Corporate carbon disclosure and financial performance in Vietnamese listed

firms: The moderating role of government regulations

Abstract: This study investigates the relationship between corporate carbon disclosure and financial
performance in Vietnam, an emerging economy. Using a sample of Vietnamese-listed companies in the
period 2016-2022, the findings indicate that the more carbon information is disclosed, the better the
firm’s financial performance is. In addition, the study also examines the role of government regulations
in moderating the effects of corporate carbon disclosure on financial performance. The study shows that
while government regulations have a negative impact on the relationship between the 2 remaining
variables, the influence of corporate carbon disclosure on financial performance is strengthened.
Therefore, the findings could provide implications for managers, stakeholders as well as the government
to proactively take action to adjust the environmental regulations and employ necessary practices.
Keywords: corporate carbon performance; firm performance; government regulations; Vietnam;
environmental information disclosure.

1. Introduction
The balance of environmental protection and economic development has attracted worldwide attention
in recent decades as environmental pollution problems break out constantly (Kock et al. 2012; Xu et al.
2016). Although having been recorded as one of the countries with the fastest economic growth in the
world, Vietnam is now at the cost of environmental degradation. According to the data published by
Statista Research Department in November 2023, the volume of CO2 had increased by about 2.83 times
during 11 years (from 37.43 million metric tons in 2010 to 105.96 million metric tons in 2021). Not only
that, greenhouse gasses like CO2 and SO2 generated during energy consumption cause serious changes
in the natural environment (Ha & Thanh 2022). Facing this situation, Vietnam was engaged in the
COP21 agreement with a global objective to reduce the volume of CO2 emissions to maintain the rise of
the temperature at +2°C in 2100. According to this agreement, Vietnam can receive the help of
developed countries in the establishment and execution of environmental policies (Shahbaz, Haouas, and
Hoang, 2019). On the path to making this help come true, Vietnam has to take action to control the
amount of carbon emissions released into the atmosphere as well as curb it at a certain level so that the
country can both develop the economy and protect the environment at the same time. As a result, it puts
pressure on firms to take action to protect and be transparent with the problems relevant to the
environment. However, enterprises doubt whether it pays to initiate corporate environmental activities

1
since CER requires environmental investment which may reduce their profit. Therefore, it is important
to understand the relationship between financial performance and CO2 emissions to draw appropriate
economic and environmental policies so the firms can adjust their activities.

On the other hand, the institutional theory considers that strict regulations can urge enterprises to
actively participate in environmental practices and assume more corporate environmental responsibility.
(Berrone et al. 2013). Also, major pollution makers and polluting enterprises in Vietnam have been
increasingly subject to environmental regulations and public concern and have been required to be more
environmentally friendly. From this, we assume that government regulations are likely to moderate the
relationship between CCD and FP. In the context of a developing economy like Vietnam, which is
extremely sensitive to weather and other environmental factors, and studies on economic growth and
environmental development, we take an interest in conducting a study to investigate how corporate
carbon disclosure impacts financial performance under the moderating effect of government regulations.
Our sample includes 350 listed companies in Vietnam meeting specific requirements from 2016 to 2022.
The results show that corporate carbon disclosure has a positive impact on the financial performance of
listed companies. Moreover, although government regulations show a negative effect on the relationship
between CCP and FP, the correlation between these two variables is strengthened.

This study contributes to the literature on the impact of corporate carbon disclosure on firms’ financial
performance and how government regulations affect this correlation. First, similar studies have been
conducted in developed, well-organized regulatory systems and political mechanisms. However, there
are few researches focusing on emerging and developing economies with weaker policy implementation
and enforcement like Vietnam (Li et al. 2016). With the existing ones, they have just only studied all the
environmental factors and have not yet detailedly delved into any aspect. Futhermore, recent research
conducted in developing countries addressing this issue has primarily focused on top-tier firms, ignoring
a comprehensive examination across all listed companies. Therefore, this is the first study to investigate
corporate carbon disclosure and its impact on all listed firm’s financial performance in an emerging
economy like Vietnam. Second, it provides a more comprehensive understanding of the role of
government regulations in regulating the relationship between corporate carbon disclosure and financial
performance or between environmental development and economic growth. Finally, this study has
implications for managers of listed companies and regulators. Listed companies can determine the

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budget to enhance the quality of environmental and carbon reports while maximizing profit. Not only
that, the findings also suggest that, under any circumstance, the environment still has a certain influence
on firms’ performance and risks. Therefore, managers should take action to be both proactive and
reactive to unforeseen weather changes. Meanwhile, other stakeholders, such as the government, can
continue to adjust the environmental regulations so that the whole country can catch up with sustainable
development trends progressing in the world now. Moreover, as Vietnam has one of the fastest growth in
not only South East Asia but also in the world, studies based on the Vietnam setting can provide
theoretical and practical implications for other developing economies.

The remainder of this paper proceeds as follows: Section 2 provides an overview of the literature review
and develops hypotheses. Section 3 describes the research methodology including data collection,
variable definitions, and empirical models. The empirical results are presented in Section 4. Finally,
Section 5 provides the conclusion and recommendations.

2. Literature review and hypotheses development

2.1. Corporate carbon disclosure and financial performance
From an accounting perspective, there could be possible positive impacts of carbon disclosure on
corporate financial performance if the benefits of disclosing environmental information and strategies
outweigh the costs of practicing disclosing the following cost and benefits framework. Cost-benefit
framework is based on economic principles and competitive analysis. It explains the discretionary
approach of trade-off between the costs and the benefits of disclosure (García-Meca et al. 2005;
Verrecchia 1983, 2001). Borghei et al (2018) stated that implementation of carbon management and
reporting may be associated with the improvement of accounting-based performance by the
identification of cost savings opportunities or the introduction of innovation opportunities in products
and services. Using disclosure and reportings to track production and management processes helps find
out where to improve the efficiency and to save energy and resources. For example, conforming to
necessary disclosure of energy, water and resources consumption in sustainability reports, many
companies hired other service firms or equipped tracking systems to help calculate and get consulted for
savings and better management. Besides, to optimize efficiency, many companies invest in innovative
technology such as more sustainable materials, intensive energy facilities and continuously propose cost
and energy savings initiatives. However, carefully auditing and reporting information cost companies

3
extra. Before perceiving the benefits of productivity improvements, companies have to bear the extra
costs of carbon disclosure. Using the cost and benefits framework, Borghei et al (2018) analyzed GHG
disclosure in annual reports of 174 companies in Australia from 2009 to 2011 and found out that
companies obtained the benefits shown in increasing corporate return on assets in the subsequent year at
the cost of disclosure.

