where firms choose to disclose voluntary environmental information

J. Account. Public Policy 30 (2011) 504–525

Contents lists available at ScienceDirect

J. Account. Public Policy

journal homepage: www.elsevier .com/locate/ jaccpubpol

Where firms choose to disclose voluntary environmentalinformation

Charl de Villiers a, Chris J. van Staden b,⇑a Department of Accounting and Finance, The University of Auckland, New Zealandb Department of Accounting and Information Systems, University of Canterbury, New Zealand

a b s t r a c t

0278-4254/$ - see front matter � 2011 Elsevier Indoi:10.1016/j.jaccpubpol.2011.03.005

⇑ Corresponding author. Address: Department of4800, Christchurch 8140, New Zealand. Tel.: +64 3

E-mail address: [email protected] Another example of changing conditions: a sear

articles, 28 in 1997, and 132 in 2007.

Corporate environmental performance is of increasing importanceto investors, public policy makers and the general public. Firmsdisclose environmental information (mostly) voluntarily in theirannual reports and on their websites. These disclosures are impor-tant, because they provide environmental performance informa-tion and influence capital markets. We compare environmentaldisclosure in annual reports and on websites with a long-term(bad) and a short-term (crisis) environmental performance mea-sure. We find evidence to support our hypotheses that differentlevels of environmental disclosure are made in annual reportsand on websites under different conditions. More specifically, firmsdisclose more environmental information on their websites whenfaced with an environmental crisis and more in their annualreports when they have a bad environmental reputation.

� 2011 Elsevier Inc. All rights reserved.

1. Introduction

A recent Time magazine cover and lead article proclaims that Americans are increasingly willing tochange their consumer behavior for environmental reasons, even during a recession (Stengel, 2009).1

Environmental disasters have also had increasing financial consequences, e.g., the Gulf of Mexico oil spillin 2010 is costing BP billions ($40 billion by current estimates). Environmental legislation, such as thevarious Clean Air Acts, the Energy Policy Act of 2005 and the American Recovery and Reinvestment

c. All rights reserved.

Accounting and Information Systems, University of Canterbury, Private Bag364 2987x4111; fax: +64 3 364 2727.

nz (C.J. van Staden).ch for the word ‘‘environment’’ in The New York Times during 1987 yielded 4

http://dx.doi.org/10.1016/j.jaccpubpol.2011.03.005

mailto:[email protected]

http://dx.doi.org/10.1016/j.jaccpubpol.2011.03.005

http://www.sciencedirect.com/science/journal/02784254

http://www.elsevier.com/locate/jaccpubpol

C. de Villiers, C.J. van Staden / J. Account. Public Policy 30 (2011) 504–525 505

Act of 2009, have increased both the penalties for bad environmental behavior and the incentives forgood performance. As a result, environmental performance is increasingly an important issue forinvestors, potential investors and other stakeholders. Therefore, investors and other stakeholdersneed and use corporate environmental information (De Villiers and Van Staden, 2010; Van der LaanSmith et al., 2010). There are many sources of environmental information, but the most accessible isself-disclosed information.

Firms disclose environmental information in their annual reports and on their websites, includ-ing sustainability and social reports. These disclosures are mostly made at managers’ discretion, i.e.managers can choose how much prominence they give the disclosures (none, minimal, or greatervolume) and where they disclose the information (annual report or website). Therefore, investorsand other stakeholders can potentially acquire additional information or different perspectives onenvironmental issues by consulting both annual reports and websites. A better understanding ofwhy managers choose different disclosure media could thus be beneficial to users. Therefore, weconsider under which circumstances managers might choose to disclose greater volumes of envi-ronmental information, and where they might choose to disclose the information. Factors thatmay influence managers are that annual reports are, through their association with regulationand audit, more credible than websites, as well as the fact that annual reports and websites servedifferent purposes with different audiences. Boeing’s website (http://www.boeing.com/, accessedon August 7, 2009) is a typical example and display prominent sections for the benefit of investors(called investor relations, where annual reports can be accessed), customers (products and mer-chandise), employees (employee/retiree), and other stakeholders (e.g., the environment). Some vol-untary disclosures are therefore directed at investors, whereas some disclosures are for the benefitof customers, employees, the media, the general public, or other stakeholder groups (see Simnettet al., 2009).

