Journal of Accounting, Auditing &

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Corporate Environmental Disclosure Strategies: Determinants, Costs and

Benefits
Denis Cormier and Michel Magnan
Journal of Accounting, Auditing & Finance 1999 14: 429
DOI: 10.1177/0148558X9901400403

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Corporate Environmental Disclosure
Strategies: Determinants, Costs and
Benefits
DENlS CORMIER”
MICHEL MAGNAN**

In response to investors ’ and other stakeholders’ concerns about corpo-

rate environmental policies, many firms are voluntarily increasing their
level of environmental disclosure since there is a scarcity of alternative
information sources. Using a cost-benefitframework, this study intends to
identify determinants of corporate environmental reporting by Canadian
firms subject to water pollution compliance regulations during the 1986-
I993 period. Results suggest that information costs and a firm’s financial
condition are key determinants of environmental disclosure. Firm size, the
regulatory regime governing corporate disclosure, and industry, also con-
tribute to explaining environmental disclosure.

1. Introduction
While regulators (e.g., securities commissions) set guidelines for financial and
nonfinancial information disclosure, firms often reveal more about their activities
than required. Many executives recognize that a firm’s disclosure policy is a stra-
tegic tool that provides economic benefits if managed properly. In fact, there is
evidence that an open disclosure policy has a positive impact on firm value (Lev
[ 19921; Skinner [ 19941; Blacconiere and Patten [ 19941; Botosan [ 19971). However,
the potential costs from increased legal or political exposure can lead to less dis-
closure. Thus, the identification of circumstances or events that prompt firms to
disclose more than what is required becomes a relevant issue. Managerial decisions
are especially sensitive in the case of environmental disclosure, since a firm can
incur costs of some magnitude if it is perceived to be negligent or irresponsible in
its interactions with the environment. Such costs may result from lobbying cam-

*Professor, Upiversite du Quebec ?I Monbkal

**Professor. b o l e des Hautes Etudes Commerciales de Montrkal
Financial support from the Fonds FCAR (Qudbec). the Canadian Academic Accounting Associarion,
and the Ordre des Comprables Agrdks du Qudbec is gratefully acknowledged. Helpful comments and
suggestions were received from Walt Blacconiere (the referee), William Salatka, Hussein Warsame,
and participants at the annual conferences of the Canadian Academic Accounring Association and of
the European Accounting Association.

429

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430 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
paigns by various environmental pressure groups or from the firm’s losing its rep-
utation among customers, employees, lenders, and suppliers.
This paper conjectures that managers weigh shareholders’ information cosfs as
well as costs and benefits arising from a firm’sBmncia1 condition in deciding its
environmental disclosure strategy. For instance, a cost-benefit analysis of share-
holders’ information needs may suggest that it is more efficient for management
of widely held firms to disclose environmental information directly than for indi-
vidual investors to collect it themselves. However, for firms in poor financial con-
dition, the disclosure of additional information about their environmental
obligations or commitments is unlikely to enhance their reputation among creditors
and suppliers.
The paper’s contribution to the environmental disclosure literature is threefold.
First, a cost-benefit framework is proposed that identifies potential economic-based
determinants of corporate environmental disclosure. Second, environmental disclo-
sure is viewed in a comprehensive manner as comprising both financial and
nonfinancial information. Third, the incremental relevance of environmental per-
formance and of other firm-specific attributes in explaining corporate environmental
disclosure is assessed.
A sample of Canadian firms is examined during the period 1986 to 1993.
Canadian firms face a reporting environment that is less rule-oriented (prescriptive)
than that in the United States and less subject to lawsuits or litigation.’ A priori,
such an environment is more conducive to voluntary disclosure. Since resource-
based firms in Canada are subject to specific pollution standards, environmental
matters are expected to be an important part of these firms’ overall disclosure
strategy. Wiseman’s (1982) instrument is used to develop a measure of a firm’s
environmental disclosure. A firm’s informational and environmental positions are
inferred from measures suggested in the disclosure (e.g., Scott [ 19941) and envi-
ronmental accounting (Barth and McNichols [ 19941) literatures. Results suggest
that both information costs and financial condition influence corporate environ-
mental disclosure strategies. These results are relatively stable over time.
The remainder of the paper is organized as follows. A theoretical framework
for environmental disclosure and research propositions are put forward in Section
2. The study’s methodology is described in Section 3, while empirical results are
presented in Section 4. Finally, a discussion of the results and their potential im-
plications are provided in Section 5 .

I . A key distinction between the U.S. and Canadian legal liability systems with respect to cor-
porate disclosure involves obligations towards third parties. For instance, in Canada, the Supreme Court
has ruled that an auditor owes a duty of care only to third parties who are part of a limited group of
persons whom the auditor actually knew would use and rely on the audit (i.e.. who are deemed in
privity with the audit firm and with the client). This criterion does not strictly apply in the United
States, where an aggrieved third-party beneficiary need prove only that the auditor was guilty of neg-
ligence and that losses were sustained as a result of reliance on the audited information (Lemon et al.
[ 19931).

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 CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 43 1

2. A Cost-Benefit Framework for Environmental

Disclosure
2.1 Overview
Surveys conducted by KPMG (1997) and Deloitte Touche Tomatsu (1994), as
well as descriptive studies (Gamble et al. [1995]), suggest that firms have increased
the level of environmental disclosure over the past decade.2 However, since cor-
porate environmental disclosure is only partially regulated, it tends to vary widely
across firms.3 Items that often are mentioned by firms (but need not be disclosed
specifically) include capital expenditures for antipollution equipment, recycling and
conservation policies, environmental management and audit practices, and con-
formity to governmental emission standards.
Although environmental disclosure levels have increased, it is not clear why
firms choose to disclose more about their environmental activities. In fact, a firm
may have strong disincentives to disclose information about its environmental ac-
tivities. For example, corporate pollution often makes for negative headlines, with
leakages of contaminated waters at mine sites owned by Cambior Inc., Placer
Dome, and Boliden being widely reported in the Canadian press even though the
properties were in Guyana, the Philippines, and Spain, respectively. In addition,
being singled out as environmentally irresponsible may entail potential political
and economic costs (Lanoie and Laplante [1994]). Conversely, some firms have
competitive advantages in complying with environmental regulations (or even go-
ing further than regulations) or in recycling hazardous wastes into profitable prod-
ucts. For instance, management may want to provide additional environmental
information to build up community support for its relations with regulators, to
obtain cheaper capital, or to enhance the firm’s reputation as a credible and reliable
commercial or financial partner.

