EFFECTS OF ENVIRONMENTAL COSTS ON THE MARKET PERFORMANCE OF

LISTED OIL AND GAS COMPANIES IN NIGERIA

A. Mololuwa ADEDIGBA

Department Of Economics, Accounting, And Finance,

College Of Management Sciences,

Bells University Of Technology,

Ota, Ogun State, Nigeria.

2021

ABSTRACT

The study examined the effect of environmental costs on the market performance of Nigerian
listed oil and gas firms over a ten-year period, from 2011 to 2020. Data were extracted from
annual reports of listed oil and gas companies in Nigeria, and the panel least square regression
technique was used to examine the effect of environmental costs spending on the market
performance of listed oil and gas companies in Nigeria. Environmental costs was measured
using Pollution control costs (PCC), Penalty costs (PC) and Donation, contribution and charity
(DCC) while market performance was measured using Earnings per share (EPS) and Market
price per share (MPS). The study revealed that there is a positive and insignificant relationship
between donations and charitable contributions and earnings per share, negative and significant
relationship between penalty costs and earnings per share, positive and insignificant
relationship between pollution control costs and earnings per share of listed oil and gas
companies in Nigeria. The result also showed that there is a positive and insignificant
relationship between donations and charitable contributions and market price per share,
negative and significant relationship between penalty costs and market price per share, negative
and insignificant relationship between pollution control costs and market price per share of
listed oil and gas companies in Nigeria. The study recommended that Nigerian firms should
consciously invest in their environment, and other environmentally-friendly notions, as doing so
not only promotes achievement of the greatly recognised environmental sustainability goals, but
also conjoins with market performance of the firm.
Keywords: Environmental Costs, Market Performance, Stakeholder, Listed Company
1
INTRODUCTION

The current situation of the world’s climate and humanity’s effect on the biodiversity of the

world as a whole has piqued the public's curiosity and criticism of business operations and

results. Companies are also expected to be able to show that they are mindful of the effect of

their actions in terms of the environment and community as a whole and to resolve them.

Environmental cost accounting is a cost accounting approach that identifies and assigns by

accumulating cost and expenses and giving information on the possible consequences to the

environment, society, and economy and benefits or benefits, in short, on the "triple bottom line"

for each alternative proposed. (Wikipedia, 2021).

Environmental costs are also known as costs incurred by a company which shows an impact on

the organization financially and also the market performance by incurring expenses aside from

the firm’s internal operating expenses. This definition explains that environmental cost has an

impact on firm’s profitability in the sense that it reduces the profit the firm should realize hence

it being incurring more costs and also has an impact on the market performance because the

environment relatively enjoys the benefit attached to this cost being incurred and affects the

market performance of the firm.

Environmental costs and environmental accounting are closely related. Environmental

accounting detects resource consumption, measures, and conveys the economic expenses of a

company's or country's environmental effect (Deegan, 2013). Clean-up and remediation costs,

environmental fines, penalties, and taxes, pollution prevention technology purchases, and waste

management costs are all included in the costs (Deegan, 2013). Any costs and benefits arising

2
from changes to a firm's goods or processes, if the change also involves a change in

environmental consequences, are accounted for in environmental accounting.

Environmental accounting entails the identification, measurement, and allocation of

environmental expenses, as well as their integration into the business, as well as the means of

conveying these costs (Bassey,Sunday and Eton, 2013). Environmental accounting, it should be

emphasized, as a broad phrase that refers to the incorporation of environmental expenses and

data into a wide range of accounting methods.

The oil and gas sector in Nigeria is one of the most common sectors in Nigeria and also one of

the main sources of revenue to the government. Examining the effect of environmental cost on

the market performance is therefore essential to determine the profitability of companies. The oil

and gas sector are mainly dealing with the refining, transporting and marketing of petroleum

products. The oil and gas sector have in many ways impacted the country as a whole by

increasing the exports of the country and also accounts for 80% of the government revenue.

STATEMENT OF RESEARCH PROBLEM

Nowadays, the adverse impact of the environment on the state of the economy has become

concerning. The human population's aggregate ecological footprint is unsustainable, and present

growth and destruction of the environment patterns indicate that we will face greater issues in the

future. In his study, Deegan (2013) feels that managers will be unable to invest huge sums of

money until they are shown how much money they can save by using cleaner manufacturing

processes and technology. This has a major impact on the environment and on businesses that

also use natural capital.

3
Indeed, the fact that firms are limited to the cost elements utilized in the manufacture of products

and services, which are resources, wages and services, no longer represents the real importance

of the production factors used, as the environment has become one of the most significant factors

affecting the cost of production, and the need to calculate and assess environmental costs has

arisen.

Based on empirical study, it was found that researchers have mostly conducted researches on

effects of environmental costs on the financial performance of oil and gas companies and not on

the market performance of companies and for the purpose of this study, effects of environmental

costs on the market performance of oil and gas companies will be considered.

