Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 The impact of Corporate Governance on Carbon Reduction Performance: Australian Experience Jibriel Elsayih1, Qingliang Tang and Gabriel Donleavy This study aims to investigate the effect of corporate governance mechanisms on carbon reduction performance in large listed Australian firms. We employed univariate and multivariate analysis for a sample of 205 firm - year observations over the 2009 - 2012 period. Our study considers all the important aspects of corporate governance: board size, board independence, board diversity, board meetings, environmental committee, audit committee independence, CEO stock option, CEO long term bonus, ownership concentration and managerial ownership. The empirical results show: first, generally speaking, the corporate government strength is not significantly related to carbon reduction performance. Second, superior carbon performance is only found in firms that take an environmental orientation and proactive carbon strategy. Third, carbon performance is higher in carbon intensity sectors than carbon none intensity sectors. Finally, the results also indicate carbon performance is sensitive to some financial indicators such as leverage, Tobin’s Q, and capital intensity. The results of this study contributes to a growing literature on corporate governance and climate change association and presents new evidence of how carbon performance is impacted by corporate governance. Our findings suggest current version of corporate governance mechanism in Australia appears to be structured to focus primarily on maximisation of financial performance. As a consequence, board of directors of our sample firms seem to ignore other aspects of performance such as carbon reduction. Our empirical evidence is also consistent with many previous studies that also documented inconclusive or mixed findings on this issue. Keywords: Climate Change, Corporate Governance, Carbon Performance, Carbon Accounting 1. Introduction Among the major problems of the 21st century are the emissions of greenhouse gases (GHG) and the overdependence on carbon-based energy sources. This explains why there is a growing need to address climate change issues as scientific researchers continue to present mounting evidence of the effects of greenhouse gases (GHG) on climate change. Companies have become central to the efforts owing to the large material flows that they process and their capabilities for technological innovation (Hoffmann and Busch, 2008). This importance is reflected in the emerging literature in the corporate and public policy fields which requires companies and organizations to respond and adapt to climate change (Griffiths et al., 2007). The control of greenhouse gas emissions is a fundamental aspect of sustainable development. All managers and corporate personnel are obliged to develop organizational structures for the control of emissions, assessment of the risks associated with GHG, the evaluation of structures developed to address the issue. According to a report issued by the Carbon Disclosure Project (CDP, 2011; and Pinkse & Kolk, 2009) corporate carbon reporting has increased around the world and particularly in Australia over the last few years. This is mainly due to the fact that climate change issues have become increasingly fundamental to a wide range of stakeholders in the corporate sector, which has shifted attention to the effects of GHG, mainly carbon, on corporate activities (Luo and Tang, 2011). 1 Corresponding Author: University of Western Sydney, School of Business, J.Elsayih@uws.edu.au Qingliang Tang, University of Western Sydney, School of Business, NSW, 2150, Australia. Gabriel Donleavy, University of New England. Australia. Email Address: Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 This is a trend evidenced by the increase in the number of socially responsible investments by firms all over the world (Clarkson et al., 2011). This article examines the relation of carbon information that is disclosed voluntarily in the CDP Project by Australian firms to the underlying carbon performance and its correlation with corporate governance structure in Australian firms. The CDP reports encourage the firms to develop web-based forms of corporate accountability with regard to carbon activities (Luo and Tang, 2011). The disclosure of environmental information by Australian companies started in the early 1990s, but it was not until some years later that it was taken seriously, after a change in the Australian Corporations Law was enacted. This change required all corporate executive, specifically for companies whose operations were subject to any particular environmental regulation, to include details of their company‟s performance in relation to the regulation in the annual director‟s report (Gibson, and O‟Donovan, 2007). According to Frost and English, (2002), there has been a significant increase in the number of companies disclosing the information on their performance in relation to the environmental regulations since the enactment of that law in Australia, where, previously, it was voluntary, with very few disclosures recorded. This study aims to investigate the impact of corporate governance mechanisms on carbon reduction performance in a sample of the largest Australian firms. By using OLS regression model for a sample of 205 firm- year observations over the 2009 - 2012 period. The empirical results show that only the presence of environmental committee has a strong positive association with carbon reduction performance. However, other types of corporate governance mechanisms (board size, board independence, board diversity, board meetings, audit committee independence, CEO stock option, CEO long term bonus, ownership concentration and managerial ownership) are not statistically significantly associated with carbon reduction performance. Further, the results also indicate that leverage, Tobin‟s Q and industry types, as control variables, have a strong positive association with carbon reduction performance, whereas, firm size and profitability are not related to carbon reduction performance. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 This research work was inspired by the significance of the climate change issue in Australian organisations. It is also expected that this study will enrich both academic and empirical literature on several accounts: first, the majority of previous literature focuses on partial aspects of the relationship between corporate governance and social and environmental performance (e.g. Walls et al., 2012, Cong and Freedman, 2011, Kock 2005). In contrast, this study will examine the association between corporate governance and carbon performance in Australia. Second, there is few previous studies using comprehensive corporate governance indicators or thoroughly examined the relationship in a complete manner. Therefore, the findings of the study will contribute to a growing literature on corporate governance and climate change association and present new evidence of how carbon performance and transparency is impacted by the strength and structure of corporate governance. The remainder of this study is structured as follows. Section 2 provides a literature review and formulates the hypotheses. Section 3 introduces research methodology and describes the data. Section 4 report empirical results and discusses the findings, section 5 presents the further analyses to check the robustness of the initial results, and finally the concluding remarks and limitations are presented in section 6. 2 Literature Review and Hypothesis Development 2.1 Board Size Board size is considered to be one of the most important elements of corporate governance mechanism that can contribute to affect the board effectiveness. Alexander et al. (1993) indicate that larger boards (relative to others) serve a „„buffering‟‟ function by connecting the firm to its environment and provide protections from environmental disturbances. Furthermore, larger board size also provides broader representation from stakeholders and wider expertise across various tasks, which in turn, lead to greater monitoring capacities (Siciliano 1996). In addition, larger and more diverse boards of directors help companies to reduce environmental uncertainties (Goodstein et al., 1994) and enhance company performance (Pearce and Zahra, Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 1992). Moreover, larger boards can more effectively to reduce detrimental GHG opaqueness (Liao et al., 2014; Brown et al., 2006). Moreover, it is arguable that a large board is likely to include experienced and knowledgeable directors who possess expertise when it comes to managing environmental issues. On the other hand, large boards may face some problems in reaching a consensus on important decisions, as well as may hinder the effectiveness of board in ensuring that the firm is responsive to environmental change (Goodstein et al., 1994). This is because of the lack of coordination related to a large board, which slows down the decision making process and decreases board efficiency (Jensen, 1993; Lipton and Lorsch, 1992). Empirical literature that has provided evidence on the association between board size and carbon reduction performance are generally rare. However, some evidence has found a positive and significant relationship between the size of board and environmental concerns (Walls et al., 2012). Another study by Brown et al., (2006) have also indicates that the board size is positively associated with corporate philanthropy actions. Similarly, Kassinis and Vafeas, (2002) point out that board size is positively related to environmental litigation. Further, de Villiers et al. (2011) find evidence that environmental performance is higher in firms that have larger boards. Whereas, Bai, (2012) fount that board size is negatively associated with social performance in for-profit organizations, but positively related to social performance in non-profit organizations. On the other hand, Hafsi and Turgut, (2013) found that board size have no significant effect on firms‟ social performance in companies listed in the S&P500 Index. Therefore, due to mixed results in prior literature, the following hypotheses are proposed: Hypothesis 1a: There is a positive association between the number of directors in the board and carbon reduction performance. Hypothesis 1b: There is no significant association between the number of directors in the board and carbon reduction performance. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 2.2 Board Independence A common feature of international corporate governance guidelines is that company boards should have a majority of independent directors. The OECD (2004) reports that the independence of directors bring an objective view, can contribute significantly to decision‐making, and play an important role where the interests of management, the company and shareholders may diverge. In Australia, the ASX (2003) Recommendation 2.1 specifies that a majority of the board should be independent, and lists seven criteria for assessing independence. Furthermore, the NYSE, (2009), cited in Larcker and Tayan, (2011) can be defined independence as having “no material relationship with the listed company (either directly or as a partner, shareholder, or officer of an organization that has a relationship with the company).” Zahra and colleagues, (1993) have indicated that the presence of outside directors members on the board increases the racial, ethnic, and gender diversity of the company‟s board. Independent directors on the firm‟s board are more concerned about certain components of CSP (Ibrahim & Angelidis, 1995) and show greater social responsiveness (Zahra and Stanton 1988). Therefore, the presence of independent directors on the board can provide more objective feedback regarding the operations of company and its performance (Liao et al., 2014). Consequently, it can be argued that the presence of independent directors can contribute to the effective management of stakeholders through enhanced stakeholder management, which in turn, leads to elevated carbon reduction performance. The empirical academic studies have provided contradictory results. While some studies found that the presence of outside directors is significantly positively associated with CSR performance within a firm‟s industry. Zhang et al, (2013), Dunn and Sainty (2009) found that board independence is positively related to corporate social performance A similar study have provided by Johnson & Greening, (1999), who indicated that the independence of board is positively associated with a people (women and minorities, community, employee relations) and product quality (product and environmental) dimension of CSR. Another study by Wedd, (2004) has also found evidence that outside directors is positively associated with socially responsible behaviour of firms. Similarly, Ibrahim et al, (2003) pointed out that outside directors is positively related to the discretionary components of corporate responsibility. Further, de Villiers et al. (2011) have provided evidence Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 that environmental performance is higher in firms that have higher board independence. Some empirical studies, On the other hand, report that outside directors is negatively related to environmental litigations (Kassinis and Vafeas, 2002). Whilst, other studies found no relationship between outside directors and the legal and ethical dimensions of CSR (Ibrahim et al, 2003; and Ibrahim & Angelidis, 1995). Moreover, McKendall, S´anchez, and Sicilian, (1999) were unable to find significantly relationship between board independence and environmental violations. In sum, the role of board independence in carbon performance is still not clear. Hence, given the above foregoing evidence, the following un-directional hypothesis is tested: Hypothesis 2: There is no significant association between board independence and carbon reduction performance. 2.3 Board Diversity Board diversity refers to the various characteristics that may be present among directors in the boardroom that can influence decision–making process (Van der Walt & Ingley, 2003). Board diversity may derive from multiple sources, including age, gender, ethnicity, culture, religion, constituency representation, independence, knowledge, educational and professional background, technical skills and expertise, commercial and industry experience, career and life experience (Milliken and Martins, 1996). From a signalling perspective, the presence of female on a company‟s board may act as a signal to observers indicating that the firm pays attention to women and minorities, and, thus, socially responsible (Bear et al, 2010). Nielsen and Huse (2010) suggests that the presence of women directors on the board may be particularly sensitive to „„certain organizational practices, such as corporate social responsibility and environmental politics (p. 138)‟‟. Moreover, representation of female directors on boards may have social consequences (Hafsi and Turgut, 2013). Therefore, having more female directors on the board may sensitize boards to environmental initiatives, and provide perspectives that can be helpful in addressing environmental issues. Few empirical evidence to date exists on the association between board gender diversity and carbon reduction performance. However, in the context of corporate social performance in general, a positive relationship exists Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 between proportion of women directors on the board and corporate social responsibility (CSR) performance as documented by (Zhang et al, 2013; Boulouta 2013; Webb, 2004; Hafsi and Turgut, 2013). Wang and Coffey (1992) and Williams (2003) have found a positive and significant link between the proportion of female and corporate philanthropy. With respect to environmental performance, Post et al. (2011) have found weak evidence of a positive relationship between the presence of female on a firm‟s board of directors and its environmental performance. On the other hand, insignificant relationship between the percentage of women board members and corporate philanthropy has been found (Coffey and Wang, 1998). In sum, overwhelming evidence suggests board diversity has a positive impact on environmental accountability which can enhance the company‟s carbon performance. Therefore, the following hypothesis is formulated: Hypothesis 3: There is a positive association between corporate board diversity and carbon reduction performance 2.4 Board Meetings According to Jensen (1993), an important proxy for measuring the effectiveness and corporate boards‟ monitoring power is the frequency of board meetings. In addition, Vafeas (1999a) has contended that the frequency of board meetings is an important dimension of board operations that can have important implications for performance, which is consistent with stakeholder theory (Conger et al. 1998). Boards that meet more often in response to company events are more likely to perform their duties in accordance with shareholders' interests (Vafeas 1999a) and are more likely to effectively monitor management, reduce manipulation of corporate earnings (Xie et al., 2003) and can result in a higher quality of financial reporting (Laksmana, 2008). Therefore, the frequency of board meetings may increase the company boards‟ monitoring, improving the effectiveness of board, enhance performance, and which in turn, reduces information asymmetry. Recently, there is limited empirical evidence regarding the relationship between the frequency of board meetings and environmental performance, particularly for carbon reduction performance. However, in the area Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 of social performance, although Prado et al. (2009b) did not find a statistically significant impact between board meetings and CSR, evidence of a significant negative association between the number of meetings and the dissemination of information on greenhouse gases is found by Prado-Lorenzo and García-Sánchez, (2010). Consequently, it can be arguable that board of directors that meet more often are more likely to improve carbon performance via increased capacity to effectively advise and monitor management. Thus, the following hypothesis is proposed: Hypothesis 4: There is a positive association between the number of board meetings and carbon reduction performance. 2.5 Audit Committee Independence The existence of audit committee on the board of directors plays an important role because it is concerned to monitoring the accounting processes, and to provide the credibility of the accounting information to the firm‟s stakeholders (Pincus et al., 1989; Beasley, 1996), to prevent fraudulent accounting statements (Klein 2002a), to reducing information asymmetry problems (Li 2012), and mitigates agency costs (Ho and Wong, 2001), and thereby to enhance overall company performance (Weir et al., 2002). An audit committee on the company's board takes active role in overseeing the firm‟s financial reporting and accounting process (Whittington and Pany, 2000). More importantly, in order for the Audit committee to more effectively fulfil its oversight role and protect the interest of shareholders, it must be independent of the management of company (Bédard et al., 2004; Fama & Jensen, 1983). Therefore, the Australian Corporate Governance Principles and Recommendations (ACGPR) (Australian Securities Exchange Corporate Governance Council 2007) recommend that an audit committee should be comprised of at least three independent members. The common wisdom is that a higher level of audit committee independence is associated with improved monitoring of the financial reporting process (e.g. Bronson et al., 2009; Bédard et al., 2004; Klein, 2002a). There is limited empirical evidence on the link between the audit committee independence and environmental performance, including carbon reduction performance. However, in the context of company performance in Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 general, some empirical studies found that the independence of audit committee is positively associated with the quality of financial reporting (Mangena & Tauringana, 2007, Klein 2002a) and negatively related to misleading and fraudulent reporting (Abbott et al., 2000). With Based on this argument, the independence of committee can contribute to improve overall corporate performance, and thereby enhancing carbon performance of the company. Thus, the following hypothesis is developed: Hypothesis 5: There is a positive association between the independence of an audit committee and carbon reduction performance. 2.6 Environmental Committee Presence2 Prior studies (e.g. Liao, et al 2014) suggest that an environmental committee plays a significant role to bring greater objectivity and a higher level perspective to bear on environmental matters than could a full board. The aim of an environmental committee is to motivate a firm into implementing sustainability policies and activities (Liao et al., 2014). Establishing an environmental committee on the board can be viewed as a means of dealing with stakeholders and responding to their expectations (Michelon and Parbonetti, 2012). The existence of environmental committee on the firm‟s board can help to systematically plan and implement carbon-reduction actions (Liao et al., 2014). The environmental committee can provide strategic advice to management in the handling of an environmental incident and may also underscore the Board's focused commitment to achieve a realistic balance between environmental concerns and the operations of the firm. There is little empirical study that explicitly has examined directly the link between the presence of environmental committee on the board and carbon reduction performance. Nevertheless, some empirical studies were unable to find significant association between the existence of environmental committee on the board and environmental performance which is measured in terms of regulatory compliance, pollution prevention, and environmental capital expenditures (Rodrigue et al., 2013). A similar study by Berrone and 2 Note: Such committees can be labelled under various names, such as Compliance and Ethics Committee, Environmental Committee, Public Policy Committee, Sustainability Committee, Corporate Social Responsibility Committee, environment, health, and safety committees, and Social Welfare Committee, but they all have jurisdiction over environmental issues. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Gomez-Mejia (2009a) did not find that environmental performance had a higher impact on chief executive officer (CEO) pay in firms with environmental committees. Another study by McKendall et al., (1999) has also failed to find significant association between social responsibility committee and environmental violations. In contrast, Lam and Li (2008) point out that firm with an environmental committee on its board is related to a significant increase in environmental performance for high polluting firms. Furthermore, Walls et al., (2012) indicates that an environmental board committee is positively associated with both environmental strengths and environmental concerns. Consequently, the present study argues that the existence of an environmental committee will have substantial influence on the firm, and it enables a firm to credibly collect, record and account for GHG emissions (Liao et al., 2014) and therefore is likely to see the importance of GHG reporting (Michelon and Parbonetti, 2012). Hence, the existence of environmental committee can be seen as a proxy for strategic environmental orientation that should have a positive impact on firm carbon performance. Hypothesis 6: There is a positive association between the presence of environmental committee and carbon reduction performance. 2.7 CEO Stock Options Stock options are typical forms of long term compensation used to foster a longer decision horizon among managers. Moreover, Stock options provide compensation only when executives have increased the stock price to the point at which the options trade (Larcker, Tayan, 2011). Further, stock options can also contribute to align the managers' interests and shareholders (Jensen & Meckling, 1976; Jensen & Murphy, 1990), because it is the part that is most sensitive to performance. A sander (2001) argues that stock options encourage riskier strategies by concentrating attention on potential gains, rather than loss. Accordingly, the executives that receive stock options are more likely to take actions consistent with maximizing the interests of the firm in the longer term (Mahoney and Thorne, 2006). Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 There have been mixed empirical evidence on the relationship between the CEO stock options and environmental performance. On the one hand, evidence of the existence of a significant positive association between the CEO stock options in long term and corporate social performance is documented by Mahoney and Thorne, (2005, 2006); Deckop et al., (2006) and Callan and Thomas, (2012), respectively. Furthermore, Berrone and Gomez-Mejia, (2009a) found that long-term pay such as stock options is positive and highly significant for pollution prevention performance. On the other hand, Coombs and Gilley, (2005) have found no relationship between stock options and any CSR dimensions, and McGuire et al., (2003) failed to find relationship between long-term incentives including stock options and good social performance. Further, McGuire et al., (2003) provided empirical evidence that the stock options are positively associated with poor social performance. Walls et al, (2012) found evidence that environmental performance was best when the CEO stock option was low, particularly if the institutional ownership was high. Therefore, the following null hypothesis is formulated: Hypothesis 7: There is no significant association between CEO long term stock options and carbon reduction performance. 2.8 CEO Long Term Bonus The CEO long term bonuses is an alternative compensation that provide long term incentives to executives intended to align the managers' interests and shareholders (Fama & Jensen, 1983; Jensen & Meckling, 1976; Jensen & Murphy, 1990: Berrone and Gomez-Mejia, 2009a), because their final value is contingent on future performance (Murphy, 1999), and it is possible this may enhance future environmental performance (Berrone and Gomez-Mejia, 2009a). Callan and Thomas, (2012), provide evidence that the long term compensation which includes restricted stock and long-term incentive plans is positively associated with social performance. Moreover, Berrone and GomezMejia, (2009a) found that long-term pay has positive impact on pollution prevention performance. A similar study by Deckop et al., (2006) finds a positive and statistically significant association between long-term CEO Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 pay and corporate social performance. However, Rekker et al., (2014), from their study found that there is a negative relation between long-term compensation such as long term bonus and socially responsible firms. Thus, based on the inclusive empirical evidence documented in the previous literature, the following null hypothesis is proposed: Hypothesis 8: There is no significant association between the CEO long bonus and carbon reduction performance. 2.9 Ownership concentration According to Shleifer and Vishny (1997), concentration of ownership leads to better monitoring of managers, who may attempt to pursue their own goals. Similarly, Admati et al. (1994) suggest that minor shareholders may attempt to free -ride on the social contributions and undermine firm performance. Moreover, Ullmann, (1985) and Adams &Hardwick, (1998) indicated the more dispersed the ownership structure, the companies are more sensitive to social problems. Earnhart and Lizal. (2006) found that greater concentration of ownership as measured by the single largest shareholder in a company leads to better environmental performance with respect to absolute emissions. On the other hand, Brown et al., (2006) did not find relationship between concentration ownership and corporate Philanthropy. Similarly, Adams and Hardwick (1998) found evidence that ownership concentration as measured by the proportion of the total number of shares held by the top three shareholders is insignificantly associated with the level of corporate discretionary donations. Finally, Reverte (2009) noted that companies with widely held shareholdings are more likely to use carbon reduction performance reporting than companies with a concentrated ownership structure. Again, both the theoretical argument and empirical evidence is ambiguous, so we provide a null hypothesis: Hypothesis 9: There is no significant association between ownership concentration and carbon reduction performance. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 2.10 Managerial Ownership Managerial ownership has an important alignment effect on the interests of managers vs. shareholders (Jensen and Meckling, 1976; Fahlenbrach and Stulz, 2009), because managerial ownership provides an incentive for managers to act in accordance with the interests of shareholders. As per Jensen and Meckling, (1976), a manager who holds a percentage of shares in the company bears the consequences of managerial actions therefore it assists to align the interests of company managers with those of the owners. In this regards, company managers that hold higher portion of ownership can better manage the company from the perspective of equity owners (Paek et al., 2013). There are quite limited studies that have investigated the relationship between managerial ownership and environmental performance. Prior studies found that managerial ownership had a positive and significant association with CSP factors such as donation probability and charity (Jia and Zhang, 2013) and a positive link between top management equity and social performance in terms of environment and product quality (Johnson and Greening 1999). Coffey and Wang, (1998) demonstrated that there is a positive relationship between managerial control as measured by the percentage of total stock owned by inside board members and corporate philanthropy. In contrast, Oh et al., (2011) documented that managerial ownership is significantly negatively associated with CSR rating of the firms. Similarly, Simerly and Bass‟s (1998) provide evidence of significant negative relationship between a firm‟s corporate social performance and the proportion of stock equity owned by top management, whereas Paek et al., (2013) indicate that managerial ownership has an insignificant relationship with CSR performance in terms of community, environment, and product dimensions. Hence, given the foregoing evidence, a null hypothesis appears to be appropriate. Hypothesis 10: There is no significant association between managerial ownership and carbon reduction performance. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 3. Research design 3.1 Sample selection The initial sample for the current study consists of all Australian companies in CDP database for the period from 2009 until 2012. The sample includes both financial and non-financial firms based on their sector affiliation as defined by the Global Industry Classification Standard (GICS) (e.g. Consumer Discretionary, Energy, Consumer Staples, Financial, Health Care, Information Technology, Industrials, Materials, Telecommunications and Utilities). Important reasons for choosing these companies and its period are: First, the CDP sent the questionnaire to these companies for the period of 2009 through 2012. The second reason for selected this period because the CDP questionnaire before 2006 was incomplete and fewer companies respond. Third, the periods between 2006 until 2009 for these companies were without template of the CDP Scoring Methodology. In addition, an important motivation for choosing the banking, insurance, and other industries is that they contribute to climate change mainly by purchasing electricity and provide finance for green projects. However, some of the observations need to be dropped from this sample due to some companies did not meet certain criteria in the present study. For example, companies that did not respond to CDP, firms without detail information publicly available and that declined to participate in CDP and companies that provided information but did not answer the CDP questionnaire. In addition, companies with unpublished annual reports are excluded, companies with missing corporate governance data and companies missing data from DataStream are deleted, and some companies in 2009 were also omitted due to unavailability of the template of CDP 2009 Scoring Methodology. Hence, the current study covered a period of four years. So the final sample that meets all of these selection criteria is 205 firm year observations. (See Table 1) Data will be gathered from multiple sources of high reliability. Firstly, data related to corporate governance were manually collected from annual reports of the sampled companies. Secondly, Data related to carbon reduction performance and carbon disclosure scores were mainly gathered from firm's response for CDP standardized questionnaire. Finally, data for the control variables group (e.g. natural logarithm of total assets, Tobin‟s q, the return on assets, and capital intensity) are obtained from the FinAnalysis database. Therefore, the Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 current study relies onto the CDP questionnaire responses and annual reports of these companies. Table 1: Sample Selection Procedures for the study period Description 2009 2010 2011 2012 Original sample obtained from CDP database in 192 195 189 236 Australia (less) No Response ( did not reply to CDP regarding (73) (73) (55) (106) request) (less) Declined to participate (Decline to participate (17) (29) (34) (29) in the project) (less) Information provided – View Investor (3) (1) (3) (1) Response (did not answer all question) (less) Information provided (provided information (0) (0) (2) (0) relevant to the questionnaire, did not answer the questionnaire) (less) Details not publicly available (22) (15) (18) (17) (less) See Another (the response is covered by (0) (3) (5) (7) another company usually parent company) Total Sample of View Investor Response 77 74 72 76 (less) Annual reports not available or shorter than 12 (10) (1) (2) (0) months fiscal year (less) Missing Corporate Governance Data (2) (1) (1) (1) (less) Firms without Scoring in 2009 due to (43) (0) (0) (0) unavailability of the template of CDP 2009 Scoring Methodology (less) Missing data from DataStream(e.g. financial (2) (12) (3) (16) data, scope1&2) Final Test Sample 20 60 66 59 Pooled 812 (307) (109) (8) (2) (72) (15) 299 (13) (5) (43) (33) 205 3.2 Model Specification This study uses Ordinary Least Squares (OLS) multiple regression analysis to examine this relationship between CG and carbon performance. The model is provided as follows: Equation (1) LOG_C_PER = ß0 + ß1 NDB + ß2 NIDB + ß3 NFDB + ß4 NBM + ß5 NIDAC + + ß6 EC_D + ß7 CEO_SO + ß8 CEO_LTB+ Є Equation (2) LOG_C_PER = ß0 + ß1 NDB + ß2 NIDB + ß3 NFDB + ß4 NBM + ß5 NIDAC + ß6 EC_D + ß7 CEO_SO + ß8 CEO_LTB+ ß9 LOG_OWN_CONC +ß10 LOG_MANG_OWN + Є Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Equation (3) LOG_C_PER = ß0 + ß1 NDB + ß2 NIDB + ß3 NFDB + ß4 NBM + ß5 NIDAC + + ß6EC_D + ß7 CEO_SO + ß8 CEO_LTB+ ß9 LOG_OWN_CONC +ß10 LOG_MANG_OWN + ß11 FSIZE + ß12 ROA + ß13LEV + ß14 LOG_TOBINSQ + ß15 LOG_CAPINT + Є Equation (4) LOG_C_PER = ß0 + ß1 NDB + ß2 NIDB + ß3 NFDB + ß4 NBM + ß5 NIDAC + + ß6 EC_D + ß7 CEO_SO + ß8 CEO_LTB+ ß9 LOG_OWN_CONC +ß10 LOG_MANG_OWN + ß11 FSIZE + ß12 ROA + ß13LEV + ß14 LOG_TOBINSQ + ß15 LOG_CAPINT + ß16 INTSECTOR + Є 3.3 Dependent Variable This study defines carbon reduction performance as the total Scope 1 and 2 emissions divided by the total sales at the end of fiscal year (Luo and Tang, 2011, Tang and Luo, 2014). Natural log transformations for this variable were performed to adjust skewed distributions. 