2.2 Toward a Framework of Environmental Disclosure

Two distinct perspectives underlie recent attempts to explain corporate envi-
ronmental disclosure. First, environmental reporting has been posited to be a re-
sponse to pressures exerted by various stakeholders or constituencies, with
corporate management attempting to manage the public’s impression of its envi-
ronmental performance (Neu et al. [1998]). Most conceptual work under this per-
spective (as well as some empirical studies) rely on stakeholder theory (e.g.,

2. Firms often include a special section in their annual report to stockholders or publish a separate
environmental management report, which is usually available upon request. For example, most Canadian
pulp and paper firms now publish an environmental report.
3. Canadian securities regulations and accounting standards contain specific requirements for the
disclosure of litigations and lawsuits, which may involve environmental matters. Moreover, securities
regulations require that a firm’s environmental risk be discussed in the annual report’s Management
Discussion and Analysis. However, the disclosure of specific items is not mandated.

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432 JOURNAL OF ACCOUNTING, AUDITING & FINANCE

Roberts [ 1992]), legitimacy theory (e.g., Patten [ 1991]), or political economy the-
ory (e.g., Tinker et al. [ 19911). On the whole, all these theories converge in viewing
corporate social and environmental reporting through the organizational-
environmental nexus, with public pressure playing a dominant role (Scott [ 19911;
Neu et al. [1998]; Walden and Schwartz [1997]; see Gray et al. [1995], for a
comprehensive review of the corporate social and environmental reporting
literature).
Second, corporate environmental reporting has been viewed strictly as an eco-
nomic decision, with management assessing the various costs and benefits to be
derived from additional disclosure. These costs and benefits are determined by
explicit and implicit contractual relationships between the firm’s various stake-
holders. For instance, there may be a cost from disclosure if the information is
used by outside parties against the firm’s interests (e.g., competitors, pressure
groups). There may be benefits from additional disclosure if the firm, by reassuring
investors about various aspects of its operations or performance, is able to reduce
its cost of capital. Such an approach has been used to explain specific financial
reporting choices (e.g., Scott [ 19941).
With respect to environmental disclosure, Li et al. (1997) and Barth et al.
(1 997) adopt a similar focus and investigate the determinants of environmental
liabilities disclosure by firms. Both papers provide results suggesting that firms
adopt a strategic posture when disclosing (or not disclosing) environmental liabil-
ities, with their actual environmental performance playing a significant role. How-
ever, it can be argued that a firm’s disclosure of environmental liabilities is part of
an overall environmental disclosure strategy that is determined by an objective cost-
benefit assessment. Accordingly, the present paper investigates the determinants of
corporate environmental disclosure using a cost-benefit f r a m e ~ o r k . ~

2.3 Determinants of Environmental Disclosure Strategy

Based on the literature, it is conjectured that a firm’s environmental disclosure
strategy depends upon:
1 . The benefit from a reduction in information asymmetry between managers
and shareholders and in information gathering costs by shareholders (infor-
mation costs) and
2. The costs from the use of environmental disclosure by stakeholders other
than shareholders in light of a firm’s financial condition (Fnancial
condition).
In addition, by choosing an environmental disclosure strategy, a firm essentially
selects which facet of its environmental management performance is to be revealed

4. While different from the approach used under a “public pressures” perspective, it provides
complementary inferences about corporate practices with respect to environmental disclosure since it
is likely that a firm’s disclosure decisions or actions are not unidimensional.

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CORPORATE ENVJRONMENTAL DISCLOSURE STRATEGIES 433
to the public. It can be assumed that a firm’s propensity to enhance its environ-
mental disclosure stance may be facilitated or hindered by its environmental per-
formance (Lee,is the information to be revealed favorable, neutral, or unfavorable?).
Thus, environmental performance is considered a determinant of environmental
disclosure strategy.
Information Costs. Prior research suggests that information costs potentially
influence corporate disclosure. For instance, Grossman (1 98 1) and Milgrom (1981)
argue that there is extensive information asymmetry between investors and man-
agers. In the absence of credible information, investors tend to assume the worst
and bid down stock prices in the absence of maximum disclosure by managers.
However, instead of reacting passively to the lack of information, investors can
choose to privately collect and analyze data. Since the private gathering of addi-
tional information is costly, it is undertaken only by investors that have the required
resources (time and money) and expect a positive payoff (benefits > costs), with
uninformed investors being driven out of the market, which is likely to become
less efficient (Diamond [ 19851). With investors facing higher transaction costs,
lower trading volume and illiquidity, stock prices are likely to be bid down (Lev
[ 19881; Karpoff [ 19861). Under certain conditions, it is thus efficient for a firm to
voluntarily disclose information if the cost to the firm is lower than the cost to
market participants (Atiase [ 19851; Lang and Lundholm [1993]; Milgrom and Rob-
erts [ 19921). For instance, firms that extensively rely on capital markets to finance
their expansion or are widely followed by investors have incentives to reduce in-
formation asymmetry between managers and investors since such actions lower
financing costs and are value added (Gibbins et al. [1990]; Frankel et a]. [1995];
Clarkson et al. [ 19941). Moreover, additional disclosure influences the perceived
riskiness of a firm and, hence, its cost of capital (Botosan [ 19971; Sengupta [ 19981).
Such disclosure attenuates the need for investors to privately collect information
on the firm’s risk attributes or characteristics.
In summary, it is in the interest of firms with a higher level of perceived risk
to provide additional disclosure. Moreover, it is expected that environmental dis-
closure by a firm is related positively to the overall level of information costs to
be incurred by its shareholders.
Financial Condition. Despite prior evidence that more extensive disclosure can
benefit a firm and its shareholders, it is unlikely that managers will reveal all value-
relevant information. For instance, one would expect shareholders to demand en-
vironmental information such as environmentally related capital expenditures and
operating costs, estimates of site remediation and reclamation costs, budgeted en-
vironmental investments, environmental management strategies, and environmental
liabilities or commitments. However, management is concerned about the potential
costs from such disclosure (Li et al. [1997]).5 These costs can take many forms
(e.g., reputational, political, contracting or proprietary) and essentially result from

5. For example, investors responding to an IRRC survey identified factual environmental disclo-
sures such as environmental debts as highly useful and relevant (IRRC [1992]).