Based on empirical study, it was found that researchers conduct researches using other research

method techniques such as multiple regression, correlation analysis, etc. to investigate the

relationship between environmental costs and market performance of oil and gas companies and

for the purpose of this study, panel least square regression technique will be implemented.

RESEARCH OBJECTIVES

The main objective of the present study is to examine the impact of environmental costs

spending on the market performance of listed oil and gas companies in Nigeria. However, the

specific objectives are as follows:

i. To investigate the relationship between environmental costs and earnings per share of

listed oil and gas companies in Nigeria.

ii. To determine the effect of environmental costs spending on share price of listed oil

and gas companies in Nigeria.

4
RESEARCH HYPOTHESES

The following hypotheses were formulated and tested in order to achieve the set objectives:

H01: Environmental cost spending has no significant effect between on the earnings per share of

listed oil and gas companies in Nigeria.

H02: There is no significant relationship between environmental costs spending and share price of

listed oil and gas companies in Nigeria.

SCOPE OF THE STUDY

The study examined the effect of environmental costs spending on the market performance of

Nigerian listed oil and gas firms over a ten-year period, from 2011 to 2020.

5
REVIEW OF RELATED LITERATURE

Conceptual Review

Concept of Environmental Costs

The concept of environmental costs has been defined by several researchers in several ways

specified environmental costs are often difficult to define from a business stand point. within the

past ten years, environmental costs are described as a subset of the prices of operating a business.

Environmental costs, according to Aert, Cormier, and Magnam (2013), are " expenses involved

with environmental degradation production, detection, remediation, and prevention."

Environmental costs were divided into four categories: preventive costs, detection costs, internal

failure costs, and external failure costs. Environmental costs are costs associated with the

specific or potential deterioration of natural resources as a result of economic activities (Okere

2017).

Environmental Investment

Environmental investment is a type of sustainable development (SRI) in which investors make

decisions based on the environment which is a good idea to focus your investments in companies

that advocate or provide environment - friendly products. As a result, an environmental financier

will assess investment possibilities in light of their impact on global concern for the

environment. Their financial strategies are heavily influenced by this frame of reference. An

environmental investor, on the other hand, will be interested in firms that offer high financial

returns while also improving the environment. (Okere 2017).

6
'Positive screening' is a common part of the decision-making process for environmental

investors. In this they'll be searching for businesses that are actively seeking to form a positive

and lasting impact on the world’s environment. This is distinct from the ‘negative screening'

used by social investors who merely seek to avoid investments that have a particularly bad

impact on the world.

Environmental costs variables

Empirical evidence shows that different forms of environmental cost variables exist. Several

studies have used different environmental cost indicators, such as fines, health and safety costs

for workers, waste disposal costs and costs of compensation (Bassey, Bessong and Tapang,

2012). Although Shehu (2010) in Bello (2018) used environmental cost variables such as

environmental remediation and pollution control costs, enforcement and penalty costs of

environmental legislation, donations and charitable contributions (DCC). Okere (2017), adopted

environmental cost variables like donations, employee benefits and staff training.

Measurement of Performance

Performance assessment refers to the process by which information on the activities of a private,

entity, organization, system or component is collected, analysed and recorded. It requires the

study of organizational processes to test whether results are in line with expectations or what

should be done. Performance assessment estimates the conditions under which desired outcomes

are obtained by projects, expenditures and acquisitions, providing accurate data on the efficacy

and efficiency of programs. Output, as financial results, may also further help non-financial

outcomes.

7
The use of different market performance variables, which are earnings per share (EPS) and

market price per share (MPS), has been incorporated in this analysis.

Conceptual Framework

Source: Author’s Computation 2021

Though Nigeria has made an attempt to deal with the basic environmental issue, environmental

degradation has continued to be one in all the largest issues in Nigeria. The country has

encountered high rate of water and pollution (oil spills, gas flaring etc.) while efforts are made to

decrease the amount of natural resources depletion and desertification, yet it's been unable to

produce substantial results. Chemical and industrial waste disposal severely contaminates marine

8
shorelines, causing severe localized ecological harm to near-shore communities. The harmful

impact of those wastes on the environment is numerous, specified spillages and decomposed

plants affects the environment (Bello, 2018)

Theoretical Review

Theory of Stakeholders

"Any party or person who has the potential to affect or is influenced by the actions of the

company strategy" is classified as a stakeholder. (Sanyaolu , Adesanmi, Bello, Olayinka &

Ilogho 2018). The theory of stakeholders takes a wide view of the constituencies represented by

a company. Any person or organization that has a significant interest in the success or failure of a

company is a stakeholder. Stakeholders can have a big say in how an organization's operations

and money are handled. Stakeholders may represent a much bigger group of people than the

more traditional group of shareholders who physically control a corporation.

