1. Introduction
Today’s economy is an economy based on consumption, even excessive consumption, both among the population and at the level of companies. The immediate next result is an increase in waste. This reality is a worrying one because it affects people’s health, and not this alone. It is, therefore, necessary to act consciously and immediately to reduce the high volume of waste. The more that the accumulation of waste is reduced and waste is properly managed, the more the development of diseases and possible outbreaks of infections will be prevented, which will contribute to the health and well-being of people. The problem of efficient waste management is a concern at the level of company management forums because the topic of pollution and the effect of global warming on human health [
1] resonates worldwide. Being energy consumers and participants in pollution, companies must strengthen their environmental management and information disclosure policies [
2]. The Global Reporting Initiative through published standards supports companies to report their actions for sustainability. The GRI standards represent a sustainable performance reporting framework useful for any company as it provides multiple dimensions of environmental practices, being a good support for summarizing and scoring corporate environmental information disclosure [
2]. Aspects related to waste management are provided in the specific standard 300 concerning the environment. Subdivision 306 encourages companies to disclose information on the total volume of water it discharges by quality and destination, the total weight of hazardous and non-hazardous waste and the method of disposal, significant discharges, and their impact, the transportation of hazardous waste, and the water bodies and related habitats which are significantly affected by spills and/or a runoff [
3]. Waste management aims to minimize the impact on the environment and includes activities involving the prevention of waste generation [
4], recycling and reuse to ensure a circular economy, optimizing the disposal process, and monitoring waste management are of interest to society and stakeholders. Thus, companies can approach a pro-disclosure behavior to legitimize their operations, reduce information asymmetry and the cost of capital, and consequently achieve a better financial performance [
5]. For a good record and efficient waste management, it is important to identify the categories of waste generated by a company and hand them over to authorized collectors, for recycling, transport, treatment, or storage, as well as the monthly record and the annual reporting of the information on waste. In Romania, Government Emergency Order no. 92/2021 on the waste regime [
6] was published to align national legislation with Directive (EU) 2018/851 on waste [
7] to facilitate the transition to a circular economy. The regulation provides the framework for the sustainable management of materials to protect the environment, for human health, and for the rational and cautious use of resources. Certain categories of companies are required, following a waste audit, to draw up a plan/program to prevent and reduce the amount of waste and publish it on their websites. The companies that generate waste must keep a record of their management according to Government Decision no. 856/2002 regarding the record of waste management, the approval of the list containing the waste, including hazardous waste [
8], and the centralized data to be transmitted annually to the environmental authorities. Government Decision no. 1.061/2008 regarding the transport of hazardous and non-hazardous waste on Romanian territory [
9], Law no. 249/2015 regarding the method of managing packaging and packaging waste with subsequent transformations and additions [
10], and Law no. 194/2019 regarding the selective collection of waste [
11] are several other regulations with a practical incidence in Romania.
Anchored in the presented context, this study aims to track the impact of waste management information disclosure on several profitability and liquidity indicators of Romanian manufacturing listed companies for the years 2017 to 2021. Another goal was to check on the moderating effects. In this sense, three variables were picked out, an economic proxy, a governance item, and a regulatory issue. To achieve the research goals, the study employed the following questions:
Q1. Whether waste management information disclosure influence the financial performance of manufacturing listed companies?
Q2. If economic productivity, board size, and the environmental sensitivity status of the industry may have moderating effects on the relationship between waste management information disclosure behavior and financial performance measured by profitability and liquidity indicators?
The data and methodology used, the obtained results, and also a discussion are disclosed in this paper. To achieve coherence in the presentation, the paper is structured into six sections. After this first section, there is a short foray into the literature published on the topic, which culminated with the subsection dedicated to the research hypotheses. The third section presents the research methodology, the sample, and the supporting data of the performed tests. Further sections include the obtained results and discussion, and the last part presents the conclusions, limits, and implications of the study.
3. Materials and Methods
The paper aims to analyze how the waste management information disclosure behavior of manufacturing listed companies influences financial performance, with particular attention to the moderating effects. Twenty-eight Romanian manufacturing listed companies were examined, covering the period of 2017–2021. In the first stage of the selection process, all companies in the manufacturing industry listed on the BSE (Bucharest Stock Exchange) were included in the analysis. These were investigated according to the nature of their activities. In the second stage, the manufacturing companies whose CANE (Classification and Coding of Activities in the National Economy) classification code is registered in class two were included in the sample. Thus, the sampled companies are grouped into 21 categories according to their CANE classification code, as can be seen in
Table 1.