3.4 Independent Variables The independent variables of this study are corporate governance characteristics of all Australian companies that completed the CDP 2009 -2012 questionnaire and allowed their responses to be published on the CDP website. NDB represents board size and measured as the number of directors serving in the board (Zahra and Pearce II, 1989; Beasley, 1996; Yermack, 1996; Vafeas, 2000; Agrawal & Knoeber, 2001; Kassinis & Vafeas, 2002; Abbot et al., 2004; Coles et al., 2008; de Villiers et al. 2011). The variable of board independence (NIDB) is defined as the number of independent directors in the board (Core et al., 1999; de Villiers et al. 2011 and Kathyayini &Lester, 2012). The variable of board diversity (NFDB) is calculated as the number of female directors in the board (Coffey and Wang, 1998; Wedd 2004; Dunn & Sainty, 2009 and Walls et al, 2012). NBM represents board meetings and measured as the number of board meetings per year (Vafeas, 1999; Nelson et al. 2010; Brick and Chidambaran 2010). The variable of audit committee independence (NIDAC) is measured as the number of independent directors in audit committee (B´edard, Chtourou, and Courteau, 2004; Anderson et al. 2004). The variable of environmental committee presence (EC_D) is measured as a dummy variable equal to 1 if the company has a board-level environmental committee and 0 otherwise (McKendall et al, 1999; Michelon and Parbonetti, 2012; Peters and Romi, 2011, Liao et al., 2014). The variable of stock options (CEO_SO) are measured by a dummy variable that equal 1 if CEO compensation includes a stock option and 0 Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 otherwise (McGuire et al, 2003; Fich & Shivdasani, 2004; Arcay and Vazquez, 2005, Liao et al., 2014). Long term bonus (CEO_LTB) is measured by a dummy variable that equal 1 if CEO compensation includes a longterm bonus and 0 otherwise. (Deckop, Merriman, & Gupta, 2006, Liao et al., 2014). LOG_OWN_CONC represents ownership concentration and calculated as the percentage of ordinary shares owned by substantial shareholder (McKinnon and Dalimunthe, 1993; Hossain et al, 1994; Halme and Huse, 1997; Haniffa and Cooke, 2002; Eng and Mak, 2003; Huafang and Jianguo, 2007, Liao et al., 2014). Managerial ownership (LOG_MANAG_OWN) is defined as of the percentage of total outstanding shares held by all directors, including the CEO, executive directors and non-executive directors (Johnson and Greening, 1999; Eng and Mak, 2003; Huafang and Jianguo, 2007; Oh et al. 2011; Khan et al, 2013). Natural log transformations were performed for variable of ownership concentration and managerial ownership to adjust skewed distributions. Table (2) describes a summary of variable descriptions. 3.5 Control Variables This study included a number of control variables based on prior literature that may influence the firms‟ performance. Firm size (FSIZE) is measured as the natural logarithms of total assets (Berrone and GomezMejia, 2009; Luo and Tang 2011; De Villiers et al. 2011; Rupley et al., 2012; Walls et al. 2012; Luo et al, 2013, Liao et al., 2014). Profitability (ROA) is calculated as the firm‟s return on assets (Cormier et al., 2011; De Villiers et al. 2011; Peters and Romi, 2011; Rupley et al., 2012 Luo et al., 2012; Luo et al, 2013). leverage (LVE) is computed as total debt divided by total assets (Peters and Romi, 2011; De Villiers et al. 2011; Walls et al. 2012; Luo et al, 2013; Wegener et al, 2013). Tobin‟s Q (TOBINSQ) is measured as market value measured of equity, plus book value of preferred stock, book value of long term debt and current liabilities, divided by book value of total assets (Chung & Pruitt, 1994; King & Lenox, 2001; Clarkson et al. 2007; Stanny and Ely, 2008; Zhongfu et al, 2011; Busch & Hoffmann, 2011; Wegener et al, 2013). The variable of capital intensity (CAPINT) is calculated as the capital expenditures over sales (Russo and Fouts, 1997; Elsayed & Paton, 2005; King & Lenox, 2002; Clarkson et al. 2007; Gao and Connors, 2011; Walls et al, 2012). The variable of Intensive Sector (INTSECTOR) as a dummy variable that is coded one if a firm operates in Materials, Energy Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 or Utilities sector, and otherwise, zero(Luo and Tang 2011). Table (2) describes a summary of variable descriptions. Table (2) Summary of Variable Descriptions Variables Abbreviation Board Size Board Independence Board Diversity Board Meetings Audit Committee Independence Environmental Committee Presence CEO Stock Option NDB NIDB NFDB NBM NIDAC The number of directors serving in the board. The number of independent directors in the board. The number of female directors in the board. The number of board meetings per year. The number of independent directors in audit committee. EC_D A dummy variable equal to 1 if the company has a board-level environmental committee and 0 otherwise. A dummy variable that equal 1 if CEO compensation includes a stock option and 0 otherwise. A dummy variable that equal 1 if CEO compensation includes a long-term bonus and 0 otherwise. Logarithm of the percentage of ordinary shares owned by substantial shareholder. Logarithm of the percentage of total outstanding shares held by all directors. The natural logarithms of total assets. The firm‟s return on assets. Total debt divided by total assets. Logarithm of market value measured of equity, plus book value of preferred stock, book value of long term debt and current liabilities, divided by book value of total assets. Logarithm of the capital expenditure over sales. A dummy variable that is coded 1 if a firm operates in Materials, Energy or Utilities sector, and 0 otherwise. CEO_SO CEO Long Term Bonus CEO_LTB Ownership Concentration LOG_OWN _CONC Managerial Ownership LOG_MANAG_OWN Firm size Profitability Leverage Tobin‟s Q FSIZE ROA LEV TOBINSQ Capital Intensity IntensiveSector Description CAPINT INTESECTOR 4. Empirical Results 4.1 Descriptive Statistics: Table (3) depicts the descriptive statistics for all variables (dependent, independent, and control variables) performed in the empirical model. the Table (3) show that the mean (median) of carbon reduction performance for the overall sample period is -2.842(-2.612), The standard deviation of carbon reduction performance is approximately 1.886, with rang from a minimum of -7.849 to a maximum of 0.820 among the sampled firms. Because of the high skewness and kurtosis statistics for the original value of the variable carbon reduction Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 performance, this variable has been transformed using a natural logarithm transformation in the empirical model. After the transformation, the skewness statistics of the variable were reduced from 3.189 to -0.257 and kurtosis from 14.174 to 2.157, respectively (Table 3). The mean (median) board size in this study sample is 8.234(8) directors, of which 6.385 are independent directors, indicating that board size in Australia seems to be smaller than board size in US companies (e.g., the median value of board size in US companies is approximately 11 in Bhagat and Black, 2002), and the majority of the directors are independent, which is in line with the ASX Good Governance Principles and Recommendations of (2003; 2007). In addition, there is a substantial variability in board size, ranging from a minimum of 5 directors to a maximum of 13 directors. The data show that the average of the number of female directors on the board is 1.253, with standard deviation of .807. In addition, on average 11.741 board meetings were held each year, with a wide range from a minimum of 5 to a maximum of 24. With respect to board committees, the average (median) number of directors in audit committee is 3.693(4) with standard deviation of 1.124, and a maximum and a minimum size of 2 and 9, respectively. On average, 42.6 % of the sample firms have an environmental committee. Regarding compensation structure, Table 5 also presents that 68.3% of firms offered stock options and 86.8% offered long term bonuses as part of CEO compensation. With regards to ownership structure, it can be observed that, the mean level of ownership concentration which is measured as the percentage of ordinary shares owned by substantial shareholder is 29.7%, with a minimum of -3.034 and a maximum of 4.579. Managerial ownership, measured by the percentage of total outstanding shares held by all directors, has a mean of -6.044 (median 6.668), with standard deviation of 2.429. It can be also seen in the above table that the ownership concentration and managerial ownership had high values for skewness and kurtosis. Thus, a natural logarithm has been used to transform these variables to reduce the skewness and kurtosis statistics to a lower and acceptable level. A log of ownership concentration reduced skewness from 2.070 to 0.479 and kurtosis from 7.087 to 1.870. A log of managerial ownership reduced skewness from 3.959 to 1.099 and kurtosis from 18.533 to 3.472. Finally, regarding the control variables, Table 5 shows , that the mean (median) value of firm size measured as the natural logarithms of total Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 assets is approximately 16.284(15.807), indicating that the sample of this study comprises relatively larger companies in Australia, with a standard deviation of 2.171, a minimum size and a maximum of 12.359 and 23.337, respectively. The data also show that the mean (median) value of ROA and leverage are 36.6 %( 3.1%) and 22.9 %( 22.5%), respectively. The mean (median) of Tobin‟s Q and Capital Intensity are 1.168(.969), 2.479(-2.586), respectively, with a standard deviation of .801 and 1.720. The Tobin‟s Q and Capital Intensity variables initially had very high values for skewness and kurtosis. Thus, following previous study (e.g. AlAkra and Ali, 2012: Delmas and Nairn-Birch, 2011; Iwata and Okada 2011), these variables have been transformed by using a natural logarithm transformation. A log transformation of Tobin‟s Q and capital intensity provided the most suitable distribution. A log of Tobin‟s Q mitigated skewness from 2.439 to 0.700 and kurtosis from 9.566 to 2.867. A log of capital intensity mitigated skewness from 6.253 to -0.056 and kurtosis from 55.723 to 2.349. The average number of firms in emission intensive sectors is 35.6%, ranging from a minimum of zero to a maximum of one. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Variables LOG_C_PER Table(3) Descriptive Statistics for all variables (N:205) N Mean Std. Median Min Max skewness Deviation 203 -2.842 1.886 -2.612 -7.849 .820 -0.257 kurtosis 2.157 NDB 205 8.234 1.900 8 5 13 0.409 3.070 NIDB 205 6.385 1.969 7 2 12 0.123 2.920 NFDB 205 1.253 .807 1 0 4 0.296 2.950 NBM 205 11.741 3.649 11 4 24 0.750 3.647 NIDAC 205 3.693 1.124 4 2 9 1.560 8.521 EC_D 205 .426 .496 0 0 1 0.286 1.082 CEO_SO 205 .683 .466 1 0 1 -0.786 1.618 CEO_LTB 205 .868 .339 1 0 1 -2.178 5.744 LOG_OWN_CONC 202 .297 2.203 0 -3.034 4.579 0.479 1.870 LOG_MANAG_OW N 205 -6.044 2.429 -6.668 -11.076 1.099 3.472 FSIZE 205 16.284 2.171 15.807 12.359 23.337 1.018 3.658 ROA 205 .0366 .152 .031 -.466 1.795 7.553 89.022 LEV 205 .229 .138 .225 -.154 .695 0.637 3.982 LOG_TOBINSQ 205 1.168 .801 .969 -.267 3.493 0.700 2.867 LOG_CAPINT 205 -2.479 1.720 -2.586 -7.11 1.635 -.0556 2.350 INTSECTOR 205 .480 0 0 1 0.601 1.361 .356 0 Notes: All variables are described in model development section and Table 2 for variable definitions. N is the number of observations. 4-2 Results of Multicollinearity check In addition, this study has used correlation coefficients to test the existence of multicollinearity in the empirical model. According to Field, (2009); Hair et al. (2010) and Tabachnick and Fidell (2013), multicollinearity problem exists if the correlation between independent variables exceeds 0.9. The Pearson‟s correlation analysis demonstrates that the degree of correlation between any of the independent is either low or moderate, which suggests the lack of multicollinearity between independent variables. However, there has been no definitive Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 criterion for the level of correlation that constitutes a serious multicollinearity problem (Tsui, Ashford, StClair, & Xin, 1995; Chen & Francesco, 2003). While some researchers indicated that correlations of 0.8 or higher are problematic (e.g. Gujarati, 2003 and Cooper and Schindler, 2003); others suggest that the general rule of thumb is that it should not exceed 0.75 (e.g. Tsui, Ashford, StClair, & Xin, 1995 and Green, 1978). The Pearson correlations in Table (5) presented that the highest correlation was between board size and board independence at 0.838. Therefore, this result indicates that multicollinearity is not likely to be a potential problem because the Pearson correlation indicators for all independent and control variables are less than 0.9. In addition, Variance Inflation factor (VIF) with tolerance values has been undertaken as another effective method of testing the multicollinearity in the regression model. Tolerance is an indicator of how much of the variable in the independent variable is not explained by the other independent variables in the model. If the tolerance values are greater than 0.1 (TOL> 0.10), it suggests that multicollinearity does not exist among all independent variables (Pallant, 2007). Another means to evaluate multicollinearity problem is to look at the Variance Inflation Factor (VIF), which is the inverse of the Tolerance measure (1 divided by Tolerance), it regresses each independent variable on the remaining independent variables to capture any linear dependencies which may exist. As a rule of thumb, if the VIF values are less than 10 (VIF< 10), it also indicates that there is no issue of multicollineraity (e.g. Myers, 1990; Gujarati, 2003). As can be showed in the Table (4), the highest VIF value is 5.27 and the mean VIF is 1.91. Moreover, the lowest tolerance coefficient is 0.190. Consequently, the above results of correlation coefficient and VIF with tolerance values indicate that there is no multicollinearity issue between the independent and control variables. Therefore, these variables can be used in our empirical models. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Table (4) Variance Inflation Factor (VIF) of corporate governance structures and control variables Variables VIP 5.27 4.53 1.9 1.84 1.76 1.67 1.66 1.62 1.5 1.35 1.33 1.3 1.27 1.26 1.2 1.1 NIDB NDB CEO_LTB LOG_TOBINSQ NFDB FSIZE NIDAC CEO_SO LOG_MANAG_OWN ITESECTOR EC_D LOG_CAPINT NBM LEV LOG_OWN_CONC ROA Mean VIF Note: Definition of variables are described in Table 2 Tolerance (1/VIF) 0.190 0.221 0.526 0.543 0.570 0.599 0.602 0.618 0.665 0.741 0.754 0.771 0.787 0.791 0.832 0.912 1.91 4.3 Correlation Coefficients Analysis Table (5) provides the Pearson correlation coefficients for all variables (dependent, independent, and control variables) performed in the empirical model. The results show that the carbon reduction performance (LOG_C_PER) is significantly negatively correlated with the board size (NDB), board independence (NIDB), board diversity (NFDB) which is measured by number of female directors in the board and audit committee independence (NIDAC) at the 1% level (p < 0.01, two-tailed). Significant and positive correlation is existed with the presence of environmental committee (EC_D) (p < 0.01, two-tailed), which is consistent with the hypothesis (1.6). In contrast, the positive but not significant correlation amongst carbon reduction performance (LOG_C_PER) and each of board meetings (NBM), ownership concentration (LOG_OWN_CONC) and managerial ownership (LOG_MANAG_OWN), while the presence of a share option (CEO_SO) and long- term bonuses (CEO_LTB) are insignificantly negative correlated with carbon reduction performance (LOG_C_PER). The analysis indicates that carbon reduction performance(LOG_C_PER) is significantly negatively correlated with both the natural logarithms of total assets (FSIZE) and Tobin‟s Q (TOBINSQ) at the Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 1% level (p < 0.01, two-tailed), whereas positive correlations are identified between the carbon reduction performance (LOG_C_PER) and Capital Intensity (CAPINT) and Intensive Sector (INTSECTOR) at the same level. In contrast, No significant relationship is detected between carbon reduction performance (LOG_C_PER) and profitability (ROA) and leverage (LEV). A number of significant correlations also existed between the numerous independent variables. More specifically, number of directors serving in the board (NDB) is positively correlated with board independence (NIDB), number of female directors in the board (NFDB), audit committee independence (NIDAC) and CEO long term bonuses (CEO_LTB) at the 1% level (p < 0.01, two-tailed), and significant negative correlations with board meetings (NBM) and with managerial ownership (LOG_MANAG_OWN). Nevertheless, the insignificant relationship of the presence of environmental committee (EC_D), the presence of a share option (CEO_SO) and ownership concentration (LOG_OWN_CONC) are confirmed for board size (NBM). The correlations analysis indicates that board independence (NIDB) is positively correlated with the number of female directors in the board (NFDB), audit committee independence (NIDAC), the presence of environmental committee (EC_D) and long term bonuses (CEO_LTB) at the 1% level (p < 0.01, two-tailed, and significant and negative correlated with board meetings (NBM) and with managerial ownership (LOG_MANAG_OWN) at the same level. However, no significant relationship is detected between board independence (NIDB) and each of the presence of a share option (CEO_SO) and ownership concentration (LOG_OWN_CONC). In addition, number of female directors in the board (NFDB) has significant positive correlation with only audit committee independence (NIDAC). Furthermore, audit committee independence (NIDAC) is negatively correlated with only managerial ownership (LOG_MANAG_OWN). The presence of environmental committee (EC_D) has significant and positive correlation with CEO long term bonuses (CEO_LTB) at the 5% level, but negatively correlated with managerial ownership (LOG_MANAG_OWN) at the same level. In addition, the presence of a share option (CEO_SO) is positively related to CEO long term bonuses (CEO_LTB) at the 1% level, and negatively related to managerial ownership (LOG_MANAG_OWN) at the same level. The Pearson Correlation analyses also show that the CEO long term bonuses (CEO_LTB) have Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 significant and positive correlation with managerial ownership (LOG_MANAG_OWN) at the 1% level, and negatively correlated with ownership concentration (LOG_OWN_CONC). Additionally, managerial ownership is significantly positively correlated with ownership concentration (LOG_OWN_CONC) at the 5% level. Finally, for the correlations between independent variables and control variables, board size (NDB), board independence (NIDB) and board diversity as measured by number of female directors in the board (NFDB), are positively correlated with both the natural logarithms of total assets (FSIZE) and Tobin‟s Q (TOBINSQ) at the 1% level (p < 0.01, two-tailed), and significantly negatively correlated with Capital Intensity (CAPINT) at the same level. Whereas weak correlation is existed between board independence (NIDB) and Intensive Sector (INTSECTOR) at the 10% level (p < 0.10, two-tailed), significant negative correlations are identified between the number of female directors in the board (NFDB) and Intensive Sector (INTSECTOR) at the 1% level (p < 0.01, two-tailed). The analysis also indicates that the number of board meetings (NBM) is positively correlated with firm size (FZIZE), and negatively correlated with profitability (ROA). Another significant results show that audit committee independence is positively correlated with both firm size (FSIZE) and Tobin‟s Q (TOBINSQ), and negative correlated with Capital Intensity (LOG_CAPINT) and with Intensive Sector (INTSECTOR) at the 1% level. In addition, the presence of environmental committee (EC_D) is significantly negatively correlated with Tobin‟s Q (TOBINSQ), and positively with Intensive Sector (INTSECTOR) at the 10% level (p < 0.10, two-tailed). With regard to CEO compensation structure which including both stock options (CEO_SO) and long term bonuses (CEO_LTB) are significantly and negatively correlated with both leverage (LEV) and Capital Intensity (CAPINT), and positively correlated with Intensive Sector (INTSECTOR) at the same level. While positive sign is existed between stock options (CEO_SO) and Tobin‟s Q (TOBINSQ) at the 5% level. Finally, in respect to ownership structure, ownership concentration (LOG_OWN_CONC) is positively correlated with only profitability (ROA) at the 5% level and managerial ownership (LOG_MANAG_OWN) is significantly negatively correlated with both firm size (FSIZE) and Tobin‟s Q (TOBINSQ) at the 1% level. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Table5: Pearson’s Correlation Coefficients (N=205) LOG_C_PER NDB NIDB NFDB NBM NIDAC EC_D CEO_SO CEO_LTB LOG_OWN_ LOG_MANAG_ CONC OWN LOG_C_PER NDB 1.000 -0.197*** NIDB -0.272*** 1.000 0.838*** NFDB -0.350*** 0.399*** 1.000 0.521*** NBM 0.037 -0.294*** -0.183*** 1.000 -0.061 NIDAC -0.274*** 0.291*** 0.484*** 0.432*** 1.000 0.076 EC_D 0.331*** 0.090 0.186*** 0.020 -0.014 1.000 0.044 CEO_SO -0.097 0.068 0.102 -0.019 0.078 0.066 1.000 0.019 CEO_LTB -0.036 0.223*** 0.253*** 0.105 -0.004 0.048 0.134** 1.000 0.541*** LOG_OWN_COMC 0.073 -0.042 -0.114 -0.087 -0.029 0.002 -0.031 0.034 1.000 -0.223*** LOG_MANAG_OWN 0.033 -0.172*** -0.289*** -0.096 -0.111 -0.278*** -0.154** -0.229*** 0.296*** 1.000 0.137** -0.224*** 0.388*** 0.396*** 0.355*** 0.166*** 0.346*** -0.074 0.054 0.079 -0.026 1.000 -0.330*** ROA -0.016 0.080 -0.049 -0.053 -0.153** -0.064 -0.072 0.075 0.062 0.143** -0.108 LEV 0.113 0.121* 0.003 -0.106 -0.053 -0.074 -0.037 -0.161** -0.234*** -0.047 0.009 LOG_TOBINSQ -0.511*** 0.418*** 0.428*** 0.333*** -0.059 0.316*** -0.258*** 0.147** 0.109 -0.089 -0.288*** LOG_CABINT 0.329*** -0.232*** -0.276*** -0.171*** 0.097 -0.309*** 0.012 -0.135** -0.146** -0.107 0.007 INTSECTOR 0.481*** -0.086 -0.125* -0.348*** -0.089 -0.169*** 0.199*** 0.134** 0.139** 0.061 -0.054 FSIZE Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Table 5: Pearson’s Coefficients Correlation (N=205) Continued FSIZE ROA LEV LOG_TOBINSQ LOG_TABIN INTSECROR FSIZE ROA 1.000 -0.035 LEV 0.029 1.000 -0.102 LOG_TOBINSQ 0.461*** -0.021 1.000 0.209*** LOG_CABINT -0.186*** 0.041 0.045 1.000 -0.188*** INRSECTOR -0.149** 0.104 -0.112* -0.163*** 1.000 0.229*** 1.000 Notes: *, ** and ***denote significance at the 10%, 5%, and 1% levels, respectively, based on two-tailed tests. All variables are described in Table 2 Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 4.4 Multivariate Analysis and Hypotheses Testing This section provides the results obtained from regressing the carbon reduction performance variable on the various independent variables. Table (6) reports an adjusted R2 are % 25.89, % 24.80, % 40.97 and % 50.86, and the F- Values are 9.82, 7.56, 10.21 and 13.87 respectively for the four models and are highly statistically significant at the 1% level. These results indicate that all four models show a reasonable explanatory power of the relationship between the dependent and independent variables. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Variables Pred. Sign Model (1) Board Structure Model (2) Board Structure and Ownership Structure Model (3) Mode (1)+Model (2)+ control variables without Intensive sector variable Table (6) results of OLS Regression between Governance Variables and Carbon Reduction Performance Model (4) Model (3)+ Intensive sector variable Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1-922069-66-5 Coef Est. 0.131 -0.272** -0.535*** 0.015 -0.152 1.411*** -0.429 0.246 P-value 1.11 -2.11 -3.1 0.45 -1.21 5.92 -1.46 0.59 Coef Est. 0.124 -0.268** -0.514*** 0.016 -0.174 1.366*** -0.531* 0.355 P-value 1.02 -2.00 -2.93 0.45 -1.35 5.59 -1.71 0.80 Coef Est. 0.136 -0.157 -0.382*** -0.002 -0.010 0.829*** -0.136 0.553 P-value 1.18 -1.3 -2.38 -0.06 -0.08 3.54 -0.48 1.35 Coef Est. 0.134 -0.156 -0.069 0.021 -0.021 0.579*** -0.217 0.272 P-value 1.27 -1.41 -0.45 0.7 -0.2 2.67 -0.85 0.72 0.060 1.06 0.079 1.54 0.052 1.11 -0.032 -0.59 -0.054 -1.05 -0.056 -1.18 0.080 1.29 0.069 1.21 0.84 0.716 0.66 NDB NIDB NFDB NBM NIDAC EC_D CEO_SO CEO_LTB LOG_OWN_CONC + + + + + + + + LOG_MANAG_OWN + FSIZE ? ROA ? 0.999 LEV ? LOG_TOBINSQ ? LOG_CAPINT ? INTSECTOR ? Constant Observations F-Value Adjusted R2 2.368 *** -1.083 0.268 -1.649 -2.02 -1.774** -2.13 2.83 *** -6.07 *** 4.05 -3.448*** -3.51 2.970 *** 3.86 *** -6.82 *** 2.76 *** 6.16 -4.74 -1.111 0.172 1.400 -4.298*** 203 200 200 200 9.82(.000) 7.56(.000) 10.21(.000) 13.87(.000) % 25.89 % 24.80 % 40.97 % 50.86 Notes: *, ** and ***denote significance at the 10%, 5%, and 1% levels, respectively, based on two-tailed tests. All variables are described in Table 2. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 4.4.1 Results of model 1 The first model examines the association of the eight variables that proxy for board structure with carbon reduction performance. The results from model 1, reported in the third column of Table 6, show that a strong significant positive association between the presence of environmental committee (EC_D) and carbon reduction performance (LOG_C_PER), (β= 1.411, p < 0.01, two-tailed). The results also indicate that board independence (NIDB) is negatively and significantly related to carbon reduction performance (LOG_C_PER) at the 5% level (β= -0.272, p < 0.05, two-tailed). The result also shows that the number of female directors in the board (NFDB) is negatively and significantly associated with carbon reduction performance (LOG_C_PER), (β= -0.535, p < 0.01, two-tailed). On the other hand, the regression result observed that no significant association is documented between carbon reduction performance (LOG_C_PER) and board size (NDB), board meetings (NBM) and the independence of audit committee (NIDAC). Turning to the findings for the compensation package, the results indicate CEO Stock Options (CEO_SO) and CEO Long Term Bonus (CEO_LTB) are both statistically insignificantly related to carbon reduction performance (LOG_C_PER), with coefficient estimate of -0.429 and 0.246 and a p-value of -1.46 and 0.59, respectively. The adjusted R2 of this model is % 25.89 indicating that 25.89 per cent of variance in carbon reduction performance can be explained by the model in the current study; the F- Values for this model is 9.82 and is highly statistically significant at the 1% level. These results indicate that the model show a reasonably acceptable explanatory power of the relationship between the dependent and independent variables. 4.4.2 Results of model 2 Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 The second model tests the joint impact of board structure and ownership structure on carbon reduction performance. The findings in this model, stated in the column fifth of Table 6, observe that the presence of environmental committee (EC_D) is statistically significantly positively associated with carbon reduction performance (LOG_C_PER), (β= 1.366, p < 0.01, two-tailed). The empirical results also show that board independence (NIDB) is significant and negative association with carbon reduction performance (LOG_C_PER) (β= -0.268, p < 0.05, two-tailed). The result also indicates that the number of female directors in the board (NFDB) is negatively and significantly associated with carbon reduction performance (LOG_C_PER), (β= - 0.514, p < 0.01, two-tailed). Nevertheless, the regression result displays that no significant association is found between carbon reduction performance (LOG_C_PER) and board size (NDB), board meetings (NBM) and the independence of audit committee (NIDAC). Regarding compensation structure, the result of regression indicate that the CEO stock options (CEO_SO) has a slightly significant negative association with carbon reduction performance (LOG_C_PER) (β= - 0.531, p < 0.1, two-tailed). However, the CEO long term bonus (CEO_LTB) has a positive but insignificant association, with coefficient of 0.355 and a p-value of 0.80. In respect of ownership structure, the results suggest that two aspects of ownership structure, namely ownership concentration (LOG_OWN_CONC) and managerial ownership (LOG_MANAG_OWN) have insignificant association with carbon reduction performance (LOG_C_PER), with coefficient estimate of 0.060 and - 0.032 and a p-value of 1.06 and - 0.59, respectively. The adjusted R2 of the model is % 24.80 indicating that 24.80 per cent of variance in carbon reduction performance can be explained by the current model; the F- Values for this model is 7.56 and is highly statistically significant at the 1% level. These results indicate that the model show a reasonably high explanatory power of the relationship between variables. Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 4.4.3 Results of model 3 The third model tests the relationship between all corporate governance variables and carbon reduction performance, including control variables, but without the Intensive Sector variable. The findings from model 3, described in the column fourth of Table 6, imply that two variables of corporate governance characteristics, namely board independence (NIDB) and the presence of environmental committee (EC_D) are significantly associate with carbon reduction performance (LOG_C_PER) at the %1 level. However, for the other corporate governance characteristics including board size (NDB), board diversity (NFDB), board meetings (NBM) and the independence of audit committee (NIDAC), the results indicate the insignificant relationship with carbon reduction performance (LOG_C_PER). Concerning the two aspects of compensation package, the results of OLS regression indicate that the two variables of executive compensation, namely the CEO stock options (CEO_SO) and the CEO long term bonus (CEO_LTB) have insignificant association with carbon reduction performance (LOG_C_PER), with coefficient of – 0.136 and 0.553 a p-value of – 0.48 and 1.35 respectively. With reference to ownership structure, this model provides the same results at the second model, which show that none of the two aspects of ownership structure, namely ownership concentration (LOG_OWN_CONC) and managerial ownership (LOG_MANAG_OWN) was found to be significant related with carbon reduction performance (LOG_C_PER), with coefficient of 0.079 and – 0.054 a p-value of 1.54 and – 1.05 respectively. Among the control variables, only leverage (LEV), Tobin‟s q (LOG_TOBINSQ) and Capital Intensity (LOG_CAPINT) are found to be significantly related to carbon reduction performance (LOG_C_PER) at the %1 level. Nonetheless, no significant relationship is detected between carbon reduction performance (LOG_C_PER) and each of firm size (FSIZE) and profitability (ROA). The adjusted R2 of this model is % Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 40.97 indicating that 40.79 per cent of variance in carbon reduction performance can be explained by the model in the current study; the F- Values for this model is 10.21 and is highly statistically significant at the 1% level. These results indicate that the model show a high explanatory power of the relationship between the dependent and independent variables. 