The principle of stakeholders notes that managers have to take account the interests of

stakeholders, not only shareholders. This viewpoint implies that a corporation must optimize

everyone's total well-being, as well as everything that is influenced by it, which might be

interpreted as implying that the company has a responsibility to distribute its earnings to all

disadvantaged stakeholders.

The stakeholders’ theory was adopted as the theoretical basis for explaining the relationship that

exists between environmental costs and market performance of listed Oil and Gas companies in

Nigeria.

9
Theory of the Good Life

The thesis states, according to Dierks (1979) in Okere (2017) that Without any economic

restrictions, process that leads has resulted in a tremendous surge in societal expenses, as well as

environmental devastation and economic woes. As a result, business organizations are viewed as

villains because they are responsible for environmental deterioration and all societal issues. It is

thought that improving society's quality of life should be a top priority for government policy.

Firm Perspective Theory

The best levels of obligations in the space of social and ecological stewardship are long haul

speculations and company can be assessed similarly as some other venture by inspecting request

and supply sides, as indicated by the hypothesis of firm viewpoint (William and Siegel; 2001).

The key contention made by William and Siegel is that there ought to be no connection

associating administrative execution and business execution. They protected their position by

guaranteeing that organizations who don't exhaust costs to limit their activities' ecological impact

will actually want to give their items and administrations at less expensive rates, while those that

pay externalities will actually want to charge more exorbitant costs. Therefore, as indicated by

this theory, adherence to ecological norms ought to make little difference to monetary execution.

Empirical Review of Environmental Cost and Market Performance of Companies

Environmental accounting standards are important for the long-term development and success of

listed industrial companies in Nigeria, according to Osemene, Kolawole, and Oyelakun (2016).

Data was gathered from the annual reports and accounts of 36 publicly traded companies in

Nigeria that were chosen at random. Panel data regression analysis was used to analyze the data.

There was a substantial positive association between sustainable development and return on

equity (ROE) and return on assets (ROA), as well as a large positive relationship between

10
environmental accounting and return on equity, according to the findings (ROE). The study

advised that publicly traded manufacturing enterprises account for and report the environmental

effects of their economic activities to stakeholders in order to increase net profit and earnings per

share.

Riyadh, Al-Shmam, Huang, Gunawan, and Alfaiza (2020) investigated the impact of green

accounting (GA) on financial performance (FP) in Indonesian firms. Secondary data, such as

CSR reports, sustainability reports, and financial statements, were used in this study, as well as

multiple regression analysis. The companies chosen were among the top 100 multinational

enterprises in the world in 2018. If all other variables remain constant, a unit change (ENVC)

results in a negative change of about 29863504 units in the ROCE minus the autonomous

component. It was suggested that firms factor in several factors into environmental prices;

nevertheless, each crucial and relevant price must be factored in for sound decision-making.

The effect of sustainable accounting measures on the performance of corporate organizations in

Nigeria was explored by Raymond, John-Akamelu, and Eucharia (2016). Time series data and an

ex post facto study design were used. The study's data came from the company's annual reports

and accounts in Nigeria. With the help of SPSS Version 20.0, hypotheses were tested using

Regression Analysis. The study discovered that environmental costs do not have a favorable

influence on corporate revenue in Nigeria, but they do have a positive impact on profit

generation. According to the report, indigenous and multinational companies should adhere to

strong environmental accounting practices in order to maintain stable organizational

performance.

11
Within the context of social responsibility accounting in Turkey, Tanc and Gokoglan (2015)

evaluated the sensitivity of manufacturing enterprises operating in the organized industrial zone

of Diyarbakir to environmental issues and environmental accounting methodologies. The scale

employed in this study was created to assess the attitudes of the companies that took part in it

toward environmental concepts and methods, as well as environmental accounting principles and

their relevance. The reliability and validity analyses, as well as factor analysis, confirmatory

factor analysis, and frequency analysis, were used in the data analysis. Because environmental

expenses can be decreased by using strategic management accounting approaches, environmental

accounting has gained relevance in order to deal with global competition, which forms the basis

of strategic management accounting. It was suggested that businesses use environmental

accounting to gain a competitive advantage and enhance the company's added value, which is

also increased as a result of the concept of social responsibility.

Okafor (2018) looked into the impact of environmental cost accounting on the performance of

Nigerian listed oil businesses. Secondary data was employed in the study. Multiple regressions

are a statistical tool used in data analysis. Environmental costs are represented by the

independent variables Cost of Environmental Remediation and Pollution Control, Cost of

Environmental Laws Compliance and Penalty, Donations and Charitable Contributions (DCC),

and one dependent variable, return on asset (ROA) as a measure of firm performance. The

statistical research revealed that higher environmental performance has a favorable impact on an

organization's business value. Furthermore, environmental accounting allows the firm to lower

environmental and social costs while also improving performance. For improved and long-term

performance, the report recommended that persons in charge of these oil firms boost their

involvement in environmental efforts.

