Sample Proposal MS

1. THESIS TITLE
“The value relevance of environmental disclosure: Evidence from
non-financial sector of Pakistan.”
Student Name
Student Registration Number
57652
A Thesis Proposal submitted to Department of Management Sciences,
Bahria University – Karachi Campus, in part fulfilment of the requirement for the
M. Phil Degree
Semester
4

2. ii
Abstract
Purpose: This study is aimed at to test the value relevance of financial information and non-
financial information in non-financial sector of Pakistan. The financial information includes the
earning per share and book value per share while non-financial information consists environmental
disclosure.
Methodology: The initial sample of study consists of 255 companies operating in various
industries in non-financial sector of Pakistan for 10 years. A panel data approach will be utilized
and multivariate regression will be applied to analyze the data set. Data for environmental
disclosure is taken from two sources. One source is Bloomberg on which environmental disclosure
score assigned to companies on the basis of their disclosure level is available and other source is
content analysis of narrative sections of annual reports.
Expected Findings: Based on reviewed literature and theories, our expected findings are that
financial information (Earning per share and book value per share) and non-financial information
(Environmental disclosure) are value relevant for non-financial sector companies in Pakistan.
Contribution/Implication: This study adds to the environment literature by analyzing the value
relevance of environmental information. The findings of study will help top-level administrators
and leaders to prioritize environmental sustainability. Regulatory authorities can have more
effective implementation of environmental policies and establishment of future policies.
Key Words: Value relevance, Environmental disclosure, Content analysis.

3. iii
TABLE OF CONTENTS
1. Introduction ..........................................................................................................................................1
1.1. Background ...................................................................................................................................1
1.2. Problem Statement.......................................................................................................................3
1.3. Research Objective .......................................................................................................................4
1.4. Research Questions ......................................................................................................................4
1.5. Purpose of the Study.....................................................................................................................4
1.6. Significance of the Study...............................................................................................................6
1.7. Conceptual framework of the study.............................................................................................1
1.8. Overview of the study...................................................................................................................1
2. Literature Review..................................................................................................................................2
2.1. Value Relevance of financial information.....................................................................................2
2.2. Value Relevance of non-financial information .............................................................................4
2.3. Theoretical background:...............................................................................................................5
2.4. Development of Hypotheses ........................................................................................................6
3. Research Design and Methodology ......................................................................................................7
3.1. Sample...........................................................................................................................................7
3.2. Main phases of the study..............................................................................................................8
3.3. Content Analysis ...........................................................................................................................9
3.4. Environmental Disclosure Score .................................................................................................10
3.5. Valuation Model..........................................................................................................................11
3.6. Variables and their estimation methods ....................................................................................12
3.7. Data Analysis Method.................................................................................................................12
References ..................................................................................................................................................14

4. iv
LIST OF ABBREVIATIONS
VR = Value Relevance
FS = Financial Statement
IS = Income Statement
BS = Balance Sheet
FI = Financial Information
NFI = Non-financial Information
EP = Environmental Performance
FP = Financial Performance
CSP = Corporate Social Performance
CFP = Corporate Financial Performance
CRR = Corporate Responsibility Reporting
MOCC = Ministry of Climate Change

5. v
LIST OF TABLES
Table 1: Number of companies in each industry in non-financial sector of Pakistan
Table 2: Keywords for the content analysis derived from the GRI framework

6. vi
LIST OF FIGURES
Figure 1: Conceptual Framework

7. 1
1. Introduction
1.1. Background
The superseding goal of financial reporting and publically available financial statements, is to give
information regarding the organization’s financial position and financial performance, which is
helpful to a wide scope of stakeholders, for surveying the management of the board and for settling
on economic choices. Among, one of the economic decision is the valuation of a stock value. An
inquiry accordingly is raised regarding in case the yearly financial statements are pertinent for
stock price valuation. Stockholders are essentially inspired by whatever data which is useful to
help them in the estimation of the organization as the aim of taking rational investment decisions.
The target of value relevance study is to associate yearly FSs content as a measure of firm worth,
and to evaluate the connection of this data to the assurance of significant worth. In this regards,
Flegm and Kirk, (1989) in a study examining the constraints of accounting, presumes that one can't
dependably gauge the value of a business or anticipate business’s future achievement utilizing
yearly FS. There are two instances of significant limitations of FS talked about by Flegm and Kirk,
(1989) are the use of historic cost method of accounting and non-recognition of internally
generated goodwill. Moreover, the study contends that FS speak to a review of past occasions, and
show almost nothing regarding future possibilities of the organization. Therefore, VR studies has
revealed that non-financial information is of significant importance to be used by shareholders for
company’s evaluation; it is also demonstrated that VR of FS disclosure can be enhanced and
improved combining with NFI. In this manner, taking in account financial information and NF
information combined may clarify market valuations better than a complete attention solely on
financial information.
Since the intensification of worldwide climatic situation, corporate environmental administration
has experienced uncommon changes in both the methods and content. The Global Reporting
Initiative (GRI), the association generally recognized as a pioneer in the advancement of
Sustainability Reporting Guidelines (Ballou et al., 2006), declares reporting can prompt upgrade
of reputation of corporations (GRI releases its Sustainability Report 2010/11, n.d.). Generally,
Corporate Social Responsibility (CSR) has gotten expanding consideration in the previous years,
both among managers and in the academic literature. Meanwhile the original focal point of

