Corporate Disclosure of Environmental Capital Expenditures: A Test of Alternative Theories

The purpose of this paper is to examine three potential explanations for the corporate choice to disclose environmental capital spending amounts. Using archival data from a sample of Fortune 500 U.S. firms operating in industries subject to both the Environmental Protection Agency’s (EPA) TRI program and the Occupational Safety and Health Administration’s Hazard Communication Standards, we conduct quantitative threshold tests to first investigate whether disclosure appears to be a function of the materiality of the spending. Using statistical tests, including multiple regression analyses, we next attempt to differentiate the choice to disclose across voluntary disclosure theory and legitimacy theory arguments. First, we find that, for the overwhelming majority of observations, the disclosed amounts are not quantitatively material. This suggests that non-disclosure is likely due to immateriality. Next, our findings show that disclosing firms do not exhibit improved subsequent environmental performance relative to non-disclosing companies. Further, controlling for firm size and industry class, we find the choice to disclose is associated with worse environmental performance. Link to the article

CHO, C.H., FREEDMAN, M. and PATTEN, D.M. (2012). Corporate Disclosure of Environmental Capital Expenditures: A Test of Alternative Theories. Accounting, Auditing & Accountability Journal, 25(3), pp. 486-507.

Keywords : #Environmental-capital-expenditure-disclosure, #Legitimacy-theory, #Materiality, #Voluntary-disclosure-theory, #Capital-expenditure, #Disclosure, #Corporate-social-responsability