Generally in the market, investors are at the disadvantage of information compared to managers.
Information asymmetries are detrimental to markets. According to Barry and Brown (1985) and Lambert
et al., (2007), lack of information constitutes information risk and therefore increases risk premium and
stock price volatility. Due to this information asymmetry issue, management will disclose more
information to distinguish their firm from the worst performing firms (Wegener, 2010). In the context of
rising awareness of environmentally friendly practices among firms and investors’ expectation of
corporate responsibilities for society and environment, besides reporting essential financial indicators,
many firms disclose more of their carbon and environmental information. According to Siddique et al.,
(2021), from the perspectives of investors and stakeholders, carbon information is an important
non-financial information for their decision making, and high-quality carbon information disclosure can
significantly improve the situation of information disadvantage for investors”. Velte et al., (2020) stated
that carbon information disclosure can reduce information asymmetry hence can increase financial
performance. Lueg et al. (2019) argue that disclosure hardly affects financial performance through
changes of free cash flows. Yet, the improved transparency of high-quality disclosure reduces the
information gap to the stakeholders and hence has financial consequences through lower risk. Study of
Krishnamurti (2017) provided evidence to support this argument by finding that firms had their stock
price volatility reduced and stock market liquidity improved when they disclosed more and better about
their GHG emissions.

There have been many studies conducted in different countries around the world, which indicated that
the disclosure of carbon emissions positively contributed to the firms’ financial performance.
Matsumura, Prakash and Vera-Muñoz (2014) studied the relationship between firm value and the act of
voluntarily disclosing carbon emissions using samples from S&P 500 firms from 2006 - 2008. The
results indicate that firms not disclosing their carbon emissions face market penalty; and the median
firm's value is about $2.3 billion higher for firms that disclose their carbon emissions compared to firms

4
that choose to not disclose them. With a scale of more than 1000 Japanese companies, Saka and Oshika
(2014) investigated the effect of corporate carbon disclosures (CDP disclosure) on corporate values and
discovered that disclosures to CDP questionnaires favorably increase the equity market value.
(Krishnamurti and Velayutham, 2018) examined the impact of having risk management committees at the
board level on the voluntary disclosure of greenhouse gas (GHG) emission in Australia, based on the
Carbon Disclosure Project (CDP) coverage of companies listed on the Australian Stock Exchange
(ASX) for the reporting years 2006 to 2009. The study found that the firms voluntarily disclosing higher
quality information on GHG emissions experienced reduced stock price volatility and improved stock
market liquidity. Lu, Zhu and Zhang (2021) studied the relationship between carbon disclosure and
companies' return on assets (ROA) of the Fortune 500 companies involved in the CDP report from
2011-2018 and found that in the non-carbon-intensive industries, the carbon disclosure can significantly
contribute to the improvement of corporate financial performance. Siddique et al., (2021) selected 500
world’s largest companies (G500) and examined the impact of carbon disclosures (measured by carbon
disclosure scores from CDP) on financial performances. The study showed that carbon disclosure
negatively affects financial performance in the short term, and positively affects financial performance
in the long-term.

On the other hand, according to signaling theory, firms with outstanding performance in terms of
finance, environment and sustainability can signal to the investors about their extraordinary good points
by disclosing more and more information with great quality, hence the investors would recognize them
out of the poor performing firms and give them some certain attention and consideration. Clarkson et al.,
(2008) stated that firms with superior environmental performance demonstrate their “type” by releasing
“objective environmental performance indicators”. Carbon information disclosure can increase
stakeholders’ corporate recognition and support, which in turn promotes financial performance (Lu, Zhu
and Zhang, 2021). Especially, in terms of carbon disclosure, firms with better quality of carbon
disclosure can attract investors and satisfy stakeholders that are increasingly aware of exerting corporate
responsibilities for the society and environment as well as purchasing sustainable development. Delmas,
Eztion & Nairn-Birch (2013) said that firms having certain initiatives related to solving climate change
and preserving the environment are favorably evaluated by some financial markets. The HSBC Global
Climate Change Benchmark Index, developed by HSBC as a reference index to measure the stock
market performance of companies well positioned to benefit from climate change mitigation efforts, was

5
shown to outperform key common benchmark indices by approximately 70% between 2004 and 2007
(HSBC, 2007).

As Vietnam progresses towards sustainable development, the government has issued a specific roadmap,
which prioritizes building regulatory systems and a carbon credit exchange pilot by 2028. Alongside
these advancements, transparent carbon disclosure from firms becomes crucial for businesses to enhance
their image and reputation with stakeholders, particularly in the evolving context where green growth
and sustainable development are gaining immense momentum. In Vietnam, Nguyen and Tran (2019)
used two regression models to investigate the association between financial performance and
environmental accounting information disclosure levels for Vietnamese-listed companies between 2013
and 2017. The study used scoring techniques to determine how much environmental accounting
information was disclosed. It also used market- and accounting-based metrics, including ROA and
Tobin' q. The results showed that environmental accounting information disclosures significantly affect
the enterprises in the long-term business strategy. Based on all listed theories and findings from studies,
we can hypothesize the following:

H1: Corporate carbon disclosure positively affects firm’s financial performance

H2: Changes in corporate carbon disclosure significantly affect firm’s financial performance

2.2. The moderating role of government regulations

The environment possesses distinct characteristics of a public good, and when faced with environmental
pollution issues, there is a tendency among the public to attribute the responsibility of environmental
governance to the government (Liu, N., Liu, Y. and Yu, X., 2023). The government, under the pressure
of public opinion and responsibility, is likely to adopt stringent environmental regulatory actions, thus
generating a positive demonstration effect (Kesidou and Wu, 2020). In Vietnam, the government has
begun to take initiatives by implementing a series of regulations and a national action program to
promote firm's carbon information disclosure. Many studies have shown that the establishment of
stringent government regulations might moderate the positive relationship between high-quality carbon
disclosure information and financial performance.