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434 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
non-shareholder stakeholders taking actions that reduce the firm’s future cash flows
(Dye [1985]; Karpoff and Lott [1993]).
The relative magnitude of these costs as well as the ability to withstand them
are influenced by a firm’s financial condition. For example, for a firm in poor
financial condition, the disclosure of implicit environmental liabilities or of new
pollution regulations may undermine its reputation as a reliable and trustworthy
supplier or debtor. Additional capital expenditures in the future may concern debt-
holders, suppliers, and customers of a firm in poor financial condition. Such dis-
closure implies that new financing will be required, cash flows will be diverted
from other investments or from debt repayment, and the future of some of the
firm’s operations may be jeopardized. All these implications may lead stakeholders
to reassess the terms of their business relations with the firm. Furthermore, pressure
groups and competitors may act upon the disclosed information, with the firm being
ill equipped to effectively respond to these actions. Overall, the firm’s poor finan-
cial condition weakens its ability to withstand stakeholders’ pressures or actions.
In contrast, a firm in good financial condition disclosing similar information will
have the means to better resist stakeholders’ pressures and more quickly resolve
the environmental problem. Thus, a firm in good financial condition may volun-
tarily engage in “costly” disclosure, since that would increase its credibility among
investors (e.g, Hughes [ 19861: Scott [ 19941).
If the information to be disclosed is of a positive nature (e.g., environmental
award), a firm in good financial condition also is expected to provide more exten-
sive environmental disclosure than a firm in poor financial condition. Prior research
shows that credible corporate disclosure is value-enhancing, since it makes inves-
tors’ decision making less risky and more efficient (Beaver [1989]; Datar et al.
[1991]; Feltham et al. [1991]; Clarkson and Simunic [1994]). Good financial
condition increases the credibility, and hence the value, of information to be dis-
closed since much more is at stake for the disclosing firm. In contrast, a firm in
poor financial condition has less credibility in the market and thus can be expected
to benefit less from additional positive disclosure. In summary, it is in the interest
of firms in good financial condition to provide more environmental disclosure than
firms in poor financial condition.
Environmental Pegormance. Prior research has investigated the link between
environmental performance (e.g., conformity or not to current emission standards:
absence or not of fines, penalties, orders to conform, or legal actions) and envi-
ronmental disclosure (Ingram and Frazier [ 19801; Wiseman [ 19821; Freedman and
Wasley [ 19901). Although results are weak, the evidence suggests that better per-
formance is associated with more disclosure. Furthermore, the nature of a firm’s
environmental performance underlies the information relevance of its environmen-
tal disclosure. Thus, environmental performance is introduced as a determinant of
environmental disclosure strategy. Consistent with prior results, a positive relation
between environmental performance and environmental disclosure is predicted.
Therefore, after controlling for environmental performance, it is expected that
the level of environmental disclosure by firms is determined by its information

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CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 435
costs and by its financial condition. Firms with extensive (limited) outside share-
holders’ information needs should disclose more (less) environmental information
while firms in poor (good) financial condition should disclose less (more) environ-
mental information. It is expected that most “good news” and “bad news” in
environmental disclosure are captured in environmental performance, that is, con-
formity or not to current emission standards and the absence or not of fines, pen-
alties, orders to conform, or legal actions.

3. Method
3.1 Sample
The sample comprises 212 firm-year observations, selected in the following
manner. From water pollution compliance surveys published by the Canadian, On-
tario, and Quebec environmental departments from 1986 to 1993, all firms with
publicly traded securities are selected. These surveys disclose actual pollution lev-
els, as well as allowed pollution levels, reported by all firms whose water discharges
are monitored by environmental authorities. Firms mentioned in these reports are
therefore assumed by regulatory authorities to have a potentially large impact on
the environment. From this initial screen, 33 firms are identified from three indus-
trial sectors: pulp and paper; oil refining and petrochemicals; and steel, metals,
and mines. The resulting sample of 212 firm-year observations differs from 264
(8 years X 33 firms) because a few firms were acquired or merged during the
sample period.

3.2 Dependent Variable Measurement

The following model summarizes the empirical model:
Disclosure = f (Information Costs, Financial Condition, Environmental
Performance, Control Variables)
Environmental Disclosure (Disclosure). The level of environmental disclosure
contained in a firm’s annual and environmental reports is used as a proxy for its
environmental voluntary disclosure strategy.“ Environmental disclosure is measured
using the coding instrument developed by Wiseman (1982) (see Appendix). Wise-
man tests the relation between environmental disclosure in annual reports and en-
vironmental performance (CEP index) by developing an indexing approach quite
similar to Buzby’s (1974). The author measures the disclosure on 18 items grouped
into four categories: economic factors, environmental litigation, pollution abate-
ment, and other environmental matters. The rating is based on a score of one to

6. Environmental disclosure in 10-K and in annual information forms (submitted to Canadian

Securities Commissions) is also considered, but it is less extensive than information provided in the
MD&A or in distinct environmental reports.

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436 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
three, three for an item described in monetary or quantitative terms, two when an
item is described specifically, and one for an item discussed in general.
There are some advantages in using Wiseman’s scale to assess a firm’s envi-
ronmental disclosure. First, the rating scheme and the subsequent construction of
a firm-specific environmental disclosure score allows information of various types
to be integrated into a single comparable figure. Second, an environmental disclo-
sure score computed with Wiseman’s scale is comprehensive since it relies on a
reading and a coding of a firm’s annual and environmental reports, including fi-
nancial statements’ footnotes. Third, in contrast to other disclosure studies that rely
on word counts to measure environmental disclosure (e.g., Neu et al. [ 1998]), the
use of Wiseman’s scale allows for the researcher’s judgment to be impounded in
rating the “value” of the disclosure made by a firm. While this process is more
subjective, it ensures that irrelevant or redundant generalities are not considered to
be strategic environmental disclosure. Finally, Wiseman’s scale has been used in
prior research (e.g., Freedman and Wasley [ 19901).
Annual and environmental reports issued by sample firms from 1986 to 1993
were read, and all environmental disclosure items were rated according to the level
of detail provided by the firm. To ensure consistency over time and across firms,
all individual scores were reviewed independently by two persons. In light of po-
tential methodological problems (heteroscedasticity and a dependent variable cen-
sored at zero), various complementary analyses are performed. First, relative
environmental disclosure scores are computed by deflating individual firms’ raw
scores either by the sample median raw score or by the industry- and year-specific
median raw score. Such relative environmental disclosure scores are then analyzed
using Ordinary Least Square (OLS) regressions. Second, environmental disclosure
scores are analyzed using TOBIT, a procedure that takes into account the fact that
observations for environmental disclosure are censored at zero. Third, environmen-
tal disclosure scores are partitioned at the median and recoded into a dummy var-
iable (l/O). OLS and logit regressions are then performed with this new dependent
variable.

