Factors associated with the level of superfund liability disclosure in 10K reports: 1991-1997

Academy of Accounting and Financial Studies Journal, Sept, 2008 by Carol A. Cox

The results reveal a positive association between the log of total average liability and the amount of ED, which indicates that firms with higher environmental liabilities disclose more (pvalue = .000). Since the total average liability measure is based on EPA liability estimates, this finding reflect firms responding to regulatory influence, and supports the current hypothesis (H4). The results indicate that companies in the petroleum, chemical, paper and pulp, and steel industries provide more ED than companies in other industries (p-values =.000). The findings support the current hypothesis (H2), and are consistent with prior studies that suggest that companies in certain environmentally sensitive industries have greater incentive for projecting a positive social image, and therefore disclose more (Bowman and Haire, 1976; Heinze, 1976; Cowen et al., 1987; Patten, 1991).

The current study uses additional size proxies to check the robustness of the primary results. Separate regressions are run for the base model (Model 1), substituting log of total assets with log of sales (Model 1a) and log of market value of equity (Model 1b). The results indicate that the log of sales (p-value =.083) and log of market value of equity (p-value = .057) are not associated with the percentage of environmental disclosure. The results are contrary to the expectations of the current study, and are not consistent with the primary results. Thus, the primary results are not robust to alternate specifications of size. While log of total assets is associated with environmental disclosure, log of sales and log of market value of equity are not.

Empirical results indicate that the level of environmental disclosures is associated with size, profitability, industry, and regulatory influence. As firms continue to exercise much discretion with respect to environmental disclosure, understanding the determinants of environmental disclosure choice may help regulators in their monitoring and enforcement activities. In addition, the findings may help standard setters determine whether more guidance is needed specifically related to environmental liabilities. Socially conscious investors may find this information useful when evaluating firms' environmental disclosures.

DISCUSSION AND CONCLUSIONS

The current study contributes to the understanding of ED practices of publicly traded U.S. firms because it examines the extent of GAAP disclosures in 10K filings, as well as factors associated with the level of ED. Using a sample of firms that have been identified as potentially responsible parties by the EPA, the current study finds that the extent of environmental disclosure varies between sample firms. Although disclosure scores increased overall during the sample period, the percentage of GAAP disclosures decreased significantly. Firms continued to exercise much discretion. Knowledge of such discretion is important to investors, creditors, regulators and standard setters that expect complete and consistent environmental disclosure practices of public companies.