6
Strict environmental regulations from the government can force firms to take responsible initiatives such
as actively participating in environmental practices, invest in green innovations (Berrone et al., 2013).
Liu et al. (2017) found the positive moderating effect of GR on the relation between CDP and FP. The
Chinese government plays a crucial role in deterring polluters through laws and legislation. The study
assessed the environmental information transparency of 113 major Chinese cities. Scoring was based on
eight indicators like disclosed government actions against polluters, reflecting both the public
accessibility of environmental data and the government's regulatory effectiveness. The study of Long et
al., (2023) indicated the government regulatory pressure and market regulatory pressure have a
significant positive moderating effect on the relationship between carbon information disclosure (CID)
on the weighted average capital cost (WACC) based on 588 listed companies in heavy polluting
industries from 2015 to 2019. However, adherence to increasingly stringent environmental policies,
despite leading to a notable increase in the quality and quantity of carbon disclosure information, may
simultaneously result in elevated compliance costs, including the operation cost to innovate cleaner
technologies and processes (Lanoie et al., 2011) and the fine cost that if the disclosure fails to meet the
required environmental standard (He et al., 2021), which can adversely affect financial performance.
Within the Vietnamese context, Thuy et al. (2022) investigated a sample of 225 listed firms, employing
the GMM estimation technique. They discovered that firms with high levels of state ownership
exacerbated the negative association between corporate social responsibility (CSR) disclosure and cost
of capital (COE). Based on all listed theories and findings from studies, we can hypothesize the
following:

H3: Government regulations negatively moderates the relationship between corporate carbon disclosure
and financial performance

3. Research Design
3.1. Data and Sampling
Our initial sample consists of all firms listed on the Hanoi Stock Exchange (HNX) and Ho Chi Minh
Stock Exchange (HOSE) between 2016 and 2022. Carbon disclosure scores are collected and filtered
manually from the annual report published in Vietstock, a reliable organization providing data related to
Vietnamese-listed companies.

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 Table 1. Sample and selection

Total number of listed companies 748

(1) Eliminate companies in the banking, finance, and insurance industry 75

(2) Eliminate companies that do not have enough information on annual reports an 323
financial statements

Total number of remaining companies 350

The ratio of the sample to the total number of original samples 46.79%

Besides, data to measure financial performance are obtained from the FiinPro Platform. However, to
maintain the consistency of the data and the research objectives, methods, and models outlined below,
we have established some exclusion criteria as follows: (1) Firms in the finance, banking, and insurance
industries because of their distinctive characteristics; (2) Firms lack full-set of Annual Reports from
2016-2022; (3) Firms with incomplete or discontinuous financial data during the surveyed period; (4)
Firms lack full-set of Environmental Impact Assessment or Sustainability Report over the span of 7
years from 2016. As a result, there are 350 remaining companies in 15 industries with a total of 2450
samples.

There are 350 firms in our study, covering 15 industries. The specific industry distribution is shown in
Table 2.

Table 2. Classification of industries to which the full sample belongs.

Category Quantity Proportion

Retail 8 2,29%

Real Estate 38 10,86%

Telecommunications 10 2,86%

Oil & Gas 35 10%

Travel & Leisure 11 3,14%

Industrial Goods & Services 56 16%

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 Personal & Household Goods 17 4,86%

Chemicals 25 7,14%

Automobiles & Parts 6 1,71%

Basic Resources 32 9,14%

Food & Beverage 32 9,14%

Media 3 0,86%

Construction & Materials 64 18,29%

Health Care 13 3,71%

3.2. Empirical Models and Variables Definition

3.2.1. Empirical Models
Firstly, we focus on the effects of carbon disclosure on corporate financial performance (H1) and also
the effect of carbon disclosure change on financial performance (H2) . To test these linkage, the
following regression models are established:

FP = α1 + β1×CCDt + β2×AUDITt + β3×FSt + β4×LEVt + β5×CRt + ϵ (1)

FP = α1 + β1×CCDCt + β2×AUDITt + β3×FSt + β4×LEVt + β5×CRt + ϵ (2)

Among them, Model 1 is used to investigate the impact of carbon disclosure on financial performance in
the current period. where FP is Financial performance, CCD is Corporate carbon disclosure, FS is Firm
Size, LEV is Debt to asset, and CR is Current ratio; β1, β2, β3, β4, and β5 respectively represent the
direct effect of corporate carbon disclosure, audit, firm size, leverage and current ratio on financial
performance, α1 is the intercept, and ϵ is the error term. And model 2 is used to study the impact of
carbon disclosure change on financial performance.

9
Secondly, we test our third hypothesis (H3) referring to the impact of government regulations on the
relationship between corporate carbon disclosure and financial performance. We also employ OLSs
(ordinary least square) to design the model:

FP = α2 + β1×CCDt + β2×GRt + β3×(CCDt×GRt) + β4×AUDITt + β5×FSt + β6×LEVt + β7×CRt + ϵ

where FP is Financial performance, CCD is Corporate carbon disclosure, FS is Firm size, LEV is Debt
to asset, and CR is Current ratio; β1, β2, β4, β5, β6, and β7 respectively represent the direct effect of
corporate carbon disclosure, government regulations, audit, firm size, leverage and current ratio on
financial performance, β3 represents the interaction effect between corporate carbon disclosure and
government regulations (moderation effect), α2 is the intercept, and ϵ2 is the error term.
3.2.2. Variables Definitions
Table 3 presents the definitions and detailed calculations for each variable identified in our models as
discussed in the Empirical Models section above.

Table 3. Definitions of the variables in regression models

Independent variables

1 CCD Corporate carbon disclosure

2 CCDC Corporate carbon disclosure change - Year-on-year change in

corporate carbon disclosure score

Dependent variables

3 ROA Return on assets - Net income divided by total assets

4 Tobin’s Q Market value of a company divided by its total assets

Firm-level moderating variables

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 5 GR Government Regulations

Firm-level controlling variables

Audit - A dummy variable, taking the value of 1 if the company was

6 AUDIT audited by the big four audit firms, including Deloitte, PwC, EY; and
0 otherwise

7 SIZE Company size - Natural logarithm of total assets

8 LEV Debt to assets - Total debt divided by total equity

Current Ratio - Short-term liquidity measure indicating a company's

9 CR
ability to pay its current debts using its readily convertible assets.

Independent Variable: Corporate Carbon Disclosure

Since the focus of the study is carbon, we base on the Environmental Impact Assessment and
Sustainability Report of each company in each annual report over the years to measure the level of
carbon disclosure. Previous studies used binary variables to account for the disclosure (Liu, Ouyang and
Miao, 2010; Zéghal and Maaloul, 2010) while other measures were extracted from the Bloomberg
database, including the one done by Yu et al (2020). In the current study, we have established a new set
of criteria based on the CDP Climate Change 2023 Questionnaire. We selectively included 15 questions
that are suitable for the information the Vietnamese government requires to include in the Environmental
Impact Assessment and Sustainability Report. If the assessment or report discloses the information
relevant to the criteria, we count it as 1 point. If not, we count it as 0 points. In the total 15 questions,
there are 3 questions that include 2 points if there is any quantitative data disclosed.

