The Influence of Environmental Disclosure Quality on Analyst Coverage in Malaysia Based on Disclosures in Corporate Annual Reports

While environmental disclosure quality (EDQ) is increasingly important to analysts, the specific EDQ indicators valued in the emerging markets remain unclear. The purpose of the study is to investigate the signaling role of EDQ on analyst coverage. The study employed a quantitative and panel data analysis approach. Nine EDQ indicators were tested against analyst coverage from 2013 to 2022 using regression models. Crucially, a categorical time variable was incorporated to examine the relationship across Covid-19 pre-pandemic, during pandemic, and post-pandemic economic regimes. The study revealed that while the overall EDQ indicators are positively and significantly related to analyst coverage, analysts are highly selective to disclosure in pollution control, environmental achievement, environmental-related financial information, and land remediation. Additionally, analyst interest in EDQ closure was minimal during the Covid-19 pandemic crisis but rebounded post-pandemic. Therefore, firms should view environmental reporting as a strategic signaling tool, prioritizing disclosures of measurable risks and financial impacts to maximize analyst attention. There is a need for a deeper understanding of which specific environmental disclosure quality (EDQ) indicators analysts value, since not all environmental disclosures equally affect analysts’ decisions to follow a firm. This study is the first to use a detailed environmental reporting quality checklist based on Global Reporting Initiative (GRI) standards on analyst coverage in an emerging market, contributing to signaling theory. Crucially, this research provides empirical evidence on the contextual sensitivity of environmental reporting, specifically by analyzing and comparing its effects on analyst coverage across the pre-pandemic, pandemic, and post-pandemic periods.