The extant voluntary disclosure literature focuses on capital market motivations for these dis-closures, for example issues of information asymmetry, proprietary cost, stock valuation and costof capital (see e.g., Francis et al., 2008; Healy and Palepu, 2001). We posit that when managementdisclose voluntary environmental information for the benefit of capital market participants, they doso mainly in the annual report in an attempt to reduce information asymmetry and thus the risk ofadverse selection, whereas when managers disclose such information for the benefit of non-capitalmarket stakeholders (as alluded to by Simnett et al. (2009)), they do so mainly in separate reportsand other website disclosures (Adams and Frost, 2004a) in an attempt to reduce political cost(Watts and Zimmerman, 1978). We specifically use the term ‘mainly’, because we recognize thatboth market participants and other stakeholders are exposed to, and can gather information frommultiple sources. However, it is unlikely that non-capital market stakeholders will specifically seekenvironmental information in annual reports due to its technical nature.2 Similarly, capital marketparticipants can gather information from sources other than annual reports, but they may be reluc-tant to rely on these unaudited and unregulated disclosures that are not presented in a form thatfacilitate investment decision-making.3

Research comparing environmental reporting and environmental performance has mainly foundnegative relationships, i.e. firms with bad environmental performance publish more environmentalinformation than other firms (see for example, Hughes et al., 2001; Patten, 2005; Cho and Paton,2007). Bad performers disclose more, because they have to provide information to the providers ofcapital regarding the reasons for the bad performance and the remedial actions taken in order to avoidadverse selection. The annual report is most appropriate to communicate with shareholders and lend-ers, thus these studies focus on disclosures in annual reports (or 10-K reports). Prior studies also usedifferent performance measures. Some of the environmental performance measures used arelong-term (bad) and some are short-term (crisis) in nature. Prior study results are therefore not

2 Studies investigating the readability of annual disclosures find the readability of the management discussion parts and annualreport notes to be very poor (e.g., Courtis, 1986; Worthington, 1978; Schroeder and Gibson, 1990). These studies suggest that 93%of the general population would not be able to use and comprehend annual report disclosures.

3 De Villiers and Van Staden (2010) show that shareholders (in the US, UK and Australia) require environmental informationfrom firms that is externally audited and use this information for decision making.

http://www.boeing.com/

506 C. de Villiers, C.J. van Staden / J. Account. Public Policy 30 (2011) 504–525

comparable. A natural question, that we address, is what the effects of the different conditions (i.e. badand crisis)4 are on disclosure in the different media (i.e. annual reports and websites). This issue has notbeen addressed in the literature.

We show the effect of the type of environmental performance on environmental disclosures in an-nual reports and on websites separately, while distinguishing between the long term management (bydisclosure) of environmental issues and short term crisis management. Although some environmentaldisclosure is compulsory, notably litigation-related information in the annual report, we focus in thisstudy on the decision (including deciding how much) to disclose. This can be best achieved by focusingon voluntary disclosures (see e.g., Clarkson et al., 2008; Cho and Paton, 2007; De Villiers and Van Sta-den, 2006). However, whereas the prior research only investigate the decision to disclose (versus notto disclose), we examine where firms are likely to disclose under crisis conditions and under condi-tions where the firm has a bad environmental reputation. We have already mentioned that websitesand annual reports may be meant for different audiences, but it is also true that websites are partic-ularly suited to situations where a quick response is required. Specifically, crisis information can bemade available on the web on a timely basis, whilst the next annual report or SEC filing may bemonths away.

Our results show that firms disclose more environmental information, measured in number ofsentences, on their websites when faced with an environmental crisis, whereas bad (long-term)environmental performers disclose more in their annual reports. Specifically, bad environmentalperformers provide additional information in their annual reports mainly to explain their environ-mental performance to the providers of capital in an effort to reduce information asymmetry andthereby reduce their cost of capital. By contrast, environmental crisis firms provide additionalinformation on their websites because they can do so in timely fashion and mainly to explainthe crisis and their management of the crisis to other stakeholders (such as local communities,environmental groups and the media) in an effort to reduce any associated political cost. Our find-ings show that all firms do not uniformly disclose environmental information on their websites,but that they use website disclosure deliberately and in response to the specific stimuli we identifyhere.

Our research contributes to the understanding of corporate voluntary disclosure strategies throughour focus on environment disclosures. Prior research on the relationship between environmental dis-closure and environmental performance provide mixed results and do not address the question ofwhere managers choose to disclose. An understanding of how firm environmental performance (longterm and short term) influence where firms choose to disclose voluntary environmental information,has practical implications for investors, regulators, public policy makers and others who are interestedin firm environmental performance and disclosure. Our findings imply that information users andresearchers should consider voluntary disclosures in both annual reports and on websites, becausethe two media are used differently. This improved understanding of manager discretion in disclosurevolume and disclosure media is potentially of interest to public policy makers who may considerintroducing (further) regulation in this important area.

The rest of the paper is organized as follows: In the next section we discuss theoretical consider-ations, including the development of hypotheses. We then discuss the method, followed by the find-ings and conclusions.