The set of questions is shown below:

Disclose
Not
Questions Disclose quantitative
disclose
data

1. Is there board-level oversight of climate-related issues 0 1

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 within the organization?

2. Does the organization have a process for identifying,

assessing, and responding to climate-related risks and 0 1
opportunities?

3. Has the organization identified any climate-related

0 1
risks/opportunities?

4. Does the organization identify spending/revenue for

0 1
climate-related issues?

5. Did the organization initiate any campaigns or

activities aimed at reducing emissions or preserving 0 1
the environment?

6. Does the organization disclose its GHG emissions?

0 1 2
(CO2, NO2, CH4,...)

7. Did the organization have any other climate-related

0 1 2
targets/plans within the reporting year?

8. Did the organization have emissions reduction within

0 1 2
the reporting year?

9. Has the organization used any standard, protocol, or

methodology to collect activity data and calculate 0 1
emissions?

10. Has the company calculated Scope 1/ Scope 2

0 1
emissions in metric tons of CO2?

11. Does the company measure scope 3 emissions? 0 1

12. Does the company provide any additional 0 1

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 climate-related metrics relevant to their business
(Waste, energy use, land use, others…)?

13. Does the organization report its energy consumption

0 1
totals in MWh/KWh?

14. Does the organization provide employees with

0 1
training about low-carbon/climate-related issues?

15. Does the organization engage with its value chain on

0 1
climate-related issues?

Dependent Variable: Financial Performance Indicators

Essentially to calculate corporate financial performance in research studies, there are two main types of
measurements employed: accounting - based measures and market - based measures. Accounting
measures are used to assess performance in the short term with regard to firms’ initiatives to reduce
costs (Peloza, 2009). Meanwhile, market-based measures” evaluate investors’ assessments of the
long-term profitability of a firm in the context of “its current or recent management practices” (King &
Lenox, 2002). According to Orlitzky et al., (2003), accounting performance has relatively stronger
explanatory power than stock market performance. However, to test the relationships between
environmental performance, carbon disclosure and financial performance, numerous indicators
belonging to both accounting and market based types as well as other indicators aiming at different users
to assess financial performance have been used as proxies. In terms of accounting - based measure,
Brzobohaty and Jansky (2010) used revenues/ total assets to represent financial performance, Ganda and
Milondzo (2018) used other three ROE, ROI and ROS; Lemma et al (2019) took cost of capital as
proxies for financial consequences of carbon disclosure quality. In terms of market - based indicators,
Matsumura et al. (2013) used market value of equity; Griffin et al.(2017) measured stock price and
Krishnamurti and Velayutham (2018) used stock price volatility and stock market liquidity to assess the
financial consequences of disclosing carbon information. According to Delmas et al., (2015), there are
restricted studies taking both accounting and market based - measures to evaluate the relationship
between carbon disclosure and financial performance. (Okafor, Adeleye and Adusei, 2021) stated that

13
studies only using accounting metrics to measure financial status of firms are likely to be subject to
management’s manipulation.

Therefore, in this study, we use 2 indicators from the two measurement types as proxies for corporate
financial performance: ROA and Tobin’s Q. ROA is a standard accounting measure, recognized by
scholars all over the world, which is calculated by dividing earnings before interest by total assets (King
& Lenox, 2002). This indicator will not be affected by the company’s extraordinary events, and has the
characteristics of being objective, universal, and easy to obtain (Lu, Zhu and Zhang, 2021). Hence, the
firm financial status can be represented at an overall level by this indicator. The market - based
measurement indicator we use in the study is Tobin’s Q. This indicator is defined as the Market
capitalization of a company divided by its assets. Representing the market value of firms, Tobin’s Q will
be able to reflect intangible attributes, which are not captured by an accounting-based measure like ROA
(Delmas, 2015). At the same time, Tobin’s Q reflects how market participants view a firm as
competitive in the business environment; it can be more directly affected by stakeholders and investors
after they consider carbon information disclosed in the firm's annual reports. (Lu, Zhu and Zhang, 2021)
used ROA as a proxy for financial performance and found out that carbon disclosure has contributed to
improvement of returns on assets of companies in carbon - non - intensive industries. Meanwhile,
(Siddique et al., 2021) used both ROA as an indicator to short term financial performance and Tobin’s Q
indicating long term financial status and found that carbon disclosure negatively (positively) affects
financial performance in the short-term (long-term).

Moderating Variable: Government Regulation

Previous studies have examined the effects of government regulations and pointed out that strict
environmental regulations can force firms to take responsible initiatives such as actively participating in
environmental practices and investing in green innovations (Berrone et al. 2013). If enterprises follow
this force, it will help firms establish good images and contribute to competitive advantage and financial
performance. On the contrary, if enterprises do not take the initiative to bear the environmental
responsibility and give rise to potential serious pollution accidents, they may face financing disapproval
from government supervisors since the latter is paying great attention to environmental problems, which
will impede enterprise development and decrease financial performance. (Li et al., 2017).

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On the other hand, Government Regulations not only reflect the environmental transparency of local
governments but also reflect the government’s responsibility for environmental issues. Not only that,
government regulations also have requirements about the kind of information that needs to be included
in the Environmental Impact Assessment and Sustainability Report in the annual report of each
company. As a result, we also choose Government Regulations as a moderating variable. To measure
this variable, we searched for the laws and policies introduced and imposed each year for all companies
and industries. Each law and policy got 1 point. Then, based on the research of Wu and Li (2023), the
natural logarithm of the number of laws and policies applied for and granted to the enterprise plus one is
employed to calculate the final value of this variable.