8. 2
corporate social responsibility was on “social” responsibility (for example, paying reasonable
wages to workers, community-based programs), an ongoing advancement is the consideration of
environmental responsibility (e.g., the decrease of CO₂ discharge). This “environmental CSR” is
is turning into a basic of CSR and assumes an undeniably significant job in the corporate landscape.
An enormous body of empirical studies suggest that an organization's environmental impression
can influence stock prices.
In addition, according to Porter and Kramer, (2006) CSR can bring about a development,
opportunities and competitive advantages for businesses. Past investigations have revealed three
distinctive research results about the Corporate Social Performance and Corporate Financial
Performance relationship, in particular, positive relationship, negative relationship and no
relationship. With regards to the principal type, positive relation, the study is upheld by the
stakeholder theory, that contends that organizations must take part in corporate social activities to
react to all kind of stakeholders and in this way their businesses will be remunerated by upgraded
corporate image/reputation and efficiency improvement (Brammer & Pavelin, 2006; Callan &
Thomas, 2009; Inoue & Lee, 2011; Neal & Cochran, 2008; Orlitzky et al., 2003; Ruf et al., 2001).
The research that provides a negative relationship then again on other side, is assisted by trade-off
hypothesis, that contends that if firms increment their social performance, they will utilize
pointless resources and subsequently decrease their profits and also competitive edge (Baird et al.,
2012; Lee et al., 2009; Lioui & Sharma, 2012; Makni et al., 2009; Moore, 2001),. The studies that
tells no relationship contends that such a large number of elements shift every once in a while,
from one industry to other industry and from situation to situation (Fauzi et al., 2007; Khanifar et
al., 2013; McWilliams & Siegel, 2000; Mill, 2006; Nelling & Webb, 2009; Scholtens, 2008; Soana,
2011).
Also, Corporate Social Responsibility (CSR) exposure quality and quantity have pulled in
significant interest in accounting research studies since the production of an amazing paper
(Hasseldine et al., 2005). Utilizing a subjective variable of disclosure quality of environmental
information, Hasseldine et. al. (2005) give the empirical proof that the “nature of the environmental
exposure as opposed to simple quantity put a stronger impact on the production of the
environmental reputation among managers and stakeholders. Also, they propose that further
examination on the effect of CSR exposure technique and capital market value could be incredibly

9. 3
helpful in knowing the importance of Corporate Social Responsibility disclosure quality and
quantity.
1.2. Problem Statement
It has been a popular research area for studying the value-relevance of financial information in
essence of income and book value of equity in latest years with a huge work emanating from the
studies of Ohlson (1995) and Feltham and Ohlon, (1996; 1995). This model is consisting of book
value and accounting earnings to draw up a model for valuation of firm’s share price. Book value
is estimated to have VR when the expected relationship is distinguished with stock price. The main
reason behind VR investigation is the determination of how close the relationship is held among
stock price and book value. In the light of the previous findings, it is inferred with respect to what
extent investors should depend on financial information gotten out of the financial statement to
value the share price for company.
In current corporate world, solely financial models cannot be relied to value the firm’s stock. The
current accounting model is no longer adequate to evaluate the firm’s value and performance
because of the way that it disregards huge amount of non-financial information content. According
to Kwon and Lee, (2019) companies are getting progressively concerned regarding the careful
usage of scarce resources because of ever-increasing pressure to become sustainable in present
quickly changing and competitive economy. In response to this, companies are getting active to
adopt such environmental sustainability initiatives to gain approval of their stakeholders. To
address this concern, this paper aims to explore the impact of environmental sustainability which
is represented by environmental disclosure in this study.
To incorporate the effect of environmental sustainability into the firm’s stock value, the valuation
model for determination of stock price consisting accounting variables is modified and added with
environmental disclosure variable. The VR of environmental disclosure is determined if the
variables turn out to be significant.