Data gathered included two categories: financial and non-financial information. All data were collected manually from the annual reports of companies. To collect information on companies’ size, we have analyzed and collected data on turnover and the number of employees. To measure financial performance, the following profitability indicators were selected: EPS (earnings per share), ROE (return on equity), ROA (return on assets), and liquidity indicators: SOL (solvability) and CR (current ration). As a control variable, LEV (leverage) was used as moderating the variables of productivity, board size, and the environmental-sensitive industry. Data on companies’ board size was also collected manually from the annual reports. From the environmental items, the present study focused on finding data on waste. The information was tracked by reading the non-financial statement/declaration included in the annual reports or, where such a report was not found in the content of the annual report, the information was gathered from reading other environmental information presented in the sustainability report of selected companies. Thus, using the scoring method, information disclosed on how the company is involved in the prevention of obtaining waste and how it manages the waste that cannot be avoided as a result of the manufacturing processes, but also of the operations that take place upstream and downstream of the production cycle [
12], were noted. To calculate a waste management information disclosure index on average (
WMnID), the following scores were assigned: 0 for no information disclosed; 1 for less and poor information; 2 in the case of satisfactory information being disclosed but not presented in detail; and 3 in the case of rich and detailed information being disclosed.
Table 2 present the variables and their description.
As mentioned previously, several studies support the existence of a positive influence between environmental information disclosure (EID) and financial performance (FP), as well as other studies demonstrate the opposite, while others argued that the connection is not relevant [
36,
37,
53]. Therefore, in this study, to capture the manufacturing listed companies’ financial performance, five proxies were used: ROA, ROE, EPS, SOL, and CR. The return on assets (ROA) was used to gauge the financial performance as a profitability indicator, while the current ratio (CR) was a liquidity indicator. The ROE, EPS, and SOL were used to implement robustness tests. We selected these indicators based on the fact that they are classical accounting-based indicators; ROA and ROE are frequently used to evaluate financial performance [
57].
As moderating variables in explaining the strength of the relationship between waste management information disclosure and financial performance, the potential influence of average annual productivity, board size, and the environmental-sensitive industry status have been tested. The awareness of environmental protection at the level of Romanian companies still registers a rather low level [
58]. The environmental behavior of the companies is largely determined by compliance needs with the environmental regulations and practices and is mostly influenced by financial aspects related to the costs involved. The same report, however, emphasizes that, in recent years, there have been positive signals from companies to improve the situation by identifying new ways to manage waste as efficiently as possible and introducing the mandatory internal auditing of waste management practices. By adopting environmental strategies, Romanian companies are more and more interested in improving environmental awareness. The industry has been suggested as a factor that affects environmental and financial performance [
33]. Heavily polluting companies are under more institutional pressures and must increase investments in environmental protection. Previous studies showed that industry differentiation moderates corporate social responsibility and financial performance [
59]. The classification of environmentally sensitive industries was made on those outlined by Wang et al. [
39] and is based on the existing green regulations in the field of environmental protection and the inclusion of the sampled companies in this category was made according to the CANE classification code. As it is well known, companies from high-polluting industries feel a constant pressure from society and regulatory institutions to increase investments in the field of environmental protection. At the same time, the industry is a factor that may affect both ESG disclosures and financial performance [
33,
59,
60]. Analyzing from the perspective of Romanian companies with over 500 employees, the implementation of circular economy principles, Hategan et al. [
61] confirmed the correlation between the non-financial reporting indicators and financial performance; the positive correlations between the non-financial reporting score, ROE, and ROA indicators have been demonstrated for the manufacturing industry. For these reasons, this study tested whether the environmentally sensitive industry status exhibits a moderating effect on waste information disclosure and financial performance. Moreover, several previous studies [
62,
63,
64,
65,
66,
67] have shown that the size and structure of the board of directors influence the financial performance of companies. So, another goal was to test whether the number of directors on the board exerts a moderating effect between waste management information disclosure and financial performance. Finally, the investigation focused on testing if the average productivity moderates the relationship between waste management information disclosure and financial performance. This reasoning started from the fact that when businesses disclose carbon aspects, they may tend to disclose more information related to financial performance, as economic benefits with low carbon emissions, as we found in the work of Yuan and Pan [
68]. This may lead to the improvement of the total factor of the enterprise productivity through high-quality monetary carbon information disclosure and the gain of a competitive market advantage [
68].