4.4.4 Results of hypothesis testing for the fourth model This study developed ten principal testable hypotheses to investigate the impact of corporate governance on carbon reduction performance. In this section, based on descriptive statistics and Pearson‟s correlation coefficients, this study performed the Ordinary Least Squares (OLS) multiple regression model to testing this relationship. The rule of decision in this study is based on the significances of the t-statistics which are symbolized by the p-value flagged by the statistical packages used. The results from regression model 4, reported in the column sixth of Table 66, indicates that the adjusted R2 of the model is % 50.86 indicating that 50.86 per cent of variance in carbon reduction performance can be explained by the primary model in the current study, the FValues for this model is 13.87 and is highly statistically significant at the %1 level. These results indicate that the model show a acceptable high explanatory power of the relationship between the dependent and independent variables. The results of regression model in column 6 of Table 6 showed that the coefficient of board size (NDB) is positive but not statistically significant associated with carbon reduction performance (LOG_C_PER), with coefficient estimate of 0.134 and a p-value of 1.27, which is inconsistent with our expectation (H1). This result implies that larger boards are ineffective in improving carbon performance. One of the possible reason is companies with large board may be more likely to suffer from the agency problems. Larger board might be lack of Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 coordination, communication and have free rider problems, which leads to slower and lessefficient decision-making and decrease board efficiency (Lipton and Lorsch, 1992; Jensen, 1993; Yermack, 1996). In an Australian context, the size of Australian boards is usually small with an average number of less than 10 directors (Kiel and Nicholson, 2003; Stapledon and Lawrence, 1996 and Bonn, 2004). This implies that board size of Australian companies tends to be smaller than optimal. In sum, this result failed to find support for hypothesis H1, but is in line with findings that gathered by Hafsi and Turgut, (2013) who failed to find any significant association between board size and social performance. The result, however, differs with the findings of Walls et al., (2012) who provides evidence that board size is positively related to environmental concerns. The result also contradicts with the findings of de Villiers et al. (2011) who indicate that environmental performance is higher in firms that have larger boards. As for board independence, the result shows that the board independence (NIDB) is not statistically significantly related to carbon reduction performance (LOG_C_PER). The coefficient estimate on independent directors is -0.156 with a p-value of -1.4, this is also contrary to our expectation (H2). The result implies board independence may be less effective as monitors of management (Barako et. al. 2006) because they might not be provided sufficient information on company‟s carbon activities. Although the finding is inconsistent with Zhang et al, (2013); Dunn and Sainty (2009) and Johnson & Greening, (1999), who found positive association and also in contrast with Kassinis and Vafeas, (2002) who report negative association between board independence and environmental litigations, the result is consistent with previous study by Ibrahim et al, (2003); and Ibrahim & Angelidis, (1995) who document an insignificant relationship between outside directors and the legal and ethical dimensions of CSR and also similar to McKendall, S´anchez, and Sicilian, (1999) who were Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 unable to find significantly relationship between board independence and environmental violations. Overall the hypothesis H2 in this study is not supported based on the statistical results. With regards to board diversity measured by the number of female directors in the board. Inconsistent with this study‟s expectation, the empirical result displays that insignificant negative association between the numbers of female directors in the board (NFDB) and carbon reduction performance (LOG_C_PER). It produced a coefficient estimate of -0.069 and with a p-value of -0.45. The plausible explanation for this could be that, because the percentage of female on the board is relatively small (As seen in the descriptive statistics section, the average of female on the board is 1), which hinders the ability of female directors to exert influence on board. According to critical mass theory firms that having one or two women on its board may be not sufficient for change to happen (Konrad et al. 2008). Also, as Rosener (1995) who indicates that one woman on the board is often regarded as a token, two women on the board might be not enough to influence board‟s decision process. In this respect, this result is consistent with previous empirical findings of Coffey and Wang, (1998) who found insignificant relationship between the percentage of women board members and corporate philanthropy. However, it is contradictory to the evidence presented by Hafsi and Turgut, (2013); Boulouta (2013) and Zhang et al, (2013) who found a positive and significant relationship exists between proportion of women directors on the board and corporate social responsibility (CSR) performance. Hence, this study does not find support for the prediction that there is a positive association between corporate board diversity (NFDB) and carbon reduction performance (LOG_C_PER). Concerning the board meeting, the regression result depicts that insignificant association observed between the board meetings frequency (NBM) and carbon reduction performance (LOG_C_PER), with a coefficient estimate of 0.021 and Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 a p-value of 0.7. Therefore, this finding does not support hypothesis (H4) which anticipated that the number of board meetings (NBM) is negatively related to carbon reduction performance (LOG_C_PER). This result is in line with the argument that board meetings are not necessarily useful to shareholders (Ntim and Osei, 2011, Vefeas, 1999a) because the limited time directors spend together is not used for the meaningful exchange of ideas with directors or management (Vefeas, 1999a, Lipton and Lorsch, 1992). This result is consistent with previous finding that board size is unrelated to carbon performance. If large board does not effectively monitor management and large board would have more meetings, then the more meetings of large board should have less impact on carbon performance. Currently, there are little empirical studies investigating the relationship between board meetings and carbon reduction performance in particular. However, previous research on Corporate Social Responsibility in general found mixed results. Although Prado et al. (2009b) did not find any significant impact of the number of annual meetings of the administration on the volume of information on Corporate Social Responsibility, Prado-Lorenzo and García-Sánchez, (2010) opined that the number of meetings held by the board of directors during a financial year is negatively and significantly associated with the dissemination of information on greenhouse gases. As for the independence of audit committee, the result of regression indicates that the independence of audit committee (NIDAC) is insignificantly negatively related to carbon reduction performance (LOG_C_PER). The regression produced a coefficient estimate of 0.021 and a p-value of -0.2. This is inconsistent to our expectation indicated in H5. A possible explanation for this result is the majority of firms do not undertake any social or environmental audit. Referring to environmental committee, the results of regression model displayed that the presence of environmental committee (EC_D) is strongly and positively associated with carbon reduction performance (LOG_C_PER) at the 1% level (p- value < Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 0.01, two-tailed), which is consistent with H6. The result suggests firms that created an environmental committee is likely to adopt a proactive environmental strategy and they probably have an environmental orientation in their decision-making. Such a strategy can translate into a detailed carbon reduction programs that facilitate carbon reduction performance. In addition, the presence of an environmental committee can be viewed as a means to better monitor management in terms of their environmental actions and performance and as an effective way to provide advice to management when addressing the environmental issues (Rodrigue et al., 2013). Furthermore, the setting up of an environmental committee can be seen as a way of addressing stakeholders' interests and resolving the problem of legitimacy gap (Michelon and Parbonetti, 2012). In this regard, this result can be deemed consistent with Walls et al., (2012) who indicated that an environmental board committee is positively associated with both environmental strengths and environmental concerns. The result also is in line with the argument of Lam and Li (2008) who pointed out that firm with an environmental committee on its board is related to a significant increase in environmental performance for high polluting firms. However, the result contradicts with the evidence presented by Rodrigue et al., (2013) who failed to find significant association between the existence of environmental committee on the board and environmental performance which is measured in terms of regulatory compliance, pollution prevention, and environmental capital expenditures and with McKendall et al., (1999) who also failed to find significant association between social responsibility committee and environmental violations. Regarding CEO, the empirical result indicates that none of the two components of compensation for CEO was found to be significant at the 1% or 5% levels in all the four models. The findings in the column sixth of Table 8 show that the CEO stock options (CEO_SO) are not statistically significantly associated with carbon reduction performance Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 (LOG_C_PER), the coefficient estimate on CEO stock options is -0.217 with a p-value of 0.85. Such insignificant and negative association is inconsistent to our expectation. A possible reason for this result is due excessive focus on a financial performance even in the longer term goals that may be detrimental to the promotion of social and environmental objectives (Mahoney and Thorne, 2006). In this respect, this result supports the argument of Coombs and Gilley, (2005) who suggested no relationship between stock options and any CSR dimensions. This result is also similar to the findings from the exploratory study by McGuire et al., (2003) who failed to find relationship between long-term incentives including stock options and good social performance. The result, however, is in contrast to the findings of Mahoney and Thorne, (2005, 2006); Deckop et al., (2006) and Callan and Thomas, (2012) who document positive association between the CEO stock options in long term and corporate social performance and also in contrast with Berrone and Gomez-Mejia, (2009a) who provide evidence that long-term pay such as stock options is positive and highly significant for pollution prevention performance. Thus, based on the result, the current study does not reject hypothesis (H7) that the CEO stock options (CEO_SO) in long term are not positively associate with carbon reduction performance (LOG_C_PER). Column sixth of Table 6 shows that CEO long term bonus (CEO_LTB) has a positive coefficient, which is consistent with our expectation. However, the coefficient value is 0.272 and a p-value of 0.72, so it is not statistically significant. Thus, the result does not strongly reject H8. Recently, there is not empirical study that linked CEO long term bonus to carbon reduction performance. Nevertheless, in the context of social performance in general, Callan and Thomas, (2012), provides evidence that the long term compensation which includes restricted stock, stock options and long-term incentive plans is positively associated with social performance, whereas, Rekker et al., (2014) found out that there is a negative relation Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 between long-term compensation such as long term bonus and socially responsible firms. With reference to ownership structure, as can be observed in the column 6 of table 6, ownership concentration (LOG_OWN_CONC) is not statistically significantly correlated with carbon reduction performance (LOG_C_PER), with the coefficient value of 0.052 and a p-value of 1.11. This is also opposite to our expectation. A possible explanation for this finding could be that, carbon activities incur costs (Liao et al., 2014) and the existence of substantial shareholders may prevent managers from engaging in conspicuous social and environmental activities. Another possibility is that ownership concentration may give firms less freedom