4. Results and Discussion

4.1. Descriptive Statistics and Correlation Matrix
Table 4 represents the minimum, maximum, average and standard deviation of all variables measured in
the study in the full sample of 2,450. The minimum CDP is 0 showing that there are firms that do not
disclose or disclose in a way that does not satisfy the criteria set in our study. The maximum value of
CDP is 1.2, the average value is 0.7318 and standard deviation is 0.7968, indicating that quality of
carbon disclosure in the sample varies among companies.

Regarding the two variables measuring corporate financial performance, Tobin’s Q has a larger
difference than ROA with standard deviation of 0.7968 and 0.0797 respectively. The minimum ROA is
-0.6246 showing that there is business in the sample that does use its assets efficiently and not make a
profit. The value of Tobin’s Q varies from 0.0156 to 10.6139, indicating that all firms in the sample are
profitable. The contradiction in values of ROA and Tobin’s Q results from the book value of ROA and
the expected value of business measured by Tobin’s Q. Change in CDP has large variation from -0.6667
to 0.6 with mean of 0.0158 showing that CDP has the tendency of rising throughout the years. The
average value of government regulations is 4.1943, and the standard deviation is 0.6462, indicating that
there is a significant difference in the sample of government regulations. SIZE variable and Current
Ratio have significant standard deviations of 1.5067 and 3.3743. This could be explained by the fact
that firms in the sample come from all industries with many sizes and asset productivity.

Table 4. Descriptive statistical analysis of model variables

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 Standard
Observations Mean Minimum Maximum
Deviation

ROA 2450 0.0646 0.0797 -0.6246 0.8122

TOBIN’S Q 2450 0.7318 0.7968 0.0156 10.6139
CCD 2450 0.5115 0.2185 0.0000 1.2000
CCDC 2450 0.0158 0.0938 -0.6667 0.6
GR 2450 4.1943 0.6462 2.9444 4.9272
AUDIT 2450 0.3510 0.4774 0.0000 1.0000
SIZE 2450 27.8538 1.5067 23.4861 33.9896
LEV 2450 0.2201 0.1775 0.0000 0.8000
CR 2450 2.5430 3.3743 0.0000 45.3900

The Pearson correlation matrix, presented in Table 5, reveals generally weak but statistically significant
relationships between most variables, with the exception of the relationship between debt to asset ratio
(LEV) and ROA, LEV and Tobin’s Q. Notably, a positive correlation exists between ROA and CDP1(r
(2450) = 0.1605, p < 0.005) suggesting that higher carbon disclosure scores are associated with slightly
improved return on assets. Similarly, a significant but weak correlation between CDP1 and Tobin's Q (r
(2450) = 0.1382, p < 0.005) hints at a potential link between enhanced transparency on carbon-related
practices and higher market valuations. These initial observations warrant further investigation through
regression analysis to identify the direction and magnitude of these relationships while controlling for
potential confounding variables.In addition, moderate negative correlations (-0.3155 and -0.3401) exist
between the debt-to-asset ratio (LEV) and both ROA and Tobin's Q. This suggests that higher financial
leverage is associated with lower financial performance and market valuations.

Table 5. Correlation analysis between Carbon Disclosure Project and Financial Performance

ROA Tobin’s Q CCD GR FOWN AUDIT SIZE LEV CR

ROA 1.0000

Tobin’s Q 0.5048* 1.0000

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CCD 0.1605* 0.1382* 1.0000

GR -0.0685* -0.0350 0.1554* 1.0000

AUDIT 0.0594* 0.1264* 0.2737* 0.0136 1.0000

SIZE -0.0530* 0.0010 0.2098* 0.0870* 0.3840* 1.0000

LEV -0.3155* -0.3401* -0.0531* -0.0380 -0.0074 0.2959* 1.0000

CR 0.1026* 0.1887* -0.0759* -0.0090 -0.0769* -0.1415* -0.3363* 1.0000

CCDC 0.0461* -0.0120* -0.2001* -0.0536* 0.0308* 0.0483* 0.0134 0.0030 1.0000

Note: * indicate that the two variables are significantly correlated at 5%.

4.2. Regression results

4.2.1. The effects of carbon disclosure on financial performance
To find the most suitable regression model, we conducted four regression models simultaneously
consisting of pooled ordinary least squares (Pool OLS), fixed effect model (FEM), random effect model
(REM), and Generalized least squares (GLS). Then, we implement the Hausman test, Breusch and
Pagan Lagrangian multiplier (LM) and the Gauss - Markov theorem and give the results that GLS is the
most suitable model to assess this relationship. Table 6 reports the regression results from the four
models for the effects of carbon disclosure on ROA and Tobin’s Q as proxies for corporate financial
performance. The empirical results in Table support Hypothesis 1, suggesting that firms disclosing more
carbon-related information can gain more profits from their assets and have better market performance
as carbon disclosure has significant positive impacts on both ROA and Tobin’s Q at 1%. Specifically,
coefficient of Tobin’s Q is higher than coefficient of ROA, 0.116 compared to 0.0562 at p-value < 0.01,
indicating that carbon disclosure has greater effects on Tobin’s Q as a proxy for firm’s value expected by
market participants rather than the actual accounting performance.

The results consolidate cost - benefits framework and information asymmetry theory and prove that
investors take the carbon disclosure practices of the firm positively and consider them as criteria while
investigating and investing into firms. Firms with better carbon performance can signal investors about

17
 their outstanding performance and simultaneously reduce information asymmetry for their stakeholders
by disclosing more and more about environmental information. Hence, based on extra information
revealed, investors would perceive firms as potentially profitable and invest more, leading to increasing
profits outweighing extra cost of disclosure and value shown by indicators such as ROA and Tobin’s Q.
The greater effects on Tobin’s Q can be explained by the fact that Tobin’s Q as a marketing - based
measurement including intangible assets and investors’ long-term perceptions about the sustainability of
firms (Dowell, Hart, & Yeung, 2000; Konar & Cohen, 2001), which is more likely and more directly
affected by investors viewing disclosure from companies. The positive effect on firm’s returns on assets
in this study aligns with results of literature Lu et al., (2021) about effects of carbon disclosure on ROA
of the Fortune 500 companies in the non-carbon-intensive industries and also coordinates with Alsaifi et
al., (2019) testing top 350 firms in the UK. The finding of positive effects on Tobin’s Q is consistent
with that of Siddique et al. (2021) testing this relation among The Financial Times Global 500.