12
Falope, Femi, Offor, Nkechi, Ofurum, and Darlington (2019) investigated the impact of pollution

control costs on the return on assets of publicly traded Nigerian construction enterprises. Ex Post

Facto research was used in this study. Hypotheses were developed in accordance with the

research objectives and tested using SPSS Version 20.0's linear regression analysis.

Environmental pollution prevention costs, environmental protection costs, and environmental

recycling disclosure have been found to have an impact on the return on assets of Nigerian listed

construction enterprises. Regular and continuous environmental evaluation, according to the

study, will boost an organization's sales and profits while also ensuring that environmental

situational needs are addressed.

Kumar Pandey (2016) explored whether there is a significant link between a company's

environmental costs and its capacity to make a profit. This study included secondary data from

several web sources as well as annual reports from firms during a five-year period. The data for

the independent and control variables was acquired from the websites of the companies and

databases, and it was analyzed using regression analysis. There is no substantial association

between the company's environmental expenditure and its financial performance, according to

the findings. Furthermore, corporations with a higher market capitalization have been observed

to spend more on environmental issues. It was suggested that the government consider granting

tariff reductions or tax benefits to enterprises that are environmentally conscientious in order to

encourage them to spend on environmental protection.

Iheduru and Chukwuma (2019) investigated the link between environmental and social costs and

manufacturing company performance in Nigeria. The study's data came from the annual reports

and accounts of fourteen (14) manufacturing enterprises in Nigeria that were chosen at random.

The data were evaluated using multiple regression models. Environmental and social costs had a

13
substantial negative association with Return on Capital Employed (ROCE) and Earnings per

share (EPS) and a significant positive link with Net Profit Margin (NPM) and Dividend per

Share, according to the study's primary findings (DPS). Environmental reporting should be made

mandatory in Nigeria to improve the performance of organizations and the nation as a whole, and

the government should grant tax credits to organizations that comply with its environmental

regulations to minimize their environmental expenses.

Agboola and Oroge (2019) investigated the impact of environmental cost savings on cement

businesses' financial performance in Nigeria. The information was gathered from the two

companies' yearly financial reports and accounts. To establish the correlation between the two

variables, regression analysis was used with the help of the Statistical Package for Social

Sciences (SPSS). Environmental Cost Savings were shown to be significantly related to the

financial performance of the listed cement businesses in the study. The study concluded that

continued investment in environmental cost savings has a substantial association with company

financial performance and should be considered a key financial performance stimulant.

Hassan (2015) examined how environmental spending affects the performance of publicly traded

Nigerian oil firms. For the data obtained from all of Nigeria's publicly traded oil businesses, a

correlational study methodology was used with multiple regression as the analysis tool. The

findings revealed that environmental spending had a considerable impact on the success of

Nigeria's publicly traded oil businesses. As a result, it was suggested, among other things, that oil

company executives in Nigeria increase expenditure on environmental issues in their host

communities in order to enhance their performance.

14
Mikial, Marwa, and Fuada (2019) investigated the environmental performance and disclosure

have an impacts on investment success in Indonesian stock market firms. Through 2013 to 2016,

Secondary data was gathered from public filings and sustainability reports of Indonesian stock

market businesses. In this investigation, there were a total of 80 observations. Partial Least

Squares was employed as the analysis method (PLS). While environmental impact has no

substantial impact on the profitability, ecological reporting has a big impact, according to the

findings of this study. It was suggested that the Indonesian accounting profession be successful

in developing compliance management standards for ecological impact information, so that

reporting and full transparency can be created separately and formalized environmental

accounting can be generated, making accounting quality no longer optional but compulsory for

each firm.

Raymond, John, and Chigbo (2016) looked into the effect of sustainability environmental costs

on corporate performance in Nigeria. Regression analysis was employed in this investigation.

According to the findings, environmental costs do not have a favorable impact on company sales,

but they do have a positive impact on profit created. In order to improve stable organizational

performance, indigenous and multi-national enterprises should ensure that stringent standards in

relation to environmental accounting are followed.

Ihendinihu, Abiogwu, and Okafor (2016). The study looked into the impact of environmental and

social costs on the performance of Nigerian manufacturing firms. The t-test was used to analyze

the data acquired in this investigation. The study discovered that the environmental and social

costs sampled have an impact on the Net profit margin. According to the research, the Nigerian

government should ensure that manufacturing enterprises follow all environmental rules.

15
The impact of firm size, profit, leverage, and audit firm size type on environmental disclosures in

Nigeria was investigated by Ndukwe and John (2015). The study was conducted using a cross-

sectional research approach, but the data was analyzed using a binary regression technique.

According to the findings, there is a link between firm size and corporate social responsibility

declarations. Incentives should be put in place to encourage disclosures, according to the report.

The impact of environmental accounting on the financial performance of Nigerian enterprises

was explored by Ayoib, Nosakhare, and Chijoke (2016). The ordinary least square regression

approach was employed in this investigation. If environmental accounting is determined by

business-specific characteristics such as firm size and industry type, the study demonstrated a

substantial association between environmental accounting disclosure and firm profitability.