As control variables, the study used variables already confirmed as having an impact on financial performance [
23], financial leverage, firm size proxied by turnover and the average number of employees, and the quality of audit reports (Big4) [
31,
39]. Wang et al. [
39] mentioned that when compared to smaller businesses, larger ones have an easier time outperforming the competition due to their larger resource bases and competitive advantages [
69]. The public’s focus on large companies increases the pressure on these businesses to adopt EID and improve their financial performance. The number of employees and the turnover are measures of a company’s size. Leverage is a measure of a company’s exposure to financial risk and can sway the actions of those with a special interest in its success [
22]. Corporations may easily be brought down by monetary constraints. High levels of financial leverage increase a company’s risk of losing the market share, which can harm the company’s bottom line, growth prospects, and overall worth [
22,
39]. In the meantime, the quality of financial reporting and ESG disclosure influences financial performance, as shown in Aldamen et al. [
70], Farcane et al. [
71], and Wang et al. [
39]. This paper considered that the audit report prepared by one of the Big Four companies for the investigated companies can be the variable that indicates the quality of financial reporting. Therefore, a score of 1 was awarded if the company’s annual financial statements were audited by one of the Big Four and a score of 0 if they were audited by others.
Synthetically, the research framework is presented as follows (
Figure 2).
To capture the relationship between waste management information disclosure and a company’s financial performance, this work used initially, as a proxy, the return on assets (ROA) as a profitability indicator together with the current ratio (CR) as a liquidity indicator. Starting from the observation of Xia and Wang [
40], Yang et al. [
38], and Wang et al. [
39], to examine the impact of waste management information disclosure behavior on financial performance, the analysis started from the following model:
where
is the waste management information disclosure index, Size is company size proxied by the average number of employees or turnover, LEV is the financial leverage,
,
i = 1...3 are the parameters of the model,
are the coefficients of the dummy year variables, and
is the model residual.
Furthermore, a model was developed (1) capturing the moderating effect of the environmental-sensitive industry status, board size, and productivity on waste management information disclosure and financial performance:
where
is the waste management information disclosure index and
WMnID×envir_sensitive,
WMnID×BS, or
WMnID×PRD are the interaction terms capturing the moderating effect on the relationship between the waste information disclosure and financial performance,
,
i = 1…4 are the parameters of the model,
are the coefficients of the dummy year variables, and
is the model residual.
The study continued to test the multicollinearity, which considered the high degree of correlation between the independent variables that can distort the regression results, according to Pallant [
72]. Essential information about the presence of multicollinearity can be found in the correlation matrix and the variance inflationary factor (VIF). For the correct analysis of panel data in multiple regression, heteroskedasticity must be followed because, if not, this can lead to the invalidation of statistical results [
73,
74]. As a consequence, the Breusch and Pagan LM [
75] test was applied to detect the heteroskedasticity and normality of the residuals. Additionally, to eliminate the problem of correlated error items, the autocorrelation test was applied to the panel data to find serial or first-order autocorrelation. The correlation between the residuals and items, known as the cross-sectional dependence, was also examined with the help of the Breusch and Pagan test. After that, the Hausman test along with the redundant fixed effects LR test was used to determine whether the fixed or random effects model is appropriate for this study. Heteroskedasticity adjusted standard errors based on improving the standard errors of the estimators without changing the coefficient values which were used to treat cross-sectional heteroskedasticity, and the Durbin–Watson statistics were used to check for residual autocorrelation. Using an adjusted R2, RMSE and the standard error of the model, the goodness of fit of the models has been evaluated, while the validity of models has been checked with the Fisher test. The E-Views 12 software package was used to estimate the proposed econometric models. As a robustness test, the potential endogeneity was carefully treated as well as the alternative testing measures of a company’s financial performance. The two-stage least squares (2SLS) method was employed to address the endogeneity issue.
WMnID, with one lag period (
WMnID) which is used as an instrumental variable, was utilized to estimate the two-stage least squares model. It is generally accepted that a company’s financial performance in the current period would not be influenced by the lag WMnI, while the lag WMnI would affect the current period WMnI because the variable is classically considered as a variable with inertia [
39]. Additionally, Roberts [
76] suggested, as a robustness check and endogeneity approach, a time lag between measures of the explanatory factor (
WMnID) and financial performance (ROA, ROE, EPS, SOL, CR), which is necessary due to the dynamic characteristic of information disclosure and the fact that financial performance might relate primarily to the former information disclosure [
18]. The endogeneity problems were found not to be serious, based on the Hausman specification test, so the ordinary least squares (OLS) method was found to be more efficient than the instrumental variables method. Hence, initially, the study employed the return on assets (ROA) and current ratio (CR) as metrics for financial performance, and to test the robustness of the results, additional proxies were used, such as EPS, SOL, and ROE, since ROA and ROE are frequently employed to evaluate a company’s financial performance [
57].