Regarding the control variables, Audit and Current Ratio have significantly positive effects on a
company's financial performance, whilst LEV is negatively related to ROA and Tobin-q. The firm size
variable has contradicting impacts on Tobin-q, which consist of both positive and negative impact.
Notably, the coefficient of firm’s audited by Big4 is significantly positive, suggesting that firms in the
listed 350 companies audited by Big4 are more likely to disclose carbon performance and Big4 plays
vital role in the correlation between carbon disclosure performance of a company to its financial
performance at the 10% level of statistical significance. In all four models, firm’s leverage is both
significantly and negatively correlated with firm’s financial performance at 10% of p-value. It could be
explained that firms with higher leverage have a predisposition to disclose less carbon performance than
those with lower leverage. The current ratio is negatively associated with ROA and positively related at
1% and 10% level of significance on Tobin-q, with 0.0246 and 0.0144 respectively in the level of 10%
significance.

Table 6. The effects of carbon disclosure on financial performance

POOLED OLS FEM REM GLS VIF

ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q

18
CCD 0.051*** 0.344*** 0.0484*** 0.124 0.0492*** 0.113 0.0562*** 0.116*** 1.11 1.11
(6.98) (4.79) (4.59) (1.45) (5.54) (1.44) (14.71) (3.39)

Audit 0.00317 0.141*** 0.00919 0.0255 0.00586 0.0983* 0.0119*** 0.0981*** 1.25 1.25
(0.90) (4.05) (1.36) (0.46) (1.16) (2.12) (5.48) (5.03)

FS 0.000120 0.0302*** 0.00194 -0.297*** -0.000285 -0.0811*** 0.000113 -0.00283 1.34 1.34
(0.10) (2.65) (0.49) (-9.24) (-0.01) (-4.06) (0.15) (-0.41)

LEV -0.137*** -1.420*** -0.119*** -0.447*** -0.127*** -0.828*** -0.0962*** -0.785*** 1.26 1.26
(-14.30) (-15.12) (-8.03) (-3.70) (-10.47) (-7.66) (-19.63) (-18.04)

CR 0.000297 0.0246*** -0.00104 0.00843 -0.000634 0.00941* -0.0000787 0.0144*** 1.14 1.14
(0.54) (5.22) (-1.90) (1.88) (-1.27) (2.18) (-0.25) (5.50)

Const 0.0634** -0.0853 0.0115 9.021*** 0.0677 3.058*** 0.0425** 0.691***

(2.04) (-0.28) (0.11) (10.30) (1.24) (5.65) (2.04) (3.71)

R-square 0.121 0.151 0.110 0.061 0.119 0.084 0.121 0.151

Note: *, **, *** indicate that the two variables are significant at the 10%, 5% and 1%, respectively.

4.2.2. The effects of changes in carbon disclosure on financial performance

Table 7 demonstrates the effects of changes in CDP on ROA as a proxy of financial performance. The
results from all 4 models show that the coefficients of CDPC are positive at levels of significance of 5%
and 1%. This finding provides additional evidence for the positive relationship between carbon
disclosure and financial performance and valiades hypothesis 2 indicating that firms with larger changes
in carbon disclosure in their annual reports experience greater returns on assets, achieving better
financial performance.

Table 7. The effects of changes in carbon disclosure on financial performance

ROA

POOLED OLS FEM REM GLS VIF

CCDC 0.0407** 0.0502*** 0.0489*** 0.0322*** 1.00

(2.50) (4.32) (4.23) (7.49)

19
AUDIT 0.00787** 0.00681 0.00683 0.0150*** 1.20
(2.25) (1.01) (1.34) (6.96)

FS 0.00116 0.00622 0.00201 0.00106 1.31

(1.00) (1.63) (1.00) (1.39)

LEV -0.145*** -0.127*** -0.134*** -0.100*** 1.24

(-15.10) (-8.64) (-11.07) (-20.12)

CR 0.0000207 -0.00114** -0.000782 0.0440** 1.14

(0.04) (-2.08) (-1.56) (-0.77)

Cons 0.061* -0.081 0.037 0.044**

(1.93) (-0.77) (0.67) (2.12))

R-square 0.106 0.088 0.104 0.106

Note :*, **, *** indicate that the two variables are significantly correlated at the 10%, 5% and 1%, respectively

4.2.3. The moderating effects of government regulations on the relationship between carbon
disclosure and financial performance
Table 8 reports regression analysis of moderating effects of government regulations on the relationship
between carbon disclosure and two financial performance indicators, ROA and Tobin’s Q. The
interaction coefficients between CDP and GR in all four regression models tested are negative and
significant. Thus, hypothesis 3 is valid, indicating that government regulations have a negative
moderating effect on the relation between carbon disclosure and financial performance. Under many
stronger environment and disclosure related regulations, firms gain fewer profits and value from
disclosing their carbon information.

This finding contradicts results of literature Li et al., (2017) which revealed positive moderating effects
of government regulations on the relation between carbon disclosure and financial performance.
According to Li et al., (2017) “if corporate environmentally responsible behaviors are supported by the
government, firms may have a stronger awareness that the return on the environmental investment is
clear, thus pay more attention to environmental projects to meet the requirements of regulations and
even make profit” in case of Chinese regulations and economy. Although more laws of both mandatory

20
 and voluntary environmental behaviors, fines on polluting practices, especially more guidance on
sustainability disclosure including carbon disclosure from the government likely make carbon disclosure
in annual reports become more reliable and rather easily assessed, they require firms pay extra cost for
their carbon performance and disclosing practice to meet the higher criteria of disclosing. Hence, with
better disclosure quality but under more stringent regulations, firms still achieve more profits and value
but at lower amounts.