3.3 Explanatory Variables Measurement

Information Costs. Information costs are proxied by five variables:

Volatility, or perceived firm risk (Risk), measured by market Beta

Reliance on capital markets (Capital Markets), measured by a dummy vari-
able taking a value of 1 (0 otherwise) for any firm having issued securities
to the public in the past three years
Trading volume (Volume), measured by annual trading volume divided by
the total number of shares outstanding
Control by a single shareholder, individual or family (Closely-held= 1), or
not (0)
Subsidiary of another firm (Subsidiary= I), or not (0)

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CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 437
Prior empirical evidence suggests that increased disclosure by a firm, environ-
mental or otherwise, can lead to a reduction in its cost of capital and, implicitly,
in its perceived riskiness (e.g., Botosan [19971; Sengupta [1998]). Since a firm’s
returns (or its valuation) and its risk are intrinsically related, it can be inferred that
the higher a firm’s volatility or risk, as measured by its beta, the more difficult it
is for investors to precisely assess a firm’s value and the more likely they are
expected to incur information costs about risk drivers (Foster [ 19861; Beaver
[ 19891). Current trends suggest that the quality of a firm’s environmental manage-
ment is now considered explicitly in the estimation of these risk drivers. For in-
stance, auditing standards and practices require that an evaluation of a firm’s
environmental activities and management be part of the inherent risk assessment
process (Canadian Institute of Chartered Accountants [CICA], Auditing Guideline
19). Moreover, as part of their credit risk analyses, lenders and bankers are now
assessing a firm’s environmental management and liabilities (e.g., Development
Bank of Canada internal guidelines to loan officers; IRRC survey [1992]). In that
context, it appears that investors in “high Beta” firms benefit from additional
environmental disclosure by management since it reduces their information costs.
Thus, a positive relation is expected between Beta and environmental disclosure.
Reliance on capital markets for financing needs also imposes upon managers
the need to reduce the level of information asymmetry between them and investors
(see Frankel et al. [1995]). For instance, debt or equity issues that are registered
with securities regulators must be supported by prospectuses documenting key risks
in a firm’s operations. In the case of a private financing, it is now common for
lenders to obtain results from environmental audits before proceeding with the
transaction. Therefore, reliance on capital markets is expected to be associated
positively with environmental disclosure (Scott [ 19941).
Consistent with Scott (1994), trading volume is included as a proxy for infor-
mation cost. Trading volume serves as a proxy for the extent of private information
production generated by investors and other market participants: The more trading
in a firm’s securities, the more information market participants have about its ac-
tivities. Additional disclosure by the firm reduces their need to engage in the col-
lection of private data. A positive relation is expected between trading volume and
disclosure.’
In situations where a firm is closely-held, either by an individual or a family,
it is likely that there is less pressure to publicly disclose additional information
since it is already available to the dominant shareholder. A similar situation is
expected to prevail when a firm is a majority-controlledsubsidiary of another firm.
Scott (1 994) also argues that the existence of significant owners attenuates infor-
mation costs but does not distinguish between individual owners (who are not
accountable to anyone else) and corporate owners (who may be accountable to
their own stockholders). Thus, ownership as a closely-held firm or subsidiary is

7. Since the shares of many Canadian firms are traded on multiple exchanges, annual trading
volume encompasses data from the Toronto, Mondal, New York, and American Stock Exchanges.

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438 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
predicted to be related negatively to environmental disclosure. However, since the
magnitude of the relation may not be similar across types of ownership, two sep-
arate variables are used.
Financial Condition. Other costs to be incurred by a firm as a result of its
environmental disclosure strategy are posited to be related to its financial condition,
as proxied by three variables:

Accounting-based performance (Accounting Return), measured as the return

on assets (i.e., a firm’s net earnings divided by lagged assets)
Stock market performance (Market Return), measured as the firm’s annual
stock market return less market return
Leverage (Leverage), measured as Debt to Equity

It is expected that for a firm in good financial condition the benefits from more
open disclosure (e.g., lower cost of capital) are likely to outweigh the costs from
the disclosure of environmental information. By widely disseminating information
about their environmental management and showing their ability to shoulder en-
vironmental obligations, these firms establish their credibility as reliable and so-
cially responsible partners among all stakeholder groups. In contrast, for firms in
poor financial condition, any benefits from more extensive disclosure may be out-
weighed by reputational, political, contractual, and proprietary costs. Thus, it is
expected that after controlling for environmental performance, a better financial
condition is associated with more environmental disclosure than a poor financial
condition.
Financial condition can be assessed from the perspectives of financial stake-
holders, that is, shareholders and debtholders, and is measured by a firm’s account-
ing- and market-based returns as well as by its leverage.
Environmental Peformance. Environmental performance comprises four
measures. The first measure relies on the information contained in industrial dis-
charge reports published by the Departments of the Environment from the Cana-
dian, Ontario, and QuCbec governments and is used to identify all firms that have
exceeded allowed pollutant discharge levels in one of their producing facilities.
These firms are defined as “polluters” in a regulatory sense. Each polluter is coded
(1) for the year in which one of its plants located in Ontario or in QuCbec exceeds
allowed discharge levels for specific contaminants (0 otherwise). Prior evidence
suggests that water discharges are a relevant measure of environmental performance
(Cormier and Magnan [ 19971).
To obtain a comprehensive measure of pollution performance, publicly dis-
closed legal and regulatory proceedings launched against sample firms also are
considered. Information on environmental fines and penalties, orders to conform
or remediate, and lawsuits were obtained from various legal databases and records
such as the Canadian Environmental Law Report, La Protection juridique de
I’environnement au QuCbec, and Canadian Abridgements. Each pollution perfor-