2. Theoretical considerations

2.1. Prior studies comparing environmental performance and disclosure

Prior research comparing environmental performance and environmental disclosure find differentrelationships between environmental performance and disclosure. Most studies report a negative

4 These concepts are further explained in the next section of the paper. The bad environmental performance measure is themeasure that we use to distinguish between bad firms (firms that have a bad long-term environmental reputation according to theindependent rating that we use) and other firms. The environmental crisis measure is the measure that we use to distinguishbetween crisis firms (firms that have a short-term environmental crisis based on toxic releases) and non-crisis firms.


relationship (see for example, Cho and Paton, 2007; Patten, 2002; Hughes et al., 2001) while two stud-ies find a positive relationship (Clarkson et al., 2008; Al-Tuwaijri et al., 2004) and older studies showno relationship (see for example, Freedman and Wasley, 1990; Wiseman, 1982; Ingram and Frazier,1980). Patten (2002) explain the lack of relationship found in the earlier studies by suggesting thatthe results were due to a failure to control for firm size and industry. Subsequent studies include sev-eral control measures.

We summarize prior research comparing environmental performance and environmental disclo-sure in Table 1 and highlight certain aspects, such as the performance measures used and the disclo-sure medium (i.e., annual report, 10-K or web) considered. Note the use of different measures for theenvironmental performance constructs. We show in the next section that the KLD measures are fun-damentally different from the TRI measures. The studies all use annual report (or 10-K) disclosureswith only the latest study using website disclosures. These studies are, therefore, unable to discernthe effect of different environmental performance measures on disclosure in different media.

2.2. Environmental performance measures

The construct of environmental performance can be interpreted in different ways. Some prior stud-ies (Cho and Paton, 2007; Mahoney and Roberts, 2007; Ingram and Frazier, 1980; Hughes et al., 2001)use long-term environmental performance measures, such as KLD or CEP (data that take into accountmultiple factors, including reputational measures, over a period of time), whereas other studies (Al-Tuwaijri et al., 2004; Patten, 2002; Clarkson et al., 2008) use short-term or more immediate perfor-mance measures, such as the level of toxic releases. These performance measures do not representthe same construct. We use both types of environmental performance measure in this study. Weuse the KLD rating (which contains a reputational element, i.e. an external assessment based on avail-able information) as a proxy for long-term environmental performance and the TRI toxics releaseinventory, from the CEPD database, as a proxy for environmental crises (a large increase in non-pro-duction toxic releases represents a crisis).

Therefore, we use the term environmental reputation to indicate the long-term measure we use todistinguish between bad firms and other firms. The second measure used in the paper is the short-term environmental crisis measure we use to distinguish between crisis and non-crisis firms. We val-

Table 1Prior studies comparing environmental performance and disclosure.

Reference Journal Relation(perf to discl)

Performance measure Disclosure Medium andDisclosure measure

Clarkson et al. (2008), N = 191 AOS Positive Toxic waste recycled/toxic waste

Websites multiple point checklist

Cho and Paton (2007), N = 100 AOS Negative KLD 10-K 8 point checklistAl-Tuwaijri et al. (2004), N = 198 AOS Positive Toxic waste recycled/

toxic waste10-K 4 point checklist

Patten (2002), N = 131 AOS Negative TRI 10-K 8 point checklistHughes et al. (2001), N = 51 JAPP Negative CEP rankings Annual report similar to Wiseman

(1982)Freedman and Wasley (1990), N = 50 APIA None CEP rankings Annual report and 10 K similar

to Wiseman (1982)Wiseman (1982), N = 26 AOS None CEP rankings Annual report 18 point checklistIngram and Frazier (1980), N = 40 JAR None CEP scores Annual report 20 content categories

in four dimensions

N = The sample size.Journal explanations: AOS = Accounting, Organizations and Society; JAPP = Journal of Accounting and Public Policy; APIA = Ad-vances in Public Interest Accounting; JAR = Journal of Accounting Research.Performance measure definitions: KLD = environmental performance data compiled by KLD Research & Analytics Inc.; TRI = -toxic Release Inventory compiled by the Environmental Protection Agency (EPA); CEP = environmental performance ratings andrankings compiled by the Council on Economic Priorities.


idate the long-term and short-term nature of the two environmental performance measures in robust-ness tests.

2.3. Where environmental information is disclosed

Prior studies use different environmental disclosure measures. This includes where informationneeds to be disclosed to be counted in the measures (for example, the annual report, different sectionsof the annual report, websites). We have already noted that none of the prior studies consider envi-ronmental reporting in both annual reports and on websites. Tilt (2008) indicates that although thequestion of where firms should report their environmental information is an interesting one, thishas not received much attention to date. While there is not much debate about the appropriate placefor financial information, the reporting of environmental information is more controversial.

During the 1960s and 1970s when the demand for social responsibility of firms increased, the an-nual report was an important vehicle to communicate with all stakeholders. The annual report wastherefore expanded to the extent that early social and environmental accounting researchers regardedthe annual report as the most important source of information and the only one they had to consider(see for example, Gray et al., 1995; Deegan et al., 2002; Adams et al., 1998; Neimark, 1992). Socialresponsibility reporting was therefore initially seen as an extension of financial reporting.