10. 4
1.3. Research Objective
The purpose of the study is to examine the VR of financial information and non-financial
information in terms of Environmental disclosure in non-financial sector of Pakistan. Specifically,
the objectives of the research are to:
1. Test the VR of FI for firms in non-financial sector of Pakistan; and
2. Test the VR of Environmental disclosure information for firms in non-financial sector of
Pakistan.
1.4. Research Questions
Since there are various perspectives and blended results about the VR of non-financial information,
so it is essential to additionally explore the VR of NFI under changing economic conditions.
In view of the above propositions, the study tends to address the subsequent major research
question and further sub-questions.
Main Research Question:
Is the financial information and non-financial information, value relevant in non-financial sector
of Pakistan?
Sub-Question 1: Is financial information value relevant for non-financial public firms in Pakistan?
Sub-Question 2: Is environmental disclosure score value relevant for non-financial public firms
in Pakistan?
Sub-Question 3: Is Voluntarily disclosed Environmental information value relevant for non-
financial public firms in Pakistan?
1.5. Purpose of the Study
The principle objective of many organizations is the maximization of value for their investors, as
estimated by the market value of the firm’s stocks. The stock value exhibits the outcomes from
buy and sell operations, the financial position of the company, and the anticipated future
opportunities accessible to the company. Shareholders are most importantly inspired by any data
which is expected to be helpful in assessing the company value, with the intention to make

11. 5
informed investment decision. So as to assess the VR of the NF and FI for non-financial sector of
Pakistan, the value of the company is denoted as an equation of earnings, book value of equity and
other information utilizing the Ohlson (1995) model. This model is replicated and altered along
with Environmental disclosure score by from Bloomberg and Voluntary environmental disclosure
of the firm as an expression for the NF information variables.
In this research study, we investigate the reaction of financial market to companies’ environmental
disclosure. We are taking into account that environmental issues influence long-term shareholder
value. We also take into account a company’s profile (particularly firm size and firm age) as
control variables.
Theoretical and empirical research in finance has indicated the value-relevance of both earnings
and book value (Easton & Harris, 1991; Ohlson, 1995). We initially inspect the value-relevance
of book value and earning. The NF information variables we investigate are environmental
disclosure score from Bloomberg and Voluntary environmental disclosure. These stated NF
variables are tested in model separately. Environmental disclosure score from Bloomberg and
Voluntary environmental disclosure are added as a proxy of NF information in the model.

12. 6
1.6. Significance of the Study
The significance of this study is that this study adds to the knowledge of the value relevance of
non-financial information in non-financial sector of Pakistan. This study also adds to the
environment literature by analyzing the VR of a NF environmental information reported in
publicly available reports by companies and environmental disclosure score assigned to these
companies. The gap in the environmental information value relevance literature is the shortage of
research across varying contexts. Present research on value relevance of non-financial information
shows that the differences in economies and political systems on country levels as well as
organizational characteristics such as size, industry, etc. call for investigation across different
countries as the findings of one study in a specific country or industry may not be generalized over
other countries or industries. Thus, further research is needed to understand the VR in different
settings.
The findings of our study will help top-level administrators and leaders to choose whether their
organizations ought to dedicate more resources to sustainable environment initiatives, for example,
conserving energy, changing environment and social sustainability, upgrade the reputation and
thusly, enhance their competitive advantage. It will also make them well aware of consequences
of companies’ non-environmental friendly behavior. The effect of specifically Environmental
disclosure of Pakistani companies has not been reported, in spite of the fact that there are a few
studies that have researched CSR in Pakistan.
Furthermore, another gap filled by the study will be the enhancement and support for regulatory
authorities in Pakistan like Ministry of Climate Change (MOCC). There is a need to initiate on
providing empirical evidences on government level institutions that will enable more effective
implementation of environmental policies and establishment of future policies and programs to
combat environment issues with direct reference to Pakistani consideration.