Table 8. The moderating effects of government regulations on the relationship between carbon disclosure and financial
performance (a)

POOLED OLS FEM REM GLS

ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q

CCD 0.128*** 1.342*** 0.137*** 1.111*** 0.136*** 1.128*** 0.100*** 0.551***

(2.94) (3.13) (4.33) (4.23) (4.35) (4.27) (5.63) (3.46)

GR -0.00459 0.0288 -0.0109*** 0.131*** -0.00615 0.0647* -0.00276 -0.0168

(-0.82) (0.52) (-2.67) (3.84) (-1.55) (1.92) (-1.23) (-0.85)

CCDxGR -0.0171* -0.231* -0.0152** -0.243*** -0.0165** -0.230*** -0.00978** -0.0951*

(-1.66) (-2.28) (-2.10) (-4.04) (-2.28) (-3.76) (-2.32) (-2.52)

AUDIT 0.00216 0.135*** 0.00754 0.0347 0.00319 0.0934* 0.00943*** 0.103***

(0.61) (3.89) (1.14) (0.63) (0.63) (2.02) (4.28) (5.42)

FS 0.000722 0.0345*** 0.0218*** -0.311*** 0.00402* -0.0631*** 0.00620 0.00450

(0.62) (3.03) (5.00) (-8.57) (1.94) (-3.04) (0.78) (0.67)

LEV -0.139*** -1.434*** -0.152*** -0.422*** -0.139*** -0.874*** -0.0949*** -0.828***

(-14.63) (-15.30) (-10.24) (-3.41) (-11.53) (-8.04) (-18.58) (-19.14)

CR 0.000283 0.0245*** -0.00130** 0.00894* -0.000703 0.00936 -0.0000969 0.0143***

(0.59) (5.23) (-2.41) (2.00) (-1.43) (2.18) (-0.31) (5.66)

Cons 0.0646* -0.331 -0.500*** 8.866*** -0.0239 2.275*** 0.0392* 0.553***

(1.68) (-0.87) (-4.29) (9.14) (-0.42) (4.05) (1.71) (2.87)

21
R-square 0.133 0.157 0.052 0.006 0.124 0.105 0.133 0.157

Note: *, **, *** indicate that the two variables are significantly correlated at the 10%, 5% and 1%, respectively.

4.4. Endogeneity Treatment

Recognition of endogeneity issues has increased noticeably over the last decade, along with the use of
econometric techniques targeting these issues (Roberts and Whited, 2013). Shaver (2019), Wolfolds &
Siegel (2019) have pointed out that if addressing endogeneity is only seen as tangential, it becomes
harder to accumulate knowledge with multiple studies as is advocated. Therefore, Hill et al. (2020) and
his colleagues argued that addressing endogeneity must be seen as a meaningful part of the main
research design and analysis. Generally, endogeneity appears because the independent variable
correlates with the error term while factors that influence the dependent variable are not included in the
regression function, which causes bias in the estimation of the coefficient (Hill et al., 2020). Meanwhile,
Wooldridge (2011) calls addressing error terms the most important component of any analysis because it
contains myriad unobservable factors that can affect the dependent variable. However, the difficulty in
capturing and defining this relationship is that understanding the error term is inherently a theoretical
exercise since it is defined by all the information not captured by the independent variable.

In the study investigating methods to deal with endogeneity, Roberts and Whited (2013) pointed out that
techniques can be broadly classified into two categories. The first category includes techniques relying
on a clear source of exogenous variation for identifying the coefficients of interest. The second category
includes techniques that rely more heavily on modeling assumptions. Besides, the use of lagged
dependent variables and lagged endogenous variables has become widespread in corporate finance
(Flannery and Rangan, 2006; Huang and Ritter, 2009; Iliev and Welch, 2010). As a result, we decided to
employ the Lagged Instrumental Variables (LIV) method, a method that uses prior period data while
applying the instrumental variables method. On the other hand, using deeper lags increases the
likelihood that the instrumental variable is unrelated to the residual in the outcome variable but likely
also decreases the strength of the relationship to the endogenous variable (Hill et al., 2020). Therefore,
in the study, we decided to use the lag of 1 year. In terms of models, we employ the generalized method
of moments (GMM).

22
Published papers often present endogeneity as an issue that is important enough to be addressed as a
methodological concern, but once addressed, the results tend to remain unchanged (Hill et al., 2020). In
this case, it also follows the same trend. The result after applying GMM model and lagged instrumental
variables also shows significant positive impacts on both ROA and Tobin’s Q at 1%, suggesting that the
more carbon-related information is disclosed, the more profits and the better market performance firms
can gain. Furthermore, corporate carbon disclosure also has a stronger impact on Tobin’s Q than ROA
(with coefficients of Tobin’s Q and ROA are 0.246 and 0.112 at p-value < 0.01, respectively).

The second system of the generalized method of moments (GMM) is adopted to investigate the effect of
government regulations as the moderating role impacting the relationship between corporate carbon
disclosure and firms’ financial performance. Following Table 9, the interaction between CDP and GR is
negative and significant, indicating that H3 is still valid even when testing on the lagged data. The
negative coefficient proves that government regulations have a negative moderating impact on the
relationship between carbon disclosure and financial performance. Besides, with the increase in the
L.CDP, it also records the same trend as above, in which government regulations have a negative impact
but the relation between carbon disclosure and financial performance is strengthened.

This finding is equivalent to what has been stated when employing POOLED OLS, FEM, REM, and
GLS, indicating that if there is endogeneity happens, the effects of corporate carbon on financial
performance as well as the effects of government regulations on the relationship of corporate carbon
disclosure and financial performance will remain the same.

Table 9. The effect of corporate carbon disclosure on financial performance and the moderating effect of
government regulations on the relationship between corporate carbon disclosure and financial performance -
GMM model

H1 H3

ROA TOBIN-Q ROA TOBIN-Q

L.CCD 0.112*** 0.607*** 0.901*** 2.182***

(3.68) (5.32) (2.70) (2.89)

GR -0.116** -0.215*

23
 (-2.30) (-1.95)

L.CCDxGR -0.203*** -0.466***

(-2.64) (-2.67)

Audit -0.101** 0.309*** -0.085 0.203

(-2.32) (3.62) (-1.44) (0.87)

FS 0.0123** -0.326*** 0.028* -0.029

(2.22) (-5.96) (1.66) (-0.50)

LEV -0.184*** -0.654*** -0.143* -1.593***

(-3.79) (-4.40) (-1.69) (-6.86)

CR -0.00352 0.010*** 0.009 0.051**

(-0.49) (2.78) (0.88) (0.014)

Cons -0.251* 9.470*** -1.210** 0.821*

(-1.71) (6.45) (-2.50) (0.52)

AR(2) 0.111 0.319 0.780 0.052

Hansen 0.404 0.000 0.110 0.000

N 2100 2100 2100 2100

Note: *, **, *** indicate that the two variables are significantly correlated at the 10%, 5% and 1%, respectively

4.5. Robustness Test

In this paper, to test the robustness of the model, we employ an additional set of standards closely
aligned with our carbon disclosure metrics. This set of criteria comprises ten evaluative measures
specifically designed to assess environmental disclosure, with a particular emphasis on carbon
disclosure. For each criteria verified, a point is granted, and the cumulative points are then divided by
ten. Table 10 shows the result of the robustness test for H1 and H3, respectively. In conclusion, when
this set of criteria is employed as an alternative method for assessing the impact of carbon disclosure on
financial performance, the outcomes of the analysis for all the key variables in this model, as presented
in this article, remain valid.