However, the literature shows that firms have multiple stakeholders that require information (Sim-nett et al., 2009; Deegan and Blomquist, 2006; Neu et al., 1998; Lindblom, 1993) and particularly inthe area of social responsibility reporting, it is unlikely that the annual report will meet the needsof multiple stakeholders. Separate social and environmental reports have therefore developed andresearchers started to consider information contained in them (Simnett et al., 2009; Van Staden andHooks, 2007; Frost et al., 2005; Jones et al., 2007). Lately, with the ubiquity of broadband, the Internethas become the information resource of first resort for many and research on environmental disclo-sures now consider this source of information (Adams and Frost, 2004b; Van Staden and Hooks,2007; Clarkson et al., 2008). Most firms have a website and individuals with concerns (such as envi-ronmental activists, local community groups, government agencies, journalists and members of thegeneral public) turn to a firm’s website for additional information. Separate environmental reportsare also typically available on firm websites. Managers, when asked to indicate the importance of var-ious stakeholder groups in web based ethical, social and environmental information, place pressuregroups and non-governmental organizations first, government bodies second and customers third; be-fore (in order of importance) shareholders, the investment community, academia, employees, suppli-ers and competitors (Adams and Frost, 2004a). This demonstrates that managers use websites tocommunicate with different stakeholders than annual reports.

Although the literature suggests that firms disclose environmental information in annual reportsand on websites with different stakeholders in mind, prior research does not test this proposition. Nei-ther does prior research investigate the relationship between the nature of environmental perfor-mance (long term vs. short term) and the reporting medium firms use for its environmentaldisclosures.

2.4. Hypotheses development

Environmental disclosures are mostly voluntary and, although potentially costly (Verrecchia,1983), managers make voluntary disclosures for various reasons. We focus on two reasons, namelyto reduce information asymmetry between shareholders and management (annual report disclosure)and to reduce (potential) political costs faced by the firm (website disclosure). The voluntary disclo-sure literature focuses on annual report (and 10-K) disclosures, whereas we extend our analysis to in-clude website disclosures.

The separation of ownership and control in publicly listed firms gives rise to information asymme-tries between managers (agents) and shareholders (principals). Managers can reduce informationasymmetry by disclosing relevant information (Healy and Palepu, 2001). Specifically, Healy and Pale-pu (2001) identify bad performance as a reason for CEOs to use voluntary disclosures to explain awaythe bad performance to avoid adverse selection. Cormier and Magnan (2003) applies this to environ-


mental reporting and suggests that it reduces information asymmetry and adverse selection. As evi-dence, Deegan and Rankin (1996) show that firms successfully prosecuted for environmental offencesdisclose more environmental information than a matched sample of firms. Environmental disclosureshave also been shown to influence share prices (Blacconiere and Patten, 1994), suggesting that man-agers may disclose for that purpose.

Managers use the annual report to disclose information for the benefit of the providers of capital(shareholders, potential shareholders and lenders), who are principally interested in risk, future costsand liabilities (Azzone et al., 1997). Therefore, we expect firms with bad environmental reputations touse their annual reports to explain how they are managing these issues in order to reduce informationasymmetry and avoid adverse selection. Managers are not likely to use websites for this purpose, aswebsites do not communicate directly with the providers of capital and are more likely to be readby other stakeholders, such as representatives of environmental groups, who are not sympatheticto the firm and may use the information to increase pressure on the firm to use cleaner methods.For example, a high-polluting, heavy industry firm may be profitable, partly because of its use of datedequipment. This firm is likely to use its annual report to explain to investors that it plans to upgradeequipment over an extended period of time, explaining the effects on cash flows and profitability. Thesame firm’s website is likely to ignore the issue of dated equipment and to ignore pollution concernsand deal with environmental issues in a perfunctory or symbolic manner (Neu et al., 1998). This leadsto our first hypothesis:

Hypothesis 1. Firms with bad long-term environmental reputations will disclose more environmentalinformation in their annual reports than other firms.

We use firms’ net environmental score according to KLD as our measure of environmental reputa-tion (discussed in Section 3.2). Since bad firms will have a negative net score in our analysis and wehypothesize that bad firms will disclose more information, we expect a negative relationship betweenannual report disclosures and our indicator of bad environmental performance.

Our second hypothesis focuses on political cost. Watts and Zimmerman (1978, p. 115) state that‘‘by avoiding the attention that ‘‘high’’ profits draw because of the public’s association of high reportedprofits and monopoly rents, management can reduce the likelihood of adverse political actions and,thereby, reduce its expected costs (including the legal costs the firm would incur opposing the polit-ical actions)’’. According to the political cost argument, firms facing these threats choose accountingmethods that reduce reported income or undertake ‘‘social responsibility campaigns in the media’’in order to reduce the likelihood that they will be targeted by adverse political action (Watts and Zim-merman, 1978, p. 115).5 This is done in order to prevent wealth transfers away from the firm and istherefore in the interest of both management and shareholders.