13. 1
Earnings
Book Value
Other
Information
Share Price
Age
Size
1.7. Conceptual framework of the study
Source
Bloomberg share price, Book value, earnings.
Bloomberg environmental disclosure score; and
Narrative sections of Annual Report
Main Research Question
Is the financial information
and non-financial information,
value relevant in non-financial
sector of Pakistan?
Sub-Question 1
Is financial
information value
relevant for non-
financial public
firms in Pakistan?
Sub-Question 2
Is Bloomberg
environmental
disclosure score
value relevant for
non-financial public
firms in Pakistan?
Sub-Question 3
Is Voluntarily
disclosed
Environmental
information in
Annual Report
value relevant for
non-financial public
firms in Pakistan?
DV
IVs
Control
Variables

14. 1
1.8. Overview of the study
This study consists of three chapter including this chapter of introduction. This chapter presented
the purpose of study, research objectives along with research questions and significance of study
and finally the conceptual framework in shape of figure is presented. The following chapter 2
reviews the related literature specifically regarding the VR of FI and NFI including environmental
disclosure studies. The chapter concludes with the development of hypothesis for testing the
financial variables and non-financial variables of environmental disclosure. The chapter 3
discusses the research methodology which will be followed throughout this study to test the
hypothesis developed at the end of chapter 2 and a brief literature about the selected methodology.

15. 2
2. Literature Review
2.1. Value Relevance of financial information
Badu and Appiah (2018) are triggered by need value relevance studies in Ghana Capital Market
and study the VR in Ghana market. Their study aims at investigating the intensity at which
accounting variable specifically earning and book value of equity predict the variability in share
prices in Ghana capital market. Their findings also assisted investors in optimizing their
investment decisions with the use of financial information. The study formulates five hypotheses
stating earning and BV of equity have VR to investors, VR is increased with IFRS implementation,
VR of book value is increased with negative earnings, bigger firms have higher explanatory power
than smaller and book-value is more relevant than earnings in service sector than in industrial
sector and vice versa. To study the relationships and testing of hypotheses, Badu and Appiah
(2018) use Ohlson (1995) model. The model is further split in three models in the study. The model
shows a linear relationship between share price and book value of equity and earnings. The value
of R-square is used to measure the VR. The results show 68 percent explanatory power jointly for
book value and earnings in Ghana capital market. In general, jointly it shows VR but separately,
investors see earnings as more important than book value. Further they test the VR for earning
sign, size of firm and industry in which a company lies. In terms of earning, companies reporting
negative earnings are not significant but for positive earnings, it was significant. This shows, when
earnings are negative, financial information is not value relevant. While testing for firm size, result
show that larger firm’s explanatory power is greater than smaller firms and more value relevant.
In terms of industry, service sector companies are best fitted. Industrial sector is least fit with only
19 percent explanatory power. This shows that VR of accounting information is dependent on the
industry a company is working in. In the end, Badu and Appiah (2018) conclude that FS are value
relevant for investors in Ghana Stock exchange but they put more emphasis to income statement
than the balance sheet.
Ahmadi and Bouri (2018) investigate the VR of financial variables like book value of equity and
earning per share. They study the relationship of book value and earnings which are called value
relevant variables in firm’s valuiation model. They also study that VR of these variables is
increased or not. Their aim is to see VR of earnings and book value of equity and split and compare
the sample dividing in two groups, one banks and other financial institutions. Ahmadi and Bouri

16. 3
(2018) examine relative and also incremental VR of these two variables. The hypotheses is that
the relationships between earnings and share value and bhook value and share price are positive.
Hypothese are tested seperately for book value and earning and combined too. They also
hypothesise that book value have more value relevance than earnings. Measure of relevance used
in this study is coefficient of determination and the methodlogy was quantitative based. The study
underline the significance of earning per share and book value in valuing share price of banks and
financial institutions. The R2
value is significantly higher that variables jointly have 51.86 percent
explanatory power. When they divide the sample into two parts; banks and financial institutions
seperately, the relationship is positive and significant for both. It is inferred from the findings that
accounting information specifically book value and earning per share are crucial in calculating the
share price. And if earnings and book value increase, the share price will also increase. It is also
noted that financial variables are more value relevant for banks as opposed to financial institutions
in Tunisia. For investors, it gives insights on the determinants of share price.
Pirie and Smith (2003) conducted the study which aims to know that how published accounting
information is relevant to the stock prices of developed Asian markets. Specifically, the research
aims to examining empirical evidences of the relationship between stock prices and two aggregate
accounting variables; book value and earnings of shares of listed companies in Malaysia. Out of
many, one main purpose of the FS is to provide investors with relevant information, the
relationship between stock prices and financial variables has been extensively studied. Early
research focused on earnings, but in recent years, people's attention has shifted to include valuation
models of the book value of equity. Much of these studies use the residual income model as its
theoretical basis, and with the increasing emphasis on stockholder value, the residual income
pointer is more commonly used in the business society to track financial performance. In view of
this trend, the purpose of this study is to analyze the theoretical background of the residual income
model and review the results of the study using it. Results of the study show that financial variables
summarizing the BS and IS respectively both are important factors in the method of valuation, and
managers have reason to use the accounting system as the main source of information to monitor
FP. Pirie and Smith (2003) argue that these findings should arouse the interest of other researchers,
as well as managers and shareholders who are actually using or will be using surplus income to
control performance of the business.