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CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 439
mance measure is a separate variable that is coded (110) according to whether there
was a fine or penalty, an order to conform, a lawsuit, or a violation of pollution
emission standards.
Control Variables. Three variables are introduced as control variables in the
analysis:
Age of a firm’s property, plant and equipment, measured as (Net Property,
plant, and equipment)/(Gross Property, plant, and equipment)
Firm size, measured as ln(Sa1es)
SEC registered (1). or not (0)
In the absence of complementary information, the relative age of a firm’s
property, plant, and equipment may be used by investors as an indication of its
actual pollution performance, since older production assets can be assumed to be
more polluting than recently purchased equipment. Some empirical studies show
that the age of plant assets is related to a firm’s environmental performance (Freed-
man and Jaggi [1992]). Therefore, it is possible that investors use this observable
information to indirectly assess the extent of a firm’s environmental problems. In
reaction, management may attempt to modify investors’ impressions with additional
disclosure. However, since the actual impact of a firm’s plant age on environmental
disclosure is unclear, no directional prediction is made for this variable.
Prior research suggests that firm size is positively related to disclosure (Lang
and Lundholm [ 1993I). Firm size can be considered to be a proxy for the magnitude
of information costs: The larger the firm, the more the information disclosure costs
to be incurred by a firm are trivial compared to the costs that would be incurred
if all shareholders were to start gathering their own data. However, since firm size
may also proxy for other factors, such as political costs, any inferences remain
tentative. Under these conditions, firm size, measured as 1 n(Sales), is introduced
as a control variable (Scott [ 19941).
Finally, firms, or subsidiaries of firms, that are registered with the Securities
and Exchange Commission are identified specifically (Scott [ 19941). These firms
are subject to different disclosure regulations and their reporting environment is
likely to be riskier than for firms whose securities are not traded in the United
States. SEC registration is introduced as a control variable (1; 0 if not).
Other potential indicators for costs resulting from environmental disclosure
such as unionization and regulations are not firm-specific in the present context
since all sample firms are unionized and specifically regulated. However, since both
unions and regulations tend to be industry-specific, dummy variables are introduced
into the analysis to capture any relation between a given industry and environmental
disclosure.

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 440 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
TABLE 1
Sample Firms’ Environmental Disclosure
Panel A. Mean scores

Pulp and paper Oil refineries and Steel, metals. and Total
( n = 72) chemicals (n = 45) mines (n = 95) ( n = 212)

Year Mean p-value* Mean p-value* Mean p-value* Mean

I986 3.3 0.000 5.9 0.015 2.8 0.002 3.8

I987 6.8 0.000 3.4 0.000 3.9 0.007 4.2
I988 11.8 0.240 6.8 0.014 6.3 0.048 8.4
I989 19.6 0. I60 17.0 0.220 12.7 0.340 15.9
1990 18.7 0.1 10 19.4 0.023 15.6 0.200 17.3
1991 21.6 0.058 19.2 0.600 15.0 0.027 18.1
1992 20.4 0.038 16.6 0.610 11.8 0.007 15.7
I993 16.8 0.350 17.8 0.067 12.2 0.380 16.3
1993-1 986 15.0 0.005 12.5 0.850 10.2 0.001 12.3

Panel B. Mean scores by category

Pulp and paper Oil refineries, chemicals Steel, metals, and mines
E EL PA 0 E EL PA 0 E EL PA 0

1986 1.1 0.2 1.7 2.3 1.3 0.0 1.7 2.6 0.3 0.2 1.5 0.9
1987 0.9 0.2 0.3 5.7 1.6 0.0 0.1 1.9 0.1 0.0 1.7 2.5
1988 3.4 0.0 1.8 6.2 2.8 0.0 0.2 1.7 1.2 0.0 1.9 3.9
1989 6.6 0.0 3.6 9.9 3.0 0.6 4.2 8.0 4.0 0.2 2.5 5.0
1990 6.6 0.2 3.9 9.1 4.2 0.6 4.0 11.2 3.7 0.3 4.2 6.3
1991 6.2 0.2 3.3 12.1 5.3 0.0 4.2 5.8 2.6 1.2 4.1 5.7
1992 5.8 0.4 5.3 9.0 3.7 0.0 3.3 6.8 4.2 0.0 2.9 4.1
1993 5.2 0.4 3.4 9.1 4.7 0.3 5.3 7.2 4.4 0.1 3.7 5.2
Total 4.7 0.2 2.8 7.9 3.2 0.2 2.8 5.3 2.7 0.2 2.9 4.3
E Economic factors; E L Environmental litigation; PA: Pollution abatement; 0: other environ-
mental matters
*Differences of means between the industry and the rest of the sample (two-tailed t-test)

4. Results
4.1 Descriptive Analyses
Table 1 reports mean firms’ environmental disclosure from 1986 to 1993, using
the indexing approach developed by Wiseman (1982). The disclosing score is di-
vided into four categories: economic factors, environmental litigation, pollution
abatement, and other environmental matters. From Panel A, we can see that average
environmental disclosure increases from 1986 to 1989 and appears to be stabilizing
afterward. Trends in all three industries are more or less consistent. Three events
may explain this pattern in environmental disclosure. First, since 1989, firms must
include a Management Discussion and Analysis (MD&A) section in their annual

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CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 44I
report. The Ontario Securities Commission requires environmental management
and risks to constitute one of the key aspects to be discussed in the MD&A. Second,
in 1990, the CICA enacted section 3060, which contained measurement and dis-
closure requirements for site restoration costs to be included in financial statement
footnotes. Finally, while only one firm published a distinct environmental report
in 1990, by 1993, eight firms were publishing such reports. Two-tailed p-values
reported in Panel A suggest that there are some significant inter-industry differences
in their levels of environmental disclosure. For instance, firms in the steel, metals,
and mining sector appear to consistently disclose less than other firms, while firms
in the pulp and paper sector consistently disclose more. The pattern for oil refining
and chemicals firms is less consistent.
In Table 1, Panel B reveals that an increase in environmental disclosure during
the period under investigation is observed in most disclosure subcategories (with
the exception of environmental litigation disclosure) for all three industries. Pearson
correlation coefficients (Table 2) do not reveal any pairwise correlation greater than
0.54 among variables used in the study. Disclosure is positively related to leverage,
pollution performance (excess pollution), and firm size. There is some evidence
that financial condition (accounting return) is negatively related to excess pollution.