24
 Table 10. Robustness regression results

H1 H2 H3

ROA TOBIN-Q ROA TOBIN-Q ROA TOBIN-Q

CCD 0.010** 0.06*** 0.013** 0.169*** 0.000** 0.060**

(2.18) (1.45) (2.29) (3.28) (0.18) (1.24)

GR -0.013*** -0.079***
(-11.30) (-7.23)

CDPxGR -0.012*** -0.02***

(-14.04) (3.54)

Audit 0.016*** 0.106*** 0.016*** 0.106*** 0.009*** 0.010***

(7.44) (5.50) (7.50) (5.47) (4.43) (5.41)

FS 0.000 0.001 0.001 -0.000 0.000 0.006

(1.24) (0.22) (1.08) (-0.05) (1.22) (1.02)

LEV -0.102*** -0.81*** -0.102*** -0.803*** -0.099*** -0.833***

(-20.63) (-18.79) (-0.97) (-18.65) (-19.54) (-19.31)

CR -0.003 0.014*** -0.003 0.014*** -0.000 0.014***

(-0.95) (5.40) (-0.97) (5.39) (-0.88) (5.63)

Const 0.050** 0.642*** 0.052** 0.678*** 0.799*** 0.760***

(2.39) (3.53) (2.52) (3.67) (3.82) (4.26)

R-square 0.104 0.143 0.104 0.144 0.130 0.155

Note: *, **, *** indicate that the two variables are significantly correlated at the 10%, 5% and 1%

5. Conclusion
Our study focuses on investigating the relationship between firm carbon disclosure and financial
performance of listed companies on the Vietnamese stock markets from 2016 to 2022. We established a
new set of criteria based on the CDP Climate Change 2023 Questionnaire, in adaptation to Vietnamese
context to measure the firms’ carbon disclosure scores to compute firms' carbon disclosures. We also

25
adopt both accounting-based (ROA) and market-based (Tobin’s Q) as proxies to assess corporate
financial performance. The findings indicate that higher levels of carbon disclosure are associated with
better financial performance, as measured by both ROA and Tobin’s Q. The finding aligns with previous
studies conducted in other nations and supports the notion that transparent carbon disclosures can
enhance firms’ images on investors, the public and the government, thus leading to improved financial
outcome.

Additionally, the study also explores the role of government regulations in moderating the effects of
corporate carbon disclosure on firm value. In line with prior studies, and based on the empirical results,
our research implies that under more stringent regulations, firms still achieve more profits and value but
at lower amounts. As more mandatory regulations related to environment being applied, including fines
on polluting practices, or strict guidance on sustainability disclosure including carbon disclosure from
the government likely make carbon disclosure in annual reports become more reliable and rather easily
assessed, they require firms pay extra cost for their carbon performance and disclosing practice to meet
the higher criteria of disclosing. The results of both findings hold true after addressing endogeneity and
using alternative carbon disclosure metrics.

Therefore, our findings have implications on a large and comprehensive scale of firms in Vietnam. Our
research has several actionable advice forVietnamese companies to manage carbon disclosures and the
government for more effective regulations. First, to incentivize comprehensive and transparent
reporting, policymakers could consider implementing penalties for non-disclosure and low-quality
corporate sustainability disclosures. Such measures are crucial for enabling investors to accurately
assess the investment potential of firms based on their environmental and social practices, as
distinguished by high-quality and low-quality disclosure standards. Second, Vietnamese authorities
should synchronously and comprehensively conduct a comprehensive study and soon issue specific
guidelines on how to implement greenhouse gas (GHG) inventory activities and develop a carbon
market in accordance with the roadmap in Decree No. 06/2022/ND-CP, as the uniform framework with
adjustment tailored to some special categories. Third, it is advisable that the government should
coordinate with relevant agencies and ministries to urgently review and issue legal regulations on
guidance for measuring, reporting, and verifying (MRV) and implementing facility-level inventories for
2022 facilities in 2023 for the following sectors: industry and trade, construction, transportation, etc.

26
Coordinate with relevant ministries and agencies to soon issue a list of low-carbon technologies;
emission standards for each sector and product. Fourth, given the negative impacts of government
regulations on financial performance in terms of extra cost for their carbon performance and disclosing
practice to meet the higher criteria of disclosing, the government should promulgate regulations and
policies that can actively support corporations to disclose carbon economically by building mechanisms
and policies to encourage businesses to switch to using green technologies, reduce emissions, and
renewable energy. At the same time, the government can develop some regulations to recognize firms
that strictly adhere to the carbon disclosure practices including direct incentives (tax breaks, grant and
subsidies), green labeling and certifications or awards.

Our study is still subjected to certain limitations. The data is collected from HOSE and HNX, while
Vietnam has more than two stock exchanges, such as Upcom and OTC. As a result, the data utilized in
our research could not completely reflect the big picture of the Vietnamese financial market and
economy in general. Moreover, we also exclude firms with characteristics such as: firms in special
industries (finance, insurance) and firms that lack full-set of Annual Report and Sustainability Report
over the span of 7 years from 2016, to maintain the consistency of the data and the research objectives,
methods, and models. As a result, the data utilized in
our research could not completely reflect the big picture of the Vietnamese carbon disclosure and
financial market in general. Future research endeavors could benefit from incorporating qualitative
methodologies, such as in-depth interviews conducted within enterprise settings. This would enable the
acquisition of nuanced data that complements existing quantitative findings and enriches the qualitative
research landscape.

27
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