The political action mentioned can, for example, involve an adverse environmental incident (crisis)that attracts the attention of environmental activists or politicians and culminates in additional reg-ulation or legislation. Such public attention and legislation is potentially costly through consumer ac-tion and compliance cost. Several studies (e.g., Patten, 1992, 2002; Blacconiere and Patten, 1994;Walden and Schwartz, 1997) investigate whether environmental disclosure in financial reports is usedto reduce ‘‘sensitivity to political pressure’’ (Patten and Trompeter, 2003, p. 85). Patten and Trompeter(2003) state that when social concerns are addressed through the public policy process, firms will par-ticipate by projecting environmental concern and awareness with the intention to reduce the likeli-hood of negative government action. Environmental disclosure, in this context, aims to delay and/orprevent legislation. The potential for costly consumer reaction and legislation provides incentivesfor managers to disclose information following an environmental crisis in order to appease and reas-sure activists, public policy makers, politicians and the general public. Firm websites are ideal for this

5 There is research that provides support for the income reducing expectations of the political cost hypothesis. For example, Hall(1993) and Hall and Stammerjohan (1997) provide evidence that petroleum and gas firms reduce reported earnings to avoidpolitical and litigation costs, while Cahan (1992) (antitrust violations) Key (1997) (regulation of the cable television industry) andCahan et al. (1997) (chemical firms most affected by the Superfund regulation) find that firms reduce their discretionary accrualswhile being investigated and while legislation is being considered. These studies do not investigate the ‘‘social responsibilitycampaigns in the media’’ that Watts and Zimmerman (1978) refer to as another means of reducing political cost.


purpose and reminds of the ‘‘campaigns in the media’’ Watts and Zimmerman (1978) envisaged in anera before the Internet. Voluntary disclosure of information on firm internet websites has not receivedattention in this literature.

We expect managers to immediately update their firm websites in the event of an environmentalcrisis, because it affords them the opportunity to explain what was done, what is being done and whatis planned. Web disclosures are directed at some of the same groups as media campaigns and manag-ers use these disclosures in the event of an environmental crisis to reduce political cost. Theshort-term solution to a crisis, that has the potential to attract adverse (political) attention, is todisclose as much as possible as soon as possible and the medium that best suits this purpose, is thefirm website. Websites provide a cost effective, readily available medium for communicating witheveryone who seeks information, not only those that management can foresee or target. The annualreport, on the other hand, is less timely and therefore less appropriate for dealing with disclosures fol-lowing a crisis. This leads to our second hypothesis:

Hypothesis 2. Firms experiencing an environmental crisis will disclose more environmentalinformation on their websites than non-crisis firms.

We use toxic emissions as an indicator of crisis (discussed in Section 3.2) and we expect a positiverelationship between website disclosures and our indicator of environmental crisis.

2.5. Summary of hypotheses

6

anou

Wed finr res

Hypothesis

estimate regressions where we substitute a Kd that our results endure. When we use a TRIults are not significant (see Table 6, Panel E).

Medium

LD measure dermeasure derived

Disclosure mainlyaimed at

ived from the previous yearfrom the previous and the n

Strategy

1
Bad firms disclose more thanother firms
AnnualReports

Providers of capital
Reduce informationasymmetry
2
Crisis firms disclose more thanNon-crisis firms
Websites
Externalstakeholdersa
Reduce political costs

a External stakeholders include environmental groups, the community, concerned citizens, and government agencies,including public policy makers.

3. Method

We use the KLD Research & Analytics, Inc. (KLD) database to provide the long-term environmentalperformance or reputational measure to distinguish between firms with a bad environmental reputa-tion and other firms. We use the Toxics Release Inventory (TRI) provided by the Corporate Environ-mental Profiles Database (CEPD) compiled by the RiskMetrics Group to provide the short termenvironmental performance measure to identify firms with an environmental crisis. In robustnesstests, we show that our KLD environmental reputation/ performance measure is longer term in natureand that it constitutes a different type of measure from our TRI environmental crisis measure and thatthis latter measure is shorter term in nature.6

3.1. Background to the databases we used for our sample selection

Currently, 31 of the top 50 institutional money managers worldwide use KLD’s social research tointegrate environmental, social and governance (ESG) factors into their investment decisions and over400 money managers and institutional investors use their research products (from the KLD Website:www.kld.com). KLD evaluates the 3000 largest US publicly traded firms by market capitalization for

(2003) and the next year (2005)ext year (again 2003 and 2005),

http://www.kld.com


social and environmental performance on more than 280 data points using a proprietary ratings pro-cess. Entine (2003) refers to the KLD ratings as a commonly used screening aid and Harrison and Free-man (1999) regard the fact that the KLD ratings are based on the extensive research of independentanalysts employed by KLD, and that KLD uses these ratings as a basis for investment decisions and ad-vice, as their main advantage. Over 40 peer-reviewed articles, representing a variety of academic fields(including accounting, finance, economics, management, sociology) have used KLD STATS data7 toresearch firms’ social, environmental and governance performance; see for example, Cho and Paton(2007), Mahoney and Roberts (2007), Entine (2003), Agle et al. (1999), Berman et al. (1999), Griffinand Mahon (1997), Waddock and Graves (1997), Sharfman (1996), Graves and Waddock (1994).