4.2 Determinants of Environmental Disclosure

Regression Analysis (pooled and year-specific regressions). Table 3 presents
the results from two pooled cross-sectional OLS regressions between corporate
environmental disclosure and its determinants. Two approaches are used to control
for industry- and year-specific effects. In Panel A, the dependent variable is firm-
specific environmental disclosure standardized by sample median disclosure. In
addition, the regression includes industry- and year-specific intercepts. In Panel B,
the dependent variable is firm-specific environmental disclosure standardized by
industry- and year-specific median disclosure.
The Panel A regression explains 53.1 percent of overall variance (p < 0.OOI).
All variable-specific variance inflation factors are found to be smaller than 4.0,
thereby providing no indication of multicollinearity. At 2.13, the Durbin-Watson
statistic does not suggest the existence of autocorrelation. Coefficients for all five
information costs proxies are in the expected direction, with four being statistically
significant at conventional levels. Environmental disclosure is positively related to
Risk (0.23; p < 0.058), Reliance on Capital Markets (0.14; p < 0.070), and Trading
Volume (0.17; p < 0.022). Firms with closely-held stock ownership have less
extensive environmental disclosure (-0.30; p < 0.008). Thus, as expected, a firm’s
perceived risk and the potential audience for its environmental information are
associated with higher levels of environmental disclosure. Such results are consis-
tent with information costs being higher under these conditions.
Among measures of financial condition, coefficients for accounting return
(0.84; p < 0.005) and leverage (-0.07; p < 0.025) are associated with environ-
mental disclosure at conventional statistical levels. Thus, as expected, firms

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 TABLE 2
Pearson Correlations

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Disclosure I .07 .05 .OS .02 .07 .04 -.02 .I4 .19 .08 .03 .13 .06 .22 -.06 .o 1 - .22
!
i Risk 2 .17 .21 35 -.25 .04 -.05 .08 -.06 .05 .I0 .OO .08 -.33 -.22 -.30 - .05
Capital Markets 3 .I1 .15 -.22 -.04 .OO .06 .02 .04 .07 -.08 .I9 -.19 -.01 -.I6 .09
Trading Volume 4 -.14 -.19 .07 .12 .38 .09 - .07 .05 .06 .07 -.09 .25 - .23 .39
Closely-held 5 - .54 -.06 -.06 .04 .14 - .06 -.06 -.I3 .lI -.33 -.40 - .25 - .24
Subsidiary 6 .I0 -.03 d.01 -.I0 .10 .06 .I0 -.09 .39 .I5 .36 -.30
Accounting Return 7 .07 .09 -.14 -.ll -.08 -.07 .03 -.03 .13 .23 -.12
Market Return 8 .02 .oo .06 -.03 -.I4 .02 -.03 .06 .I0 .01
Leverage 9 .03 .03 .OO -.I5 .I3 .07 .06 -.02 - .09
Excess Pollution 10 -.OI .14 .I8 .10 .22 -.13 -.25 - .08

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Fines I1 .I3 -26 -.02 .04 .02 -.03 -.11
orders 12 .20 .06 .09 .05 -.26 .02
Legal Actions 13 -.09 .I4 .05 -.I3 .09
Age 14 .OO .I6 -.I1 - .09
Firm Size 15 .23 .28 -.10
SEC 16 .23 .24
Oil Refineries 17 - .47
Steel, metals 18
 Independent variables are defined as follows:
Risk = Market Beta
Capital Markets = Indicator variable coded one (1) if public issue of securities within the last three years, 0 otherwise.
Trading Volume = Total number of common shares traded in a given year I Total number of common shares outstanding.
Close1y -held = Indicator variable coded one (1) if firm controlled by a given individual stockholder, 0 otherwise.
Subsidiary = Indicator variable coded one (1) if firm is a subsidiary of a parent firm, 0 otherwise.
Accounting Return = Earnings, I Assets,-,
Market Return = (Stock Price, + Dividend, - Stock Price,-,) I Assets,-,
Leverage = Debt, I Stockholders’ Equity,
Excess Pollution = Indicator variable coded one (1) if firm has exceeded allowable water discharges in a given year, 0 otherwise.
Fines and Penalties = Indicator variable coded one (1) if firm has paid environmental fines in a given year, 0 otherwise.
Orders to Conform = Indicator variable coded one (I) if firm has received orders to conform in a given year, 0 othenvise.
Legal Actions = Indicator variable coded one (1) if firm has faced new legal actioas in a given year, 0 otherwise.
Fixed Assets, Age = Net property, plant and equipment I Gross property, plant, and equipment
F m Size = Log(Sa1es)
SEC = Indicator variable coded one (1) if firm’s disclosure is subject to SEC regulations, 0 otherwise.
W Oil Refineries, Chemicals = Indicator variable coded one (1) if firm is an oil refiner, 0 otherwise.
Steel, Metals, and Mines = Indicator variable coded one (1) if firm is involved in mining, steel, or metals, 0 otherwise.
Crosscorrelations greater than or equal to (smaller than or equal to) .14 (-.14) are significant at 5% (two-tailed).

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 444 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
TABLE 3
Pooled Cross-Sectional OLS Regressions of the Relation between Corporate
Environmental Disclosure and Its Determinants

Panel A. Dependent variable: Panel B. Dependent variable:

environmental disclosure environmental disclosure
(standardized by sample (standardized by industry-
median disclosure) and year-specific median
disclosure)
Variable" Prediction Coefficient / ratio p-value* Coefficient t ratio p-value*

Information Costs
Risk + 0.23 1.58 0.058 0.14 0.68 0.250
Capital Markets + 0.14 1.49 0.070 0.4 1 3.03 0.001
Trading Volume + 0.17 2.02 0.022 0.27 2.24 0.013
Closely-held - -0.30 -2.41 0.008 -0.26 -1.47 0.071
Subsidiary -0.13 -1.19 0.118 -0.1 I -0.71 0.280
Financial Condition
Accounting Return + 0.84 2.59 0.005 0.59 1.29 0.100
Market Return + 0.02 0.17 0.432 -0.05 -0.31 0.378
Leverage - -0.07 -1.97 0.025 -0.09 -1.73 0.042
Environmental Performance
Excess Pollution + 0.14 1.55 0.062 0.16 1.31 0.096
Fines and Penalties + -0.08 -0.33 0.372 -0.1 1 -0.33 0.372
Orders to Conform + 0.09 1.01 0.157 0.10 0.79 0.216
Legal Actions + 0.06 0.53 0.297 -0.09 -0.58 0.283
Control Variables
Fixed Assets Age +I- 0.27 1.31 0.193 0.08 0.27 0.789
Firm Size + 0.15 4.25 0.000 0.19 3.56 0.000
SEC +I- -0.22 -2.43 0.016 -0.20 -1.51 0.132
Oil Refineries, Chemicals +I- -0.16 - 1.14 0.257 NIA
Steel, Metals, and Mines +/- -0.50 -4.15 0.000 NIA
Adjusted R-square 53.1% 11.2%
F statistic @-value); Durbin-Watson; N 10.96 (0.000); 2.13; 212 2.78 (0.000); 2.00; 212
*One-tailed if directional prediction and if in the right direction, two-tailed otherwise.
"Variables are defined in Table 2. Year-specific intercepts are not reported.