According to the findings, both individual and environmental disclosures have an impact on

firm-specific financial performance metrics.

At the Nairobi Securities Exchange, Karambu and Joseph (2016) investigated the impact of

environmental disclosure on financial performance of listed companies. To characterize the

probability link between environmental disclosure and company performance, the study used a

linear regression approach. Environmental disclosure has a favorable impact on a company's

performance, according to the study. According to the report, firms should participate in

environmental disclosure because it improves their performance.

In Nigeria, Ijeoma (2015) investigated the significance of environmental cost accounting in

achieving environmental sustainability. The survey research approach was used in this study.

According to the findings, the majority of business organizations in Nigeria are unaware of

environmental policies, and it makes no difference whether they are aware of environmental

16
policies. Environmental cost accounting, according to the report, should be applied by

organizations in Nigeria to improve environmental waste discharge costing.

The impact of sustainability accounting on the financial performance of listed manufacturing

enterprises in Nigeria was explored by Nnamani, Onyekwelu, and Ugwu (2017). Ordinary linear

regression was utilized in the investigation. According to the findings, sustainability reporting

has a favorable and considerable impact on a company's financial success. In order to improve

their financial performance, enterprises in Nigeria should invest a portion of their earnings in

sustainability efforts, according to the report.

Tze and Siew (2016) investigated the link between environmental disclosures and financial

performance of Malaysian publicly traded enterprises. The number and quality of environmental

disclosure in annual reports of publicly traded corporations were determined using a content

analysis approach. The quality of environmental disclosure has a favorable association with a

company's earnings per share, according to the study. Bursa Malaysia should establish a broader

framework that guides public listed firms in their environmental disclosure, according to the

report.

Environmental accounting issues and the influence of these environmental factors on the lives of

Nigerians were explored by Eze, Nweze, and Enekwe (2016). The survey design was used in this

investigation. According to the findings, environmentally friendly businesses that openly

disclose their environmental actions attract a high degree of competitiveness. According to the

report, environmental accounting rules should be publicized locally and purposefully, and

changed on a regular basis to ensure dynamism compliance.

17
Anochie and Onyinye (2015) looked into a variety of environmental challenges in the Niger

Delta related to oil extraction and spillage. The data was analyzed using the descriptive approach

in this study. According to the report, oil development operations contributed to countries'

growth and development. According to the report, the government and oil firms should prioritize

environmental restoration.

Magara, Amina, and Momanyi (2015) investigated the impact of environmental accounting on

corporate financial performance in Kisii Country. The research was conducted using a

descriptive research approach. According to the findings, the reported financial performance of

the corporate firm in general was good, as claimed by the employees. According to the survey,

businesses should recruit expert people to boost environmental evaluations on a regular basis in

order to keep track of environmental operations.

Vinayagamourthi, Murugesan, Kasilingam, and Ramanchandran (2015) investigated the link

between Indian enterprises' environmental performance and profitability. The granger causality

test was used in this investigation. The study discovered that the return on capital employed

(ROCE) and energy intensity (EI) had an inverse relationship, while the firms' return on equity

(ROE), return on asset (ROA), return sales (ROS), and energy intensity have a direct link (EI).

According to the survey, practitioners and policymakers should adopt environmentally friendly

technologies and encourage Indian businesses to use more energy efficient equipment.

Bicer and Eldarewi (2019) looked at the importance of environmental expenses and how they

might help Libyan oil businesses improve the integrity of their financial reporting. A one-sample

T-test was used in this study. The study's findings also revealed the existence of a statistically

significant link between environmental expenses and improved financial reporting quality. The

18
study recommended that corporations provide industrial security measures relating to the

environment for workers, as well as boosting employee environmental knowledge through

company-sponsored courses on negative environmental effects.

Falack, Adiga, Shaki, Emmanuel, and Bassey (2020) concentrated on environmental reporting

and corporate performance in Nigerian listed oil and gas businesses. The study used an ex-post

facto methodology. The information was dissected utilizing common least squares. Natural

security, advancement, and wellbeing costs all have a negative yet considerable connection with

ROA, as per the information. As per the investigation, oil organizations should give careful

reports on their ecological exercises, and government and partners ought to be concerned and

order consistence with rules controlling and commanding companies to unveil natural

bookkeeping in a convenient way.

Gap of Empirical Study

Based on empirical study, it was discovered that specialists has generally led investigates on

impacts of ecological expenses on the monetary execution of oil and gas organizations and not

available execution of organizations and with the end goal of this examination, impacts of

natural expenses available execution of oil and gas organizations was thought of.

Based on empirical study, it was discovered that analysts lead explores utilizing other

examination strategy strategies to research the connection between natural expenses and market

execution of oil and gas organizations and with the end goal of this investigation, board least

square relapse method was carried out.