The CEPD database collates emissions of firms under the ultimate holding firm listed on a US stockexchange. CEPD covers various emissions. Many academic papers have used the CEPD database, or theTRI data contained therein, in their sample selection process; see for example Bae and Seol (2006), Ko-nar and Cohen (1997), Hamilton (1995), Hart and Ahuga (1996), Patten (2002), Clarkson et al. (2008),and Chatterji et al. (2009).

3.2. Sample selection

The universe of firms is all North American firms that were rated by KLD. This includes the Stan-dard and Poors (S&P) 500 and the largest 3000 US publicly traded firms by market capitalization.We select 30 firms with poor environmental performance (according to KLD) and that experienceda crisis (according to the CEPD measure) in the particular year. These 30 firms are then matched with30 firms with poor environmental performance (according to KLD) and that did not experience a crisisin the particular year (according to the CEPD measures). For our third group of firms, we match theoriginal (first) group of 30 with 30 firms that do not have bad environmental performance (accordingto KLD), that experienced a crisis (according to the CEPD measure) in the particular year. Finally, these30 firms are then matched with 30 firms that do not have bad environmental performance (accordingto KLD) and that didn’t experience a crisis in the particular year (according to the CEPD measure). Wematch for industry and size using Compustat information.8

The KLD database rates firms’ environmental performance by awarding a score of zero or one forfive different environmental strengths (we award 1 or 0 for each) and the same for seven environmen-tal concerns (we award �1 or 0 for each).9 We calculate a net environmental score for each firm by add-ing the negative and the positive scores. We regard bad environmental reputation firms as those with anegative net score. On this basis, there were 262 bad firms and 2772 non-bad10 (79 positive and 2693zero) among the 2004 KLD ratings. We use this dichotomous measure (bad = 1) for the purposes of sam-ple selection and in univariate analyses. In multivariate analyses, we use the net environmental scorewith a possible range from five to minus seven.11 We also use the total concerns score in a sensitivityanalysis (i.e. ignoring strengths scores) and get a qualitatively better result.

We use the CEPD emissions database to select firms with an environmental crisis in a particularyear (our short-term performance measure). We use 2004 information for sample selection for the

7 We also use KLD STATS to select our sample. KLD STATS is a statistical summary of KLD’s in-depth research. It has beenpublished once per year since 1991 to give users the ability to analyze trends in the social and environmental performance ofcorporations over time.

8 The firms in our sample are from the following industries: mining oil and gas extraction and electricity generation (16);construction and waste management (8); and the following firms from the manufacturing sector: food and beverages (8); papermanufacturing (4); petroleum, coal and chemicals (24); pharmaceutical (8); metal and machinery manufacture (24); computer andelectronic equipment (12); transportation equipment (12); medical and dental equipment (4); (Total 120).

9 KLD environmental strengths are: beneficial products/services; pollution prevention; recycling; clean energy; and otherenvironmental strengths. KLD environmental concerns are: hazardous waste; regulatory problems; ozone depletion; substantialemissions; agricultural chemicals; climate change; and other environmental concerns.

10 We use the term non-bad in the interest of precision. Non-bad refers to firms with neutral and good long-term environmentalperformance.

11 The large number of firms with a net score of zero may influence our results. We estimate our main model for H1 ignoring the46 firms with scores of zero and still get significance (at the 10% level). The drop in significance level compared to the main results(5% level) may be due to the reduction in the number of observations.


Toxics Release Inventory information on the CEPD database. We use the TRICAT_2 indicator, describedby CEPD as ‘‘the sum in pounds (lbs) of the Toxic Release Inventory reported total quantity of toxicchemicals released to the environment or transferred offsite due to events not associated with routineproduction processes’’. We define crisis firms as firms with a high level of TRICAT_2 in 2004 and, toensure that these toxic releases are unusual and in the nature of a crisis, a low level in 2003. Weuse this dichotomous measure (crisis = 1) for sample selection and in all analyses.

