The Mediation Effect of Business Environment on How Firm Characteristics Relate to Environmental Disclosure in Tanzania's Extractive Industry

Abstract

This study determines the function of the business environment as a mediating factor on how firm characteristics relate to the environmental disclosure in the Tanzanian extractive industry through legitimacy and stakeholder theories lens. The analysis makes use of panel data from the 2018 Tanzania Extractive Industry Transparency Initiative (TEITI) report covering the years 2004 to 2018, following the adoption of an environmental management Act and its implementing laws in Tanzania. To extract data from yearly reports, the manifest content analysis was employed. The results show that the relationship between corporate profitability, size, and environmental disclosure is mediated by pressure of stakeholders. Furthermore, the findings imply that the relationship between size of firm and environmental disclosure is mediated by visibility by the media. However, the legal need does not operate as a buffer between any firm characteristic and environmental disclosure, indicating that laws, regulations, and rules are not the only drivers of environmental disclosure. For the first time, the study introduces, quantifies, and examines the business environment as the only justification for environmental disclosure. The study combines legitimacy and stakeholder theories, treating businesses as entities with internal decision-making processes that are also influenced by pressure from the outside world. The study also suggests that enhancing environmental disclosure and business participation may not be possible with just rules or legislation. The study demonstrates that stakeholder theory works more effectively in situations when powerful stakeholders put significant pressure on businesses to disclose environmental information. In terms of society, the study would promote social involvement in ensuring that businesses disclose and protect the environment so that people can live in safety.