19
METHODOLOGY

Theoretical Framework

The stakeholders' hypothesis was embraced as the hypothetical reason for clarifying the

relationship that exists between environmental expenses and market execution of recorded Oil

and Gas organizations in Nigeria. The stakeholders' hypothesis proposes that an organization

should upgrade everybody's general prosperity and everything influenced by it, which can be

interpreted as meaning that the organization has an obligation to allot its benefits to all denied

partner.

Model Specification

The model for this study was adapted to capture the interrelationships between the dependent

variable and independent variables. To estimate the effect of environmental costs on the market

performance of listed Oil and Gas companies in Nigeria. The study adapted the model of Bello

(2018)

PERF = f (Environmental Cost) ------------------------------------------ (1)

PERF = f (DON, EB, ST) ------------------------------------------ (2)

ROE = β0 + β 1logDONit + β 2log EBit + β 3logSTit + µ it ------------------------------ (3)

This study has modified the model as:

MPERF = f (Environmental Cost) ------------------------------------------ (1)

MPERF = f (PCC, PC, DCC) ------------------------------------------ (2)

20
EPS = β0 + β 1logPCCit + β 2logPCit+ β 3logDCCit + µ it ------------------------------ (3)

MPS = β0 + β 1logPCCit + β 2logPCit + β 3logDCCit+ µ it ------------------------------ (4)

Where,

MPERF = Market performance

EPS = Earnings per share

MPS = Market price per share

PCC = Pollution control costs

PC = Penalty costs

DCC = Donations and charitable contributions

µ = Error term

i = Cross section dimension and ranges from 1 to ‘N’ numbers of companies

t = Time series dimension and ranges from 1 to ‘T’ numbers of periods

β1, β2 and β3 are parameters to be estimated.

Apriori Expectation

All explanatory variables are expected to have a positive impact on market performance i.e. β 1,

β2, β3 > 0.

21
Measurement of Variables

Dependent Variables:

Earnings per share and share price are the dependent variables and were used to measure market

performance.

Where,

Earnings per share (EPS) =

Market Price per Share (MPS) =

Independent Variables:

Pollution control costs, penalty costs, donations and charitable contributions are the independent

variables which were used to measure Environmental costs.

Pollution control costs (PCC): was measured by the natural logarithm of companies’ pollution

control costs to the environment.

Penalty costs (PC): was measured by the natural logarithm of companies’ penalty costs to the

environment.

Donations and charitable contributions (DCC): was measured by the natural logarithm of

companies’ donations to the environment.

22
Tabular Explanation of Variables:

Dependent Variables:

S/N Variables Description Source Measurement

1 EPS Earnings per Nigerian Stock Profit after tax minus

share Exchange preferred dividends

divided by number of

common outstanding

shares

2 MPS Market price Nigerian Stock Total market value of a

per share Exchange business divided by the

total number of shares

outstanding.

Independent Variables:

S/N Variables Description Source Measurement

1 PCC Pollution Annual reports Was measured by the

control costs natural logarithm of

companies’ pollution

control costs to the

environment.

23
 2 PC Penalty costs Annual reports Was measured by the

natural logarithm of

companies’ penalty costs

to the environment.

3 DCC Donations and Annual reports Was measured by the

charitable natural logarithm of

contributions companies’ donations to

the environment.

Sources of Data

This investigation utilized pertinent auxiliary information which was sourced from the yearly

reports, fiscal summaries and other important materials of the recorded Oil and Gas

organizations in Nigeria.

Method of Data Analysis

The investigation utilized the panel least square regression procedures to accomplish goals one

and two which was utilized to inspect the impact of natural expenses available execution of

recorded Oil and Gas organizations in Nigeria individually.

24
RESULT OF DATA ANALYSIS

Regression Analysis on Earnings per Share

In this section, the study employed panel data regression analysis to investigate the relationship

between environmental costs and market performance proxied by earnings per share of listed oil

and gas companies in Nigeria.

Table 1 Dependent Variable: EPS

Variable Coefficient Std. Error t-Statistic Prob.

DCC 0.006851 0.007395 0.926487 0.3568

PC -0.020090 0.010237 -1.962448 0.0529
PCC 0.013863 0.020363 0.680795 0.4978
C 273.2878 12.59261 21.70224 0.0000

Effects Specification

Cross-section fixed (dummy variables)

Weighted Statistics

Root MSE 305.7514 R-squared 0.549636

Mean dependent var 296.8502 Adjusted R-squared 0.487516
S.D. dependent var 457.1132 S.E. of regression 327.7999
Sum squared resid 9348390. F-statistic 8.848072
Durbin-Watson stat 1.993473 Prob(F-statistic) 0.000000

Unweighted Statistics

R-squared 0.708951 Mean dependent var 284.6585

Sum squared resid 17886488 Durbin-Watson stat 2.601340

Source: Author’s computation 2021 using E-views.