showing good financial results tend to increase their level of environmental disclo-
sure, while poorly performing firms minimize the level of environmental infor-
mation contained in their annual reports.
With respect to a firm's pollution performance measures, a positive relation is
observed between excess pollution and environmental disclosure (p < 0.062).
Among control variables, firm size (0.15; p < 0.001), SEC registration (-0.22;
p < 0.016), and membership i n the steel, metals, and mines industrial sector
(-0.50; p < 0.001) are associated with environmental disclosure. Thus, irrespective
of their information costs and financial condition attributes, large firms disclose
more environmental information than small firms. SEC registration appears to re-

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 CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 445

duce the level of environmental disclosure. Finally, pulp and paper firms have more
extensive environmental disclosure than firms in other sectors, especially steel,
metals, and mining firms. It must be noted that pulp and paper mills consume large
quantities of water and, for that reason, are usually located on rivers, often near
population centers. Thus, pulp and paper firms are especially targeted by stake-
holders concerned about pollution.
The regression reported in Panel B of Table 3 is statistically significant (ad-
justed R-square : 11.2%; p < 0.001) : the reduction in adjusted r-square is due to
the elimination of fixed-year and industry effects from the regression.x Overall,
information costs, financial condition, and environmental performance coefficients
are similar to results presented in Panel A, except that risk is not statistically
significant at conventional levels in Panel B.
Tobit Analysis. Since the dependent variable (environmental disclosure) is cen-
sored with some observations at zero, an analysis using Tobit may provide a pow-
erful specification check.9The Tobit specification assumes that an unobserved latent
variable index determines the level of the dependent variable so that observed
values of environmental disclosure scores are censored at zero whenever the latent
variable index plus the disturbance term is negative (Greene [ 19971). Results from
a maximum likelihood estimates for a Tobit model of environmental disclosure are
presented in Panel A of Table 4. Environmental disclosure is a firm’s actual en-
vironmental disclosure score. Alternative measures of environmental disclosure
(standardization by sample median or by year- and industry-specific sample me-
dians) provide similar evidence (not reported).
Almost all coefficient estimates in Panel A of Table 4 exhibit the same signs
as those reported in Table 3 (pooled OLS regression) and are in the predicted
directions. Among information costs, capital markets (p < 0.020), trading volume
(p < 0.003) and closely-held ownership ( j C ~0.029) are related significantly to
environmental disclosure. Among financial condition variables, only leverage (p <
0.004) is found to be associated with environmental disclosure. There are some
indications that firms with poor environmental performance, as measured by excess
pollution (p < 0.029) and orders to conform (p < 0.095), tend to increase their
level of environmental disclosure. Finally, while firm size is associated with greater
environmental disclosure (p < O.OOl), both SEC registrant status (p < 0.018) and

8. An alternative mean to control for year-specific effects is to perform year-specific regressions.

However, in this study, inferences from such regressions are not entirely reliable considering the small
number of degrees of freedom in each annual regression (between I I and 25). In fact. adjusted r-
squares from these regressions are found to be quite volatile. Thus, a focus on results from the pooled
regressions appears more appropriate. Overall, results from annual regressions are consistent with the
results obtained from the pooled regression reported in Table 3. Among information costs variables,
all mean coefficient signs are consistent with pooled cross-sectional regression results, but only coef-
ficients for capital markets and trading volume &statistics are significant over the period under inves-
tigation. Among financial condition variables, as expected, leverage is found to be negatively related
to disclosure. Other coefficients are consistent with prior evidence.
9. Twelve percent of sample firms do not have any environmental disclosure and 23 percent have
an environmental score, using Wiseman’s scale, of less than 3.

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 446 JOURNAL OF ACCOUNTING, AUDITING & FINANCE

TABLE 4
Relation between Environmental Disclosure Strategy and Its Determinants: Results
from Pooled Tobit and Logit Analyses

funel B. Logit Regression.

Punel A. Tobit Regression. Dependent variable:
Dependent variable: Environmental disclosure score
Actual environmental disclosure relative to median
score (high = 1, low = 0)

Predicted Estimated Estimated

Sign Coefficient Tratio p = value* Coefficient Tratio p = value*

Information Costs
Risk + 2.39 1.26 0.103 0.75 0.80 0.185
Capital Markets + 2.50 2.06 0.020 1.41 6.40 0.01 I
Trading Volume + 2.98 2.70 0.003 0.46 0.87 0.176
Closely-held - -3.19 -1.90 0.029 -1.74 -4.63 0.015
Subsidiary - - 1.49 -0.99 0.161 - 1.06 -1.99 0.079
Financial Condition
Accounting Return + 1.76 0.94 0. I73 8.58 3.63 0.028
Market Return + 0.16 0.1 I 0.460 0.50 0.49 0.242
Leverage - -1.20 -2.68 0.004 -0.12 -0.53 0.284
Environmental Performance
Excess Pollution + 2.16 1.89 0.029 0.14 0.08 0.388
Fines and Penalties + - 1.96 -0.62 0.27 1 -1.59 -1.37 0.120
Orders to Conform + 1.60 1.29 0.095 0.553 0.35 0.277
Legal Actions + -0.02 -0.03 0.490 -0.07 0.02 0.456
Control Variables
Fixed Assets Age +/- 2.50 0.91 0.368 1.32 1.47 0.226
Firm Size + 2.15 4.48 0.000 0.73 11.08 0.000
SEC +I- -2.84 -2.35 0.018 -0.50 -0.87 0.351
Oil Refineries and Chemicals +/- -0.59 -0.33 0.741 -0.94 -1.10 0.294
Steel, Metals, and Mines +I- -6.77 -4.00 0.000 -2.87 -12.93 0.000
N: 212 Likelihood Ratio : 156.1
Chi-square (p-value): 7.44
(0.000)
Correct classification rate:
85.4%
N: 212
*One-tailed if specific prediction, two-tailed otherwise.
sYear-specificintercepts are not reported.
hVariables are defined in Table 2.