17. 4
2.2. Value Relevance of non-financial information
Flammer (2012) contributed to literature the evolution of relationship between environmental CSR
and stock prices over time. They studied the relationship for all U.S. publicly listed firms for time
span of three decades from 1980 to 2009. The argument is that environmental initiatives and
Corporate Social Responsibility creates a goodwill for firm and protects a firm if any negative
event happens in firm. The perception about sensitivity of shareholders to announcement of
environmentally harmful corporate behavior and environmentally friendly corporate initiatives has
been changed over time. Flammer (2012) suggests that if a company is positively involved with
the environment, it generates competitive and new resources for firm. They also suggested, that
their value of corporate social responsibility towards environment is dependent on internal as well
as external levels and norms of environmental CSR. Their insights show that shareholders respond
positively when firm announce eco-friendly initiatives and negative when the eco-harmful
behavior is announced. They also concluded that becoming green has become a norm in firm due
to external pressure and firms are obliged to follow norms in order not to be punished. In result of
this, following this norm is decreasing the shareholder reward for going green. This shows that
positive reaction to eco-friendly initiatives announcement has been reduced and negative reaction
to eco-harmful news has been increased. Finally, they proposed that environmental CSR result in
negative marginal return for firms.
Al-thuneibat et al., (2008) investigate in Jordan if Audit report is value relevant in Jordan and want
to know whether audit reports are informative. Because the audit report is very important and assist
in decision making. Audit report is the communication source between auditor and investor about
the financial performance. So audit report must contain the content which is understandable and
informative by investors. Informative for investors means that audit report must assist investor in
their investment decision making. It also highlights that FSs show true view of financial position
and performance of company. If audit report is not informative for investors, it will not affect on
share prices and investors’ decision. They formulate the hypotheses that share prices are
significantly affected by qualified auditor reports in share holding companies of Jordan. Al-
thuneibat et al., (2008) study whether auditors’ report provide more information than other FSs or
not. To measure the effects, they measure the change in share prices in response to qualified audit
reports. The change would be noted on date of delivery of audit report. If the return of stock is

18. 5
abnormal, this shows the qualified audit report is informative and if the return of stock is not
abnormal, this means the report is not informative. The period of test contains seven days after and
before disclosing date of FSs. The results show no clear pattern or price change, this means that
qualified audit reports do not affect stock price and stock return during the test period. This means
the effect of Qualified audit reports is not clear on decision making. Al-thuneibat et al., (2008)
conclude on the basis of study that the users of audit report must be educated and understood about
the importance of audit report because the results of study can be affected that users of audit report
did not used the information correctly that’s why there was no effect on share prices.
Hendricks and Singhal, (1996) investigated the effects of gaining of quality awards on company’s
market value by estimating change in SP in the sample of firm whose data were available publicly.
The results reflect that stock market positively responds to quality winning awards.
Graham et al., (2002) attempts to know the VR of FI and NFI if it helps in evaluating the market
value of internet companies. In their investigation, net income, book-value, different visitors,
views of page and usage hours is used to see the impact on valuation of companies. The analysis
shows that net income is not a significant determinant of market of companies and book value has
a moderate and significant effect. Furthermore, the NF factors like unique visitors and specifically
page views are significant factors in determination of market value of company. Non-relevance of
net income is the result of these companies’ negative income and moderate effect of book value is
the sign of usefulness as a hedge against bankruptcy risk. A huge effect of NF factors like page
views over unique visitors is a sign to managers to formulate strategies that improve user
exploration of web properties. Hence, managers are suggested to improve user experience and use
resources to encourage exploration among existing users rather than building the total user base.
2.3. Theoretical background:
Theories suggest positive as well as negative relationship between discretionary disclosure and
stock price movements. Economic theory (Dye, 1985; Verrecchia, 1983) suggest that there is a
positive relationship between discretionary CSR disclosure and stock price movements. According
to this theory, companies should disclose all the information which they possess. If good
performing companies always disclose information, it creates a bad impression of companies
which do not disclose information because these are average performing companies. So, their non-