The result in Table 1 above showed the estimation of the effect of environmental cost on the

earnings per share of listed oil and gas companies in Nigeria. The table showed that a total of 10

listed oil and gas companies were examined over a period of 10 years using panel least square

regression technique. The study used earnings per share (EPS) as its dependent variable while

Pollution control costs, penalty costs, donations and charitable contributions were used as the

independent variables. Considering the research objective of the study which states that, EPS =
25
β0 + β 1logPCCit + β 2logPCit + β 3logDCCit+ µ it , the result shows that the probability of f-statistic

is 0.000000 which indicates that the totality of the model is significant and the model has high

goodness of fit. The result also showed an R-squared of 0.54 (54%) and adjusted R-Squared of

0.48 (48%), which shows that 48% of the total variation in the dependent variable (EPS) is

explained by the independent variable (Pollution control costs, penalty costs, donations and

charitable contributions) while the Durbin Watson is 1.993473 which falls within the acceptable

region and shows the presence of low auto-serial correlation which is common in time series

data. This confirms the statistical reliability of the model.

The result showed that there is a positive and insignificant relationship between donations and

charitable contributions and earnings per share of the listed oil and gas companies in Nigeria.

Donations and charitable contributions has a correlation coefficient value of 0.006851 and p-

value of 0.3568 at 5% level of significance, which implies that a unit increase in between

donations and charitable contributions will lead to a 0.6% increase in earnings per share of the

examined oil and gas companies. The result also showed that there is a negative and significant

relationship between penalty costs and earnings per share of listed oil and gas companies in

Nigeria. Penalty costs has a correlation coefficient value of -0.020090 and a p-value of 0.0529 at

5% level of significance, which suggests that a unit increase in penalty costs will lead to a 2%

decrease in earnings per share of the examined oil and gas companies.

However, the result showed that there is a positive and insignificant relationship between

pollution control costs and earnings per share of listed oil and gas companies in Nigeria.

Pollution control costs has a correlation coefficient value of 0.013863 and a p-value of 0.4978 at

5% level of significance, which implies that a unit increase in pollution control costs will lead to

1% increase in earnings per share of the examined oil and gas companies.

26
The results suggests that donations and charitable contributions and pollution control costs has a

positive and insignificant effect on earnings per share of the selected listed oil and gas companies

while penalty costs has a negative and significant effect on earnings per share of the selected

listed manufacturing companies.

Discussion of Findings on Earnings per Share

From the above analysis, the study found that there is a positive and insignificant relationship

between donations and charitable contributions and pollution control costs and earnings per

share. This suggests that the expenditure of oil and gas companies on donations and charitable

contributions and pollution control costs activities has little or no effect on the earnings per share

of the examined oil and gas companies in Nigeria.

However, the result analysis also reveals that there is a negative and significant relationship

between penalty costs and earnings per share of the sampled oil and gas companies. This

invariably means that the expenditure of oil and gas companies on penalty costs have a negative

effect on the earnings per share of the examined oil and gas companies in Nigeria.

Regression Analysis on Market Price per share

In this section, the study employed panel data regression analysis to determine the effects of

environmental costs and market performance proxied by market price per share of listed oil and

gas companies in Nigeria.

27
Table 2 Dependent Variable: MPS

Convergence achieved after 6 weight iterations

Variable Coefficient Std. Error t-Statistic Prob.

PCC -0.009967 0.010633 -0.937364 0.3512

PC -0.001205 0.000317 -3.807528 0.0003
DCC 0.006014 0.010605 0.567061 0.5721
C 105.3712 1.370751 76.87115 0.0000

Effects Specification

Cross-section fixed (dummy variables)

Weighted Statistics

Root MSE 61.70341 R-squared 0.931650

Mean dependent var 236.2091 Adjusted R-squared 0.922223
S.D. dependent var 139.2112 S.E. of regression 66.15300
Akaike info criterion 7.748560 Sum squared resid 380731.0
Schwarz criterion 8.087232 Log likelihood -374.4280
Hannan-Quinn criter. 7.885626 F-statistic 98.82211
Durbin-Watson stat 1.352604 Prob(F-statistic) 0.000000

Unweighted Statistics

R-squared 0.845033 Mean dependent var 102.0805

Sum squared resid 380732.0 Durbin-Watson stat 1.260390

Source: Author’s computation 2021 using E-views.

The result in Table 2 above showed the estimation of the effect of environmental cost on the

market price per share of listed oil and gas companies in Nigeria. The table showed that a total of

10 listed oil and gas companies which were examined over a period of 10 years using panel least

square regression technique. The study used market price per share (MPS) as its dependent

variable while Pollution control costs, penalty costs, donations and charitable contributions were

used as the independent variables. Considering the research objective of the study which states

that MPS = β0 + β 1logPCCit + β 2logPCit + β 3logDCCit+ µ it, the result shows that the probability

of f-statistic is 0.000000 which indicates that the totality of the model is significant and the

model has high goodness of fit. The result also showed an R-squared of 0.93 (93%) and adjusted

28
R-Squared of 0.92 (92%), which shows that 92% of the total variation in the dependent variable

(MPS) is explained by the independent variable (Pollution control costs, penalty costs, donations

and charitable contributions) while the Durbin Watson is 1.352604 which falls within the

acceptable region and shows the presence of low auto-serial correlation which is common in time

series data. This confirms the statistical reliability of the model.