4. Results
The descriptive analysis results presented in
Table 3 indicate that the average value of waste information disclosure for the total observations was 1.164, the average value showing that companies disclose less and poorer information on waste management, except for a few companies which present quantitatively more information. However, the quality of the waste disclosure index has decreased in 2019, registering a minimum value of (1.07), and then it begins to slowly increase, achieving a value of 1.25 at the end of 2021 (
Figure 3). The average value of a board size is 4.58, with a maximum value of 13 members, while the average number of employees is almost 515 individuals, and the financial leverage rate is −5.3%. Approximately 64.3% of companies belong to heavy pollution industries and only 28.6% of companies are audited by the Big Four (
Table 3).
All financial indicators exhibit large ranges, showing that there is a certain difference in the profitability of companies. From 2017 to 2021, solvability and earnings per share registered an upward trend, while the return of equity and return on assets showed an almost linear pattern, reaching a mean value of 0.023 (ROA) and 0.027 (ROE) (
Table 3). The ROA value ranges from −0.81 to 1.256, and the standard deviation is 0.162, indicating that there is a certain difference in the profitability of companies. This conclusion is maintained also for the other financial indicators such as ROE, SOL, CR, or EPS. This looks like companies have not achieved good results in terms of increasing profits and saving financial resources, and their performance is relatively poor (
Figure 4). The probability of Jarque–Bera test for assessing the normality of the distribution revealed that the data is not normally distributed and the probability of the statistical test is 0. Statistically, two numerical measures of shape—skewness and excess kurtosis—can be used to test for normality. If skewness is not close to zero, then the data set is not normally distributed. In this case, the data are characterized by asymmetry. The kurtosis value is far from the expected value of 3 and positive values indicated a “heavy-tailed” distribution.
The empirical results supported a positive and statistically significant connection between waste information disclosure and company size proxied by the average number of employees, supporting the literature aforementioned: that larger companies have more resources and bigger competitive advantages and more easily achieve a better performance [
69]. Pearson’s correlation coefficients are reported in
Table 4. Large companies attract more attention from the public, but also more pressure to implement environmental disclosure and achieve a better financial performance [
39]. Nonetheless, these outcomes only prove that the pairwise correlations and multiple regression analysis may generate different results. The particular high correlation coefficients of the turnover, productivity, and the number of employees reside in the fact that the productivity is computed based on these indicators, therefore we will use these indicators by turn to avoid multicollinearity.
The correlation matrix (
Table 4) also shows that the correlation coefficients between the independent, mediating, and control variables are much lower than the threshold of 0.60, pointing out that the multicollinearity problem is not serious [
23]. Additionally, the variance expansion factor of the basic model is less than 2 (
Table 5), showing that there is no multi-collinearity.
6. Conclusions
The core of the present empirical study is to track waste management information disclosure behavior related to financial performance and capture the moderating effects of three different variables. As far as we know, such a study that follows and analyzes the waste component within the framework of environmental information disclosure at the level of manufacturing private companies has not previously been carried out in Romania, however, works on environmental issues connected to corporate performance are continuously increasing from one period to another. Due to the multiple challenges and opportunities that the circular economy implies, it can be noticed that the present study adds value from the perspective of the examination, analysis, and results obtained on this niche of waste management information disclosure connected to financial performance. Hence, it was found that the average waste management information disclosure index is 1.164, which shows a poor disclosure score for the entire period, however, the waste disclosure index after reaching a minimum threshold in 2019, recorded an encouraging increase in the value of 1.25 at the end of 2021. The financial performance of the analyzed companies did not record significant changes over the period; the evolution of the analyzed indicators (the ROA, ROE, EPS, SOL, and CR) on average indicates a poor performance of the companies.