In summary, we select 120 firms, consisting of 60 crisis firms and 60 non-crisis firms, and simul-taneously consisting of 60 bad environmental reputation firms and 60 firms that do not have a badenvironmental reputation.12

3.3. Content analysis

Firms disclose different environmental items in different ways, therefore we follow the methodused in prior studies, namely to focus on the characteristics of disclosure, such as volume. Some,for example Al-Tuwaijri et al. (2004), use a checklist limited to only four environmental items,thereby ignoring other types of disclosure and ignoring the volume of disclosure of the specificchecklist items. Limited checklists also imply a normative approach, i.e. the checklist prescribeswhat managers should report and ignores other environmental issues that managers themselvesregard important enough to disclose. However, managers choose to disclose varying volumes ofboth discretionary and mandatory items, including information not complying with standardsor guidelines. The volume has both actual cost implications and potential political cost implica-tions, i.e. more disclosure makes it more likely to attract (potentially negative) attention (Verrec-chia, 1983). Thus, managers will only increase disclosure if they foresee a benefit. Therefore, weregard the volume of disclosure as a measure of the importance that managers place on theinformation.

We avoid the problems associated with some of the measures used in prior research and ensurethat managers’ views regarding the importance of disclosures are given weight, by following Hackstonand Milne (1996) and using a broad definition to count the environmental disclosure sentences in an-nual reports and on websites.

We analyze 2005 annual reports, being a lagged measure compared to 2004 performance.We count environmental disclosure sentences in all parts of the annual reports. We countenvironmental reports and other sections of the website dealing with the environment (sim-ilar to Clarkson et al., 2008). Typical headings for these reports and sections were: SocialResponsibility; Sustainability; Triple Bottom Line (TBL), Corporate Citizenship; and the Environ-ment. We excluded the annual report from the website count, even though the annual reportis normally available on the website. We count 2005 website information and information re-lated to years before 2005, but only when it puts 2005 into perspective (such as in a graphor table), ignoring detailed discussions of earlier years. We do not count anything that relateto more recent years.

We use a broad definition of what constitutes environmental disclosure in the content analysiswith reference to prior research (for example, Hackston and Milne, 1996; Davis-Walling and Bat-terman, 1997; Milne et al., 2003; Van Staden and Hooks, 2007) and best practice benchmarks (forexample, the Global Reporting Initiative (GRI) Guidelines: www.globalreporting.org and the UnitedNations Environment Programme/SustainAbility Index: www.sustainability.com/researchandadvoca-cy/). Annual report and website pages with environmental disclosures were printed, the sentenceswere highlighted and counted.13

12 The relatively small sample size is due to the time-consuming collection of the disclosure measure. However, this is in linewith similar studies (see Table 1). In addition, because we select matched samples, we compare 60 firms with 60 others matchedfor industry and size in two ways in our main analysis, ensuring sufficient statistical power.

13 Counting was done in the following way: sentences dealing with the topic were counted. Tables providing information on thetopic were interpreted as one line equals one sentence. Graphs providing information on the topic were interpreted as one line orgroup of bars equals one sentence. Information in the financial statements was interpreted as one line equals one sentence.

http://www.globalreporting.org

http://www.sustainability.com/researchandadvocacy/

http://www.sustainability.com/researchandadvocacy/


We record disclosure in the financial statements and notes; and disclosures in the rest of the an-nual report separately. This is done to allow further robustness tests, because disclosures in the finan-cial statements and notes are more likely to be compulsory than disclosures in the rest of the annualreport. We also record information dealing with environmental litigation separately, as these are likelyto be non-discretionary disclosures (consistent with Cho and Paton, 2007). In summary, the sentencecount was captured in a matrix with columns headed website, financial report, and rest of annual re-port; and with rows for litigation related and non-litigation related disclosures.

4. Model and variables

We estimate the following model using an ordinary least squares regression:

14 We

DISC ¼ b0 þ b1BADþ b2CRISISþ b3BADX CRISISþ b4SIZEþ b5ROAþ b6TOBIN Q þ b7LEV

þ b8FINþ b9VOLATþ b10NEWþ b11CAPINþ e

4.1. Dependent variables (DISC)

The dependent variable is the environmental disclosure in annual reports and on websites. Variousspecifications for the disclosure variable (DISC) are used:

Annual report disclosure – annual report sentences (AR_SENTENCES) not relating to litigation (aslitigation disclosures are regarded as non-discretionary following Cho and Paton, 2007) dealing withthe environment.14

� Website disclosure – sentences on the firm’s website (reports and sections) dealing with the envi-ronment (WEB_SENTENCES).

4.2. Independent variables

� Long-term environmental performance – BAD
As previously discussed, we use the KLD ratings to distinguish between bad and non-bad firms.For this variable we use the number of environmental strengths minus the number of environ-mental weaknesses.
� Environmental crises – CRISIS
We use the TRI measure to determine if firms have a crisis or not. We use a dummy variable of 1to indicate crisis firms and 0 to indicate no crisis firms.
� Interaction term – BAD X CRISIS
There is a possibility that our independent variables interact and that this interaction drives theresults (i.e. one condition such as bad reputation combined with crisis may cause higher levelsof disclosure, whereas the other three conditions may result in lower levels of disclosure). Weinclude an interaction term to control for this possibility.
4.3. Control variables

According to the literature, a number of variables potentially influence the reason for disclosure,the decision to disclose and the extent of discretionary (voluntary) disclosure. We control for thesevariables. We use the Compustat database to obtain these variables (unless indicated).