19. 6
disclosure becomes costs for them and result in decrease in value of firm. Hence, companies need
to adopt the partial disclosure equilibrium. To apply this, managers need to trade-off between when
to share information and when not to base on the costs associated with disclosure (Verrecchia,
1983) and when there is no determination that any information exits in the company (Dye, 1985).
Conversely, socio-political theories inclusive of legitimacy theory and stakeholder theory suggest
that CSR disclosure and stock price are negatively associated. According to these theories, CSR
disclosure is the combination of social, political and other stakeholders’ demands faced by the
company. Under legitimacy theory, companies are obliged to have a social contract with society
and perform such activities which are socially accepted and required for the sake of their approval
an ultimate existence of their businesses in the society (Reverte, 2009). Kuo and Da Silva Monteiro
and Aibar-Guzman (2010, 2013) studies presented that companies disclose the information in their
reports as a way to administer their legitimacy. On the other hand, stakeholder theory specifies
that stakeholders in the society have expectations from businesses and such expectations shape the
disclosure strategies of the company (Reverte, 2009). This shows that CSR disclosure is a
mechanism incorporated by businesses to cater information needs and manipulate the key
stakeholders of the business.
Based on the reviewed literature and theories studied, we expect the relationships of our variables
to be significantly positive.
2.4. Development of Hypotheses
Four hypotheses are developed to test the research questions with aim to achieve the purpose of
the study.
H1: Book value has an impact on share price.
H2: Earning has an impact on share price.
H3: Environmental disclosure score from Bloomberg has an impact on share price.
H4: Environmental disclosure score from Annual report has an impact on share price.

20. 7
3. Research Design and Methodology
The methods of research for data collection and analysis of data are discussed in this chapter
including phases of this study. Phase one of the study is about the quantification of environmental
performance and CSR Disclosure while phase two of the study discuss about the method for testing
the value relevance of environmental performance and CSR Disclosure. The final section describes
valuation model i.e. Ohlson (1995) with the modification to the model by incorporating
environmental performance rating and CSR disclosure and the data analysis method.
3.1. Sample
We aim to extend the previous studies on the value relevance of non-financial information to
Pakistan. The population of this study consists of all the listed companies on Pakistan Stock
Exchange. Since, our focus remains of non-financial sector of Pakistan, our sample consists only
companies lying in non-financial sector of Pakistan. Table 1 contains number of companies in each
industry of non-financial sector which makes up our sample size. There are total of 255 companies.
The period covered in this study will be from 2010 to 2019.
Non-Financial Sector
Industry Number of Companies
AUTOMOBILE ASSEMBLER 12
AUTOMOBILE PARTS & ACCESSORIES 7
CABLE & ELECTRICAL GOODS 5
CEMENT 17
CHEMICAL 18
ENGINEERING 14
FERTILIZER 6
“FOOD & PERSONAL CARE PRODUCTS 15
GLASS & CERAMICS 7
LEATHER & TANNERIES 3
MISCELLANEOUS 12
OIL & GAS EXPLORATION COMPANIES 4
OIL & GAS MARKETING COMPANIES 8
PAPER & BOARD 7
PHARMACEUTICALS 10
POWER GENERATION & DISTRIBUTION 14
REFINERY 4
SUGAR & ALLIED INDUSTRIES” 17
SYNTHETIC & RAYON 2

21. 8
TECHNOLOGY & COMMUNICATION 11
TEXTILE COMPOSITE 23
TEXTILE SPINNING 25
TEXTILE WEAVING 3
TOBACCO 3
TRANSPORT 4
VANASPATI & ALLIED INDUSTRIES 3
WOOLLEN 1
TOTAL 255
3.2. Main phases of the study
There are two phases of this study:
(i) Identification and quantification of Environmental disclosure in annual reports; and
(ii) Investigation of value relevance of Environmental disclosure score from Bloomberg and
Environment disclosure in annual reports in non-financial sector in Pakistan.
Three distinctive methods of research are used in above stated two phases of the study. In first
phase, Bloomberg terminal is used to extract the environmental performance rating of the
companies. Content analysis is used to identify and quantify the CSR disclosure in terms of NF
information. the content analysis is technique which was first used more than 200 years ago for
the analysis of textual content from magazines, articles, newspapers etc. (Harwood & Garry,
2003). In recent past, Content analysis have been used in accounting research. Particularly, Helen
(2011), Abeysekara and Guthrie (2004) and Abeysekara (2008) used the content analysis technique
in same context of research.
In second phase of this study, the Ohlson (1995) valuation model is applied to assess the VR of
NFI identified in phase one. This model denotes the company’s value in an equation consisting
BV, earning and other disclosed information. In model, the “other information” is actually the
focal point of this study as the problem statement of this study is to determine the VR of FI and
NFI in form of environmental performance rating and CSR disclosure in non-financial sector of
Pakistan.

