclose audited financial data and are more likely to engage in formal ESG reporting.
Data on environmental disclosure performance were collected from the Refinitiv ESG database, specifically
using the Environmental Pillar Disclosure (EnvPillarDisc) score, which measures the extent of environmental
information disclosed by firms on a scale of 0 to 100. Financial performance indicators—including Return on
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 1932
www.rsisinternational.org
Assets (ROA), Return on Equity (ROE), and Market Capitalization—were obtained from the companies’ annual
reports and financial statements. Firm-specific characteristics, such as asset size, number of employees, and type
of financial stakeholder ownership, were also included as control variables to assess how these factors influence
both disclosure behavior and financial outcomes.
The study applied descriptive statistics, analysis of variance (ANOVA), and Pearson correlation analysis to
evaluate the relationships among variables. Descriptive analysis summarized disclosure and performance trends
across the five-year period, while one-way ANOVA tested for significant differences in EID and financial
performance among groups categorized by firm size, workforce scale, and stakeholder type. Pearson’s
correlation coefficient was then used to measure the strength and direction of association between EID and
financial indicators, with significance levels set at p < 0.05 and p < 0.01. This combination of methods enabled
a robust examination of whether variations in environmental disclosure are systematically linked to differences
in firm performance within China’s manufacturing sector.
RESULTS AND DISCUSSION
Environmental Disclosure Status
Across 2020–2024, environmental disclosure among Chinese manufacturing firms remained limited, with only
38.9% of the 2,229 firms publishing environmental data. Firms with weak disclosure scores (0–20) accounted
for 81.4% in 2024, indicating minimal progress despite policy reforms. Although disclosure improved slightly
between 2020 and 2023, a reversal in 2024 suggests regulatory fatigue and uneven enforcement.
Enterprise Size and Ownership
Descriptive data show that small and medium-sized enterprises (SMEs) with total assets of ≤ 50 billion RMB
represented 89% of the sample, while large firms (> 50 billion RMB) grew from 8.6% to 10.7% during the
period. ANOVA results revealed that EID significantly differed by firm size (F = 11.94, p < 0.001) and
ownership type (F = 3.49, p = 0.027), with government-linked firms exhibiting higher disclosure quality.
Financial Performance Trends
Profitability, as measured by ROA and ROE, declined after 2022 due to rising compliance and energy costs,
while market capitalization recovered in 2024, reflecting renewed investor confidence in firms demonstrating
credible ESG practices.
Correlation and Regression Analysis
Pearson correlation showed moderate positive relationships between EID and Market Cap (r = 0.16–0.19, p <
0.01), but weak correlations with ROA and ROE (r ≈ 0.06). Panel regression results confirmed that EID
significantly influences market valuation after controlling for firm characteristics: EID → Market Cap (β = 0.18,
p < 0.01); EID → ROA (β = 0.05, n.s.); EID → ROE (β = 0.03, n.s.). These findings indicate that environmental
transparency is positively recognized by capital markets but has limited immediate effect on accounting
profitability.
DISCUSSION
The findings underscore the uneven progress of environmental disclosure in China’s manufacturing industry and
its differential financial implications. The low disclosure rates despite regulatory directives reflect the ongoing
challenges of translating policy into practice. While large and state-owned enterprises demonstrate higher EID
levels due to stronger compliance mechanisms and reputational concerns, SMEs remain hindered by cost
constraints, lack of expertise, and minimal market pressure to disclose.
The positive relationship between EID and market capitalization confirms the signaling role of environmental
transparency. Investors increasingly reward firms that demonstrate sustainability commitment, perceiving them
as lower-risk and better managed. This supports both Stakeholder and Signaling Theories, suggesting that
INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS)
ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | Volume IX Issue X October 2025
Page 1933
www.rsisinternational.org
disclosure enhances legitimacy and investor trust. However, the weak associations between EID and ROA or
ROE imply that while environmental initiatives strengthen market perception, they may not immediately
translate into operational profitability. Compliance costs, green technology investments, and transitional
inefficiencies may temporarily suppress short-term returns, consistent with the cost–benefit theory of disclosure.
These findings reinforce the view that EID should be understood as a long-term strategic investment rather than
a short-term profit driver. Over time, transparency can yield cumulative benefits by improving access to green
financing, reducing reputational risks, and fostering stakeholder loyalty. The results also illustrate how resource
asymmetry—manifested in differences in capital, technology, and workforce—affects disclosure capacity and
the realization of financial gains from sustainability practices.
CONCLUSIONS AND POLICY IMPLICATIONS
This study concludes that environmental information disclosure within China’s manufacturing sector remains
uneven, fragmented, and largely compliance-driven. Larger and government-linked firms consistently
demonstrate higher disclosure quality, while smaller enterprises struggle to meet reporting expectations.
Although EID has a limited impact on short-term profitability, it significantly enhances market valuation,
indicating that capital markets view transparency as a signal of long-term stability and sound governance.
To strengthen the effectiveness of EID, regulatory agencies should adopt tiered disclosure frameworks that
match firms’ resource capacities. Larger enterprises should be mandated to publish comprehensive ESG reports,
while SMEs could follow simplified, subsidized templates supported by digital reporting systems. Building data
management capacity through training and technical assistance would further improve the credibility of
disclosures.
Integrating environmental metrics into corporate performance evaluation and executive compensation could
encourage firms to internalize sustainability goals. Moreover, linking ESG ratings with stock exchange
privileges, tax incentives, or financing access could enhance compliance motivation. Ultimately, fostering a
culture of proactive and credible disclosure will not only improve China’s environmental governance but also
reinforce investor confidence and sustainable industrial competitiveness.
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