The result showed that there is a positive and insignificant relationship between donations and

charitable contributions and market price per share of the listed oil and gas companies in Nigeria.

Donations and charitable contributions has a correlation coefficient value of 0.006014 and p-

value of 0.5721 at 5% level of significance, which implies that a unit increase in between

donations and charitable contributions will lead to a 0.6% increase in market price per share of

the examined oil and gas companies. The result also showed that there is a negative and

significant relationship between penalty costs and market price per share of listed oil and gas

companies in Nigeria. Penalty costs has a correlation coefficient value of -0.001205 and a p-

value of 0.0003 at 5% level of significance, which suggests that a unit increase in penalty costs

will lead to a 0.1% decrease in market price per share of the examined oil and gas companies.

However, the result showed that there is a negative and insignificant relationship between

pollution control costs and market price per share of listed oil and gas companies in Nigeria.

Pollution control costs has a correlation coefficient value of -0.009967 and a p-value of 0.3512 at

5% level of significance, which implies that a unit increase in pollution control costs will lead to

0.9% decrease in market price per share of the examined oil and gas companies.

The results suggests that donations and charitable contributions has a positive and insignificant

effect on market price per share of the selected listed oil and gas companies, pollution control

29
costs has a negative and insignificant effect on market price per share of the selected listed oil

and gas companies while penalty costs has a negative and significant effect on market price per

share of the selected listed oil and gas companies.

Discussion of Findings on Market Price per Share

From the above analysis, the study found that there is a positive and insignificant relationship

between donations and charitable contributions and market price per share. This suggests that the

expenditure of oil and gas companies on donations and charitable contributions activities has

little or no effect on the earnings per share of the examined oil and gas companies in Nigeria.

There is a negative and significant relationship between pollution control costs and market price

per share. This suggests that the expenditure of oil and gas companies on pollution control costs

activities has a negative effect on the market price per share of the examined oil and gas

companies in Nigeria.

However, the result analysis also reveals that there is a negative and insignificant relationship

between penalty costs and market price per share of the sampled oil and gas companies. This

invariably means that the expenditure of oil and gas companies on penalty costs has little or no

effect on the market price per share of the examined oil and gas companies in Nigeria.

CONCLUSION

For the most part, this examination showed that natural costs influence market execution.

Information were assembled through the yearly fiscal summaries of the recorded organizations

and the Nigerian stock Exchange 2011-2020. Besides, the social increases of ecological

speculations, concerning labor force and local area, frequently appear to generally outperform

their expenses. The outcomes from the investigation show both positive and negative critical and

30
irrelevant connections between natural expenses and market execution of oil and gas

organizations.

The sensible ramifications of the experimental outcome proffered by this examination is that

Nigerian firms ought to intentionally put resources into their current circumstance, and other

harmless to the ecosystem thoughts, as doing as such not just advances accomplishment of the

significantly perceived ecological maintainability objectives, yet in addition conjoins with

market execution of the firm.

This exploration work expands the current collection of information nearby, especially in human

social duty by zeroing in on ecological speculation factors like worldwide labor force and

neighborhood networks. This investigation gives a genuinely necessary corporate point of view

on the subject of interest in natural execution to supplement the developing writing on socially

dependable speculation. The discoveries give a few new experiences and highlight a productive

new line of exploration that is probably going to fill in significance as natural execution assumes

a more focal position in the manner firms maintain their business and financial backers see them.

RECOMMENDATIONS

On the reason of the discoveries of this exploration, the examination presents the accompanying

proposals which will be helpful for positive advantages to partners.

1. Nigerian firms ought to intentionally put resources into their current circumstance, and

other harmless to the ecosystem thoughts, as doing as such not just advances

accomplishment of the enormously perceived natural manageability objectives, yet in

addition conjoins with market execution of the firm.

31
 2. In request to advance orchestrated economical turn of events, firms ought to give and

take part in ecological security exercises, beneficent commitments, helping poor people

and penniless individuals and any movement that forms a decent business notoriety for

firms.

3. There is the critical interest to set up a solid corporate body burdened with the duty of

gathering and ordering ecological costs slanted information and forming the proper files

to work with natural speculation costs concentrate in Nigeria.

CONTRIBUTION TO KNOWLEDGE

This investigation has expanded the information base of ecological expenses by presenting

human social obligation factors which is an intermediary for corporate social duty and utilized

natural costs factors that are identified with nearby networks in which association stay in.

32
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