22. 9
3.3. Content Analysis
Content analysis is a technique and an approach or a process of gathering and analyzing data. It is
considered as systematic and objective analysis technique (Krippendorff, 2018). Numerous past
researchers used content analysis to measure Environmental CSR disclosure (e.g. Aerts &
Cormier, 2009; Al-Tuwaijri et al., 2004; Cormier et al., 2005; Wiseman, 1982) because this is a
technique which can transform text data into quantitative data form in an objective way (Berelson,
1952). In general, there are two forms of variables measured with content analysis; qualitative and
quantitative. The item which is quantitative is data which is measured in quantity units and the
qualitative item is referred to the text description (Aerts and Cormier, 2009). Content analysis can
also be identified as a method of classifying words into apparent categories. In particular, content
analysis is used by accountings researchers to assesses the usefulnesss of narrative sections of
annual reports (Abeysekera, 2008; Abeysekera & Guthrie, 2004; Guthrie et al., 1999). A most
common concept in content analysis are a word frequency count. It is believed that words with
greatest concern are the word that are mostly repeated. Nevertheless, the limitation of content
analysis is the inability to catch the hidden meaning of the narrative. Some of areas researched
with content analysis methodology are disclosures regarding intellectual capital, management
discussion and analysis, environmental reporting, announcement of news and auditors’ reports.
Kuo (2013) suggests that the content analysis is a dominant approach for measuring company’s
degrees of CSR disclosures.
Like previous researchers, (Clarkson et al., 2013; da Silvaa Monteiro and Kuo, 2013), we will use
content analysis to quantify CSR disclosure. The existing studies (Cormierr et al., 2005; Kuo,
2013) suggest that content analysis come up with valid outcomes for corporate social and
environmentall reporting research, letting the researcher to examine the degree of disclosure of
different items.
We will use words as the unit of analysis and get objective measure. We will use the PDF reader’s
word count function to count the words of annual reports. We will use the coding framework based
on GRI’s framework used by Verbeeten et. al. (2016). The Global Reporting Initiatives (GRI) is
known as the most relevant institute in the context of CSR disclosure, classified as most
extensively recognized CSR instruments among largest European organizations and considered as
a global standard (De Villiers & Marques, 2016). All aspects of CSR are covered by GRI as

23. 10
economic, social and environmental. To disclose economic information is the obligation of
companies, Verbeeteen et. al. (2016) incorporates only environmental and social perspective in
their framework. We will use the framework developed by Verbeeteen et. al. (2016) based on GRI
framework which consists of 32 keywords for environment and social perspective from the
indicators in the GRI framework (GRI releases its Sustainability Report 2010/11, n.d.). our study
focuses only on environmental perspective so we will only consider 8 environmental perspective
key words. Table 2 contains the keywords.
Table 2:
“Keywords for the content analysis
derived from the GRI framework”
Environmental
Recycled
Energy consumption
Biodiversity
Emissions
Effluents
Waste
Spills
Environmental impacts
3.4. Environmental Disclosure Score
Environmental performance rating is one dimension of ESG Data. ESG (Environmental, Social
and Governance) Data is a comprehensive set of data points that covers a variety of environmental,
social and governance themes. The initial data set includes management, corporate governance
and controversial event indicators. An indicator is an assessment of a company’s performance on
a particular aspect of an ESG issue, and may be based on qualitative or quantitative information.
For example, assessing the quality of an environmental policy, the carbon intensity trend of a
company relative to its peers and the quality of a business ethics programme. The threat of change
of climate in the world and resource depletion has been increased so investors may take into
account the factors of sustainability issues into their investment decisions. Bloomberg makes ESG
data relevant and useful for participants in financial markets by gathering, verifying and sharing
data from above 11,500 organizations in 83 countries. Investors utilize ESG data into their