Applying the FEM, the results led us to the findings of a positive and statistically significant relationship only between the waste information disclosure and ROA, while for the CR, the connection has been disproved. This finding means that the influence of waste management information disclosure on financial performance must be stratified by investigating the impact of disclosure behavior on several categories of performance indicators. It also confirms the mixed results provided by previous studies and invites analysis in layers based on the influences exerted on the interests of different stakeholders and the impact on society. Pressures from the external environment of manufacturing companies as well as from internal governance policies determine the influence of WMnID on financial performance. For these reasons, in the second part of the study, the analysis focused on the moderation effects of two internal variables, productivity and size of the board of directors, and an external variable, the environmental-sensitive industry status. The results proved a statistically significant influence of all moderating variables for the profitability indicator ROA, while for the current liquidity (CR), no statistical significance was found. Thus, the findings showed that if the status of the environmental-sensitive industry is taken into account as a moderating variable, the higher the environmental sensitive score, the stronger the positive correlation between waste information disclosure and financial performance. However, when board size, as well as productivity, were considered as moderating variables, with the increase in the board size or in the productivity level, the negative impact of WMnID on profitability is deepened, while liquidity proved not to be significant. As for the alternative metrics of financial performance, results revealed that a higher degree of waste management information disclosure will increase the profitability (the ROE and EPS) of the companies, while in the case of liquidity, the results are not conclusive; in the case of SOL the influence is rather negative, meaning that a higher level of WMnID will generate a decrease in companies’ solvability. Regarding the moderating effects, 2SLS analysis led to the following conclusions: the environmental-sensitive industry status positively affects the ROA, ROE, and EPS, revealing that in these manufacturing companies, a higher WMnID leads to an increased profitability, while no statistical significance was found in the case of liquidity indicators; the influence of board size is significantly negative on profitability and positive on solvability, and the influence of economic productivity is negatively significant for profitability indicators as well as for solvability, but not relevant in the case of current liquidity.
Nowadays, manufacturing companies are prone to invest in measures that increase resource efficiency and in strategies to optimize the renewable resource flow, such as waste-diminishing actions. Under such circumstances, this work results can be harnessed and shed light on more opportunities to enhance and improve the waste management information disclosure behavior of manufacturing companies, considering the following implications of the study.
6.1. Theoretical Implications
The study offers and opens new research routes for all those interested in the process of valorization and the reuse of resources from the perspective of the impact it has on the performance of manufacturing companies. In a framework provided by the financial reporting theories, researchers and other interested parties may be interested in the results of this study to track issues such as information asymmetry or agency cost management, as well as signals sent to various stakeholders. Mapping the waste flow connected to economic and financial performance objectives may offer insights into other hot issues raised from the examination of companies’ disclosure behavior. The theoretical implications of the study are many and various, especially from the perspective of new avenues of research and even innovation.
6.2. Governance, Management, and other Practical Implications
From the perspective of the practical implications, the findings of the study invites companies to reflect upon: (a) other possibilities for the development of new efficient waste management tools to permanently follow the correlations with the relevant financial performance indicators; (b) different options to design a personalized waste flow that allows managers to control all upstream and downstream costs and includes all sub-processes of resource utilization with other related additional costs; (c) possibilities to develop new governance strategies that allow the implementation of an efficient circuit of renewable resources and support the recovery of residual materials and fight for the reduction in toxic waste with an unfavorable impact on the environment and society; (d) options for rethinking managerial compensations and bonuses as well as employee salaries depending on the contributions to improving the company’s green behavior; € solid reasons for avoiding impression management, “greenwashing”, behavior to manipulate the waste management information disclosure, eager to obtain financing sources with lower costs by deceiving creditors; (f) possibilities of reducing the risk of investment projects and increasing the confidence of investors and creditors by increasing the quality of the waste management information disclosure; (g) development possibilities of new specific analysis proxies for companies in sensitive industries that adequately reflect the impact of waste and recyclable materials inputs on performance indicators; and (h) the implementation of new technologies to connect waste management information disclosure behavior to corporate performance and allow accurate predictions.
6.3. Regulatory Consequences
The results of the study may also have implications on the waste management regulatory process for companies in sensitive industries through the development or improvement of existing local regulations on waste recycling and the monitoring of waste reduction behavior by specific institutions. Knowing the extremely high pressure of the external environment on the companies that generate waste to track and implement policies to reduce them and eliminate the toxicity of the residues obtained from the production process and the complementary activities, they should be supported and helped in their endeavor, not an easy one, to become increasingly smarter and greener companies.
The main limits of the study can be found in the small sample of analyzed companies and in measuring the average degree of the waste management information disclosure index. Assigning scores after reading the information from the annual reports of the companies depends on the degree of detail of waste management information, and, of course, the subjectivity of the one who gives the grades can be a vulnerable point of this research. As well, the choice of moderating variables can be considered another issue that raises different approaches and interpretations. Thus, further research projects will focus on broadening the sample of companies, identifying other variables to test different moderation effects, and using decision tree models to predict waste information disclosure behavior related to corporate performance.