to pursue carbon policies that go above and beyond compliance. This is consistent with the result that provided by Brown et al., (2006) who did not find any significant relationship between concentration ownership and corporate Philanthropy, and Adams and Hardwick (1998) who failed to find any connection between concentration ownership and corporate giving. This result, on the other hand, is inconsistent with the work of Earnhart and Lizal. (2006) who found that greater concentration of ownership in the company leads to better environmental performance with respect to absolute emissions. Therefore, this result does not reject the hypothesis H9, that there is no significant association between ownership concentration (LOG_OWN_CONC) and carbon reduction performance (LOG_C_PER). The results described in the last column of Table 6 indicate the managerial ownership (LOG_MANAG_OWN) is negatively but not significantly related to carbon reduction performance (LOG_C_PER), with coefficient of – 0.056 and a p-value of – 1.18. This, however, contradicts this study's earlier expectation. The plausible explanation for this result may be due to the fact that the level of managerial ownership in the current study sample is negligible. As can be shown in the descriptive analysis section (table 5) the mean (median) of Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 managerial ownership is - 6.044 (- 6.668).This means that when the level of managerial ownership is low, it is unlikely that managerial ownership can reduce agency problem arising from the separation of ownership and management in the firm. Another possibility is that managers with less shares in the companies are relatively less concerned about social and environmental activities. This result is in line with the work of Paek et al., (2013) who provide evidence that managerial ownership has an insignificant association with CSR performance in terms of community, environment, and product dimensions but however not inconsistent with Jia and Zhang, (2013) who found that managerial ownership had a positive and significant association with CSP factors such as donation probability and charity. The result also disagree with Johnson and Greening (1999), who found a positive association between top management equity share and social performance in terms of environment and product quality. This result also in contrast to the findings of Oh et al., (2011) who documented that managerial ownership is significantly negatively associated with CSR rating of the firms and with Simerly and Bass‟s (1998) who provide evidence of significant negative relationship between a firm‟s corporate social performance and the proportion of stock equity owned by top management. Therefore, Results reported Table (8) fail to reject hypothesis H10 that no association exists between managerial ownership (LOG_MANAG_OWN) and carbon reduction performance (LOG_C_PER). Among the control variables, the results in the last column of Table 6 show that the coefficient of leverage (LEV) is significantly positive associated with carbon reduction performance (LOG_C_PER) at the %1 level. The findings suggest that companies with higher degree of leverage might be inclined to improve carbon reduction performance. This result corroborates the study by (De Villiers et al. 2011; Walls et al. 2012) who found that leverage is positively associated with environmental performance. Similarly, Capital Intensity Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 (LOG_CAPINT) has significant and positive relationship with carbon reduction performance at the %1 level (β= 0.172, p < 0.01, two-tailed). This result indicates that companies with higher sustaining capital expenditures may want to signal their environmental type through more disclosures regarding their environmental performance. This result is consistent with the previous literature (Russo and Fouts, 1997 and Walls et al, 2012). It is also observed that IntensiveSector (INTSECTOR) is positively associated with carbon reduction performance at the %1 level. This finding indicates that companies operating in the higher level of carbon emissions will lead to increased carbon exposure so that these companies tend to promote carbon reduction performance. The results also display that the coefficient of Tobin‟s Q (TOBINSQ) is statistically significantly and negatively associated with carbon reduction performance (β= - 1.111, p < 0.01, two-tailed). The result is consistent with prior work by Delmas and Nairn-Birch (2011) who found that increasing carbon emissions negatively impact on market based measures of financial performance (using Tobin‟s q) in the US companies. On the other hand, the results indicate that the coefficient of firm size (FSIZE) is not statistically significant associated with carbon reduction performance (LOG_C_PER) (β= 0.069, p- value = 1.21). This result is inconsistent to the prediction that bigger companies tend to provided more information on GHG emissions than the smaller companies (Luo et al., 2013). In addition, it is argued that firms that are smaller in size may not exhibit high level socially responsible behaviours as do larger firms (Waddock & Graves, 1997; Busch & Hoffmann, 2011). One possible explanation is that the majority of firms in the sample study are the largest Australian companies. This result is congruent with the work of Grant, Jones, & Bergesen, (2002) who documented that firm size is not related to pollution prevention performance. Similarly, profitability (ROA) is statistically insignificant associated with carbon reduction performance (LOG_C_PER) (β= Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 0.716, p- value = 0.66). Although it can be argued that firms with more profit could be more easily afford in the expenditures needed for carbon activity (Luo and Tang, 2011), Delmas and Nairn-Birch (2011) found that direct carbon emissions have insignificant association with ROA in 1100 US companies. 5. Further analysis and Robustness Checks In this section we provided a several tests that could lead to validate the robustness of the main results. That is, board size measured using cut-off basis, audit committee independence measured using cut-off basis and alternative measure for firm size 5.1 Board Size measured using cut-off basis. Following Jensen (1993) who suggested that more than eight members on board are less likely to function effectively. This study used eight members as the cut-off basis as alternative measure for board size. Therefore, the current study was measured board size as a dummy variable (DUMMY_NDB) by taking the value of 1if board size equal or more than eight members, and 0 otherwise. The summaries of analysis (which are un-tabulated) confirm the initial evidence that board size is insignificant factor influencing carbon reduction performance. The findings on other variables are the same as those reported in Table 8. 5.2 Audit committee independence measured using cut-off basis. Prior studies such as Klein, (2002a), Bedard, Chtourou and Courteau (2004), Davidson et al. (2005), Baxter and Cotter (2009) examined the sensitivity of audit committee independence to specific cut-offs. In order to confirm the credibility of the results of regression analyses, this study repeated the OLS regression model with alternative measure of audit committee independence, where measured as a dummy variable (DUMMY_NIDAC) by taking the value Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 of 1 if the audit committee is composed solely of independent directors and 0 otherwise. The current study has chosen 100% threshold as the cut-off point following the published literature and governance reports (e.g. Menon and Williams, 1994; BRC, 1999, ASX, 2003, Davidson et al. 2005) who suggested that audit committee should consist exclusively of nonexecutive or independent directors. The results (un-tabulated) confirm that audit committee independence (NIDAC) has no significant effect, which is consistent with the original results of the regression analyses. While the results for the other variables are virtually the similar as those reported in Table 8, except board independence (NIDB), which had a weak relationship with carbon reduction performance at the %10 level. 5.3 Alternative measure for company size A number of prior studies such as Stanwick & Stanwick, (2001) and Berrone et al. (2010) have employed the logarithm of the firm‟s total sales as a proxy for firm size. Therefore, the current study used this measure as an alternative measure for firm size. The analysis results (which are un-tabulated) confirmed that firm size as measured by logarithm of the firm‟s total sales has no significant influence on carbon reduction performance, which is consistent with the main test results. The rest of other variables have the similar results as those presented in Table 8 6. Concluding remarks The purpose of this article was to investigate empirically the impact of corporate governance mechanisms on carbon reduction performance in a sample of the largest Australian firms. By using univariate and multivariate analysis for a sample of 205 firm - year observations participating in the CDP over the 2009 - 2012 period, the study‟s findings show that there is indeed a strong relationship between the presence of environmental committee and carbon Proceedings of World Business, Finance and Management Conference 8 - 9 December 2014, Rendezvous Hotel, Auckland, New Zealand, ISBN: 978-1922069-66-5 reduction performance. It implies that the presence of an environmental committee can be viewed as a means of environmental orientation and carbon proactivity. The committee can better monitor management in terms of their environmental actions and performance and as an effective way to provide advice to management when addressing the environmental issues (Rodrigue et al., 2013), Whereas other types of corporate governance mechanisms (board size, board independence, board diversity, board meetings, audit committee independence, CEO stock option, CEO long term bonus, ownership concentration and managerial ownership) are not statistically significant with carbon reduction performance. Further, the statistical results also show that leverage, Tobin‟s Q and industry types, as control variables, have a strong positive association. In contrast, the study did not provide any evidence that firm size and profitability are related to carbon reduction performance. The results of this article have some limitations that could be acknowledged and addressed in future work. One limitation of this study is that the sample size is relatively small and restricted to those firms that completed the CDP 2009 -2012 questionnaire. Therefore, the result may suffer from the selectivity bias due to the limited availability of firm-level carbon data. At the same time, four years period for this study appears to be short. Future studies may be expanded to include more firms and to multiple period of time. Another limitation is that the sample of this study includes only internal governance mechanisms, although other external governance mechanisms may influence on company‟s carbon activities. Future research may expand to encompass mechanisms of external governance. Notwithstanding, the study‟s results contribute to a growing literature on corporate governance and climate change association and present new evidence of how carbon performance and transparency is impacted by the strength and structure of corporate governance. 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