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 CORPORATE ENVlRONMENTAL DISCLOSURE STRATEGIES 447
membership in the steel, metals, and mines industry (p < 0.001) tend to lead to
less environmental disclosure.
Logit Analysis. Since the dependent variable, environmental disclosure, relies
on the subjectivejudgment of the researchers, there may be error in its measurement
that generates noise in the analysis. Thus, the analysis is also performed using a
nonlinear model (i.e., logistic regression) with a more primitive measure of envi-
ronmental disclosure. Firm-year observations are split into two groups with respect
to their environmental disclosure with the sample median serving as a cutoff point.
Observations above the median are designated as high disclosers (coded l), while
those below the median are designated as low disclosers (coded 0). Such an ap-
proach may better capture the nature of a firm’s environmental disclosure and
reduce the likelihood of measurement error in the dependent variable. Results from
an OLS regression using the same dependent variable, that is, 1 for high environ-
mental disclosure and 0 for low environmental disclosure, provided similar results
(not reported).
Results from the logit analysis are shown on Panel B of Table 4. The logit
model correctly classifies 85.4 percent of observations as high and low disclosers.
All relations between individual determinants and environmental disclosure have
the same sign as shown in Table 3 (OLS regression). Results from the OLS re-
gression with high (1) or low (0) environmental disclosure as a dependent variable
are generally consistent with those obtained from the logit regression and closely
match results presented in Table 3.
Sensitivity Analyses: Measurement of Environmental Disclosure. To assess the
results’ robustness to the measure of environmental disclosure, additional analyses
are performed. First, instead of being deflated by the median environmental dis-
closure score, actual environmental disclosure scores are used as a dependent var-
iable with one-year lagged environmental disclosure being added to the regression
model. Such a specification explicitly assumes that environmental disclosure fol-
lows a random walk, with the current year’s disclosure being the best predictor of
next year’s disclosure. Second, the pooled regression is re-performed without out-
liers. Results from these regression analyses (not reported) using alternate specifi-
cations are similar to those reported in Tables 3 and 4. Finally, the analysis
presented in Table 3 is performed with environmental disclosure components as
dependent variables instead of a comprehensive score. Inferences are consistent
across these regressions and are qualitatively similar to results reported in Table 3.

5. Conclusion
The purpose of this study was to assess how a firm’s environmental disclosure
strategy is determined. Overall, results can be summarized in the following manner.
First, results using different methodological approaches (OLS, tobit, logit, mea-
surement of dependent variable) suggest that there are systematic patterns in en-
vironmental reporting, with an overall trend across industries towards more
disclosure. Second, among information costs variables, there is evidence that a

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448 JOURNAL OF ACCOUNTING, AUDITING & FINANCE
firm’s risk, reliance on capital markets, and trading volume are positively related
to the extent of its environmental disclosure, while concentrated ownership
(closely-held) is associated with less environmental disclosure. These results are
consistent with expectations. Third, there is some evidence that firms in good fi-
nancial condition choose to disclose more than firms in poor financial condition,
where financial condition is proxied as an accounting-based rate of return on assets
or leverage. Fourth, there is some evidence that a firm’s environmental perfor-
mance, especially excess pollution, positively influences its environmental disclo-
sure. Finally, among control variables, pulp and paper firms are found to be
disclosing more environmental information than oil refineries and chemical firms
and steel, metals, and mining firms. There is also evidence that firms with more
modern fixed assets as well as large firms disclose more environmental information,
while firms subject to SEC regulations disclose less environmental information.
Additional analyses (not reported) also suggest that a firm’s lagged environmental
disclosure is a significant determinant of its current year reporting, with inferences
from all other variables remaining qualitatively similar.
Results from the present study contribute to our knowledge of environmental
reporting in the following manner. First, environmental disclosure is weighted,
using Wiseman’s scale, according to its relevance and meaning and not simply
added (e.g., word count). Thus, both the extent and the quality of environmental
disclosure are being considered (i.e., information redundancies, repetitions, super-
fluous statements are not considered), and the resulting environmental score is more
likely to capture a firm’s environmental disclosure strategy. Second, environmental
reporting is viewed as the outcome from a cost-benefit analysis by corporate man-
agement taking into account a firm’s information costs situation and its financial
condition. Third, environmental performance is expressly controlled for and
emerges as a potential determinant of environmental reporting. Finally, results sug-
gest that a firm’s legal environment influences its disclosure policies: Canadian-
based firms whose disclosure is directly or indirectly under SEC jurisdiction tend
to formally disclose less environmental information than firms subject only to Ca-
nadian securities regulations.
An objective for further research should be to discriminate between competing
hypotheses of environmental reporting. A sizable portion of prior literature conveys
the message that environmental disclosure is an attempt by corporations to manage
public impressions (e.g., Neu et al. 119981). Our results suggest that a different
perspective can be adopted when analyzing the content of a firm’s environmental
disclosure. Another dimension that requires further investigation is the importance
of temporal trends and industry membership in environmental disclosure. An ar-
gument can be made that public pressures may evolve over time, which would
explain shifts by firms in their environmental reporting strategy. However, public
pressures have a direct impact on the political costs to be imposed on firms for
their environmental performance, since regulatory agencies may then be keener to
pursue or punish polluters, thus increasing the cost of bad environmental perfor-

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CORPORATE ENVIRONMENTAL DISCLOSURE STRATEGIES 449

mance. In that context, environmental reporting can be used by managers as a tool

to reduce the implicit cost of their firm’s pollution.

Appendix: Environmental Disclosure Ratings (Wiseman scale, 1982)

Economic factors:
Past and current expenditures for pollution control equipment and facilities
Past and current operating costs of pollution control equipment and facilities
Future estimates of expenditures for pollution control equipment and facilities
Future estimates of operating costs for pollution control equipment and facilities
Financing for pollution control equipment or facilities
Provisions f o r site restoration (added to Wiseman rating for the current study)

Litigation:
Present litigation
Potential litigation
Pollution abatement:
Air emission information
Water discharge information
Solid waste disposal information
Control, installations, facilities, or processes described
Compliance status of facilities
Other environmental related information:
Discussion of regulations and requirements
Environmental policies or company concern for the environment
Conservation of natural resources
Awards for environmental protection
Recycling
Department or offices for pollution control
Rating scale:
3: Item described in monetary or quantitative terms
2: Item described specifically
1: Item discussed in general

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