24. 11
financial analysis and develop the insights regarding risks and opportunities. ESG data is
accessible through the Bloomberg Terminal. On the terminal, data of ESG if completely integrated
with all of Bloomberg’s cutting-edge analytics.
Yu et. al.(2018) identify the Bloomberg’s ESG disclosure score as a appropriate symbol to measure
company’s transparency. Only the amount of ESG data available publicly is measured in ESG
score and not the performance of the company is measured. The basis for score is the degree of
ESG disclosure by company. The score of 0.1 is for companies that disclose minimum ESG data
and 100 for those, which disclose all data (Yu et al., 2018). (Yu et al., 2018) assume that company’s
ESG score reflects the company’s voluntary and mandatory disclosure which can be helpful for
investors and stakeholders to evaluate publicaly listed companies. The higher the ESG Score,
means the more NFI disclosure exists.
We are only interested in examining a company’s environmental disclosure level. The
Environmental disclosure score is obtained based on degree of environmental disclosure of
company. Environmental disclosure score will be taken from Bloomberg Terminal for non-
financial sector of Pakistan.
3.5. Valuation Model
The literature reveals that Ohlson (Ohlson, 1995) and Feltham and Ohlson (Feltham & Ohlson,
1995, 1996) models are extensively used in determination of value of companies. The key
objective of this study is to test the VR of FI and NFI. The VR of financial and NF information is
measured with using the Ohlson (1995) model modifying by adding the environmental disclosure
score taken from Bloomberg and environmental disclosure from annual reports and controlling for
size and age of the company. The Ohlson (1995) model and other two models with same variable
measured with two different methods are as follows:
SPxy =β0+β1BVxy+β2EPSxy+µxy ------- (1)
SPxy =β0+β1BVxy+β2EPSxy+β3ENVSCRxy+∑ βnCONTROLSxy+µxy ------- (2)
SPxy =β0+β1BVxy+β2EPSxy+β3 CSRENVxy+∑ βnCONTROLSxy +µxy ------- (3)

25. 12
Where:
SPxy = Company x share prices at year y;
BVxy = Company x Book value per share at year y;
EPSxy = Company x Earning per share at year y;
ENVSCRxy = Company x environmental disclosure score by Bloomberg at year y;
CSRENVxy = Company x environmental disclosure obtained from content analysis at year y;
CONTROLSxy = Company x age and size at year y
3.6. Variables and their estimation methods
Variable Symbol Explanation Source
Share Price SP Share price three months after the end
of the fiscal year
Bloomberg
Book Value BV Book value of equity per share at the
end of the fiscal year
Bloomberg
Earnings per share EPS Net income per share over the fiscal
year
Bloomberg
Environmental
Disclosure Score
ENVSCR Environmental Disclosure Score
ranging from 0.1-100 from Bloomberg
Bloomberg
Environmental aspect of
CSR Disclosure
CSRENV Total number of CSR words related to
environmental aspects mentioned in the
reports, divided by the number of pages
of the annual report
Annual Reports
Age CONTROL Total number of years since the
inception of company
Bloomberg
Size CONTROL Size of the company is calculated as the
log of total assets of company
Bloomberg
3.7. Data Analysis Method
The sample of this study will consists of 255 companies operating in various industries in
non-financial sector of Pakistan for 10 years. The financial data will be extracted from various
sources including “Financial Statement Analysis” published by state bank, Bloomberg and
Pakistan Stock Exchange. Whereas, the data for environmental disclosure will be taken from

26. 13
two sources. The first source is Bloomberg in which environmental disclosure score is
assigned to companies on the basis of their disclosure level and other source is content
analysis of narrative sections of annual reports which will be done by the researcher itself
following the methodology prescribed for it by the previous literature. The panel will
comprise of 2550 observations (10years x 255 companies). The data will be cleaned and
sorted for missing values and normality will be checked and multivariate regression will be
applied to analyze the data set.
Expected Findings: Based on reviewed literature and theories, our expected findings are that
financial information (Earning per share and book value per share) and non-financial
information (Environmental disclosure) are value relevant for non-financial sector companies
in Pakistan.
Contribution/Implication: This study will add to the environment literature by analyzing
the value relevance of environmental information. The findings of study will help top-level
administrators and leaders to prioritize environmental sustainability. Regulatory authorities
can have more effective implementation of environmental policies and establishment of future
policies.

27. 14
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