4.3.1. Firm size – SIZELarger firms have more resources to devote to different issues, such as environmental disclosure,

and are also more likely to attract attention from powerful environmental stakeholders. Prior researchindicates that firm size influences the level of environmental disclosure (Hackston and Milne, 1996;Patten, 1992, 2002; Al-Tuwaijri et al., 2004; Clarkson et al., 2008) and most voluntary disclosure stud-ies control for firm size (e.g., Lang and Lundholm, 1993). We use the natural log of total assets at the

also do a sensitivity test where litigation-related disclosure is included, see Section 5.3.


end of 2004 as our size measure. Since the size measure (total assets in our study) is usually not nor-mally distributed, most studies use the natural log of the size measure to ameliorate the problem (e.g.,Hackston and Milne, 1996; Patten, 2002; Clarkson et al., 2008). Based on the political cost hypothesisand prior research, we expect larger firms to disclose more environmental information (positive).

4.3.2. IndustryThe political cost hypothesis suggests that firms in environmentally sensitive industries will dis-

close more environmental information in response to greater scrutiny by powerful stakeholders. Priorresearch also provides such evidence (Deegan and Gordon, 1996; Halme and Huse, 1997; Adams et al.,1998; Patten, 2002). Clarkson et al. (2008) assumed that industry served as a measure of proprietarycosts and they therefore did inter-industry regressions (Tobit analysis) and intra-industry rank regres-sions (OLS analysis). To control for industry effects, we use a matched sample for industry using theNAICS classification. Although there is no industry term in the regression model, we therefore controlfor industry through the matched samples design. The role of an industry term is subsumed within theBAD term and within the CRISIS term. In this way, we control for the effects of industry between thefour groups of 30 firms, but not within the groups. All our conclusions are based on between-groupscomparisons.

4.3.3. Firm performance – ROAIn theory, firms with good financial performance make more discretionary (social and environmen-

tal) disclosures to reduce information asymmetry. The political cost argument is that firms try to pre-vent negative attention brought on by excess profitability. Evidence in support is provided by Lang andLundholm (2000), who found a positive relationship between earnings and environmental disclosuresand Roberts (1992) who found the same with social disclosures. However, Clarkson et al. (2008) find anegative relationship (not significant) with environmental disclosure and Cormier and Gordon (2001)find a significant negative relation with social disclosure. We use return on assets (being the 2005 in-come before extraordinary items divided by the total assets at the end of 2004) as our firm economicperformance measure, in line with Clarkson et al. (2008) and Hackston and Milne (1996). We do notform an expectation regarding ROA, because of the prior mixed results.

4.3.4. Tobin’s Q – TOBIN_QTobin’s Q is the ratio of the market value of a firm’s assets (as measured by the market value of its

outstanding stock and debt) to the replacement cost of the firm’s assets. Although Tobin’s Q can beseen as a measure of information asymmetry (for example, Clarkson et al. (2008) used it as such intheir analysis) others (e.g., Lindenberg and Ross, 1981) see this as another performance measure,i.e. growth potential. More important is the relationship of Tobin’s Q to industry market structureas suggested by Lindenberg and Ross (1981). In addition Szewczyk et al. (1996) suggest that Tobin’sQ is a better measure than a binary proxy because many firms operate in multiple industries, whichmakes industry classification problematic. We therefore regard Tobin’s Q as a performance measure,a further control for industry and a measure of information asymmetry. We measure Tobin’s Q as themarket value of the shares at the end of 2004 plus the value of preference shares plus long-term andcurrent liabilities, divided by total assets at the end of 2004. Firms with a high Tobin’s Q will mostlikely come from information technology or service type industries, or be high growth firms. Thesefirms are not in environmentally sensitive industries and will therefore not be likely to make signifi-cant environmental disclosures (as opposed to heavy industry type firms). We therefore expect thatfirms with a higher Tobin’s Q will disclose less in all media (negative correlation).

4.3.5. Leverage – LEVManagers will disclose more voluntary information as leverage increases in order to reduce infor-

mation asymmetry. They do so because of the additional scrutiny from financial institutions and inorder to reduce their firm’s cost of capital (Jensen and Meckling, 1976; Francis et al., 2008). We calcu-late leverage as the total debt divided by the total assets at the end of 2004. We expect firms withhigher leverage to disclose more in all media (positive).


4.3.6. Financing raised – FINThe same arguments used for leverage, applies to firms who intend to raise finance. Clarkson et al.

(2008) also argue that firms that raise financing in debt and equity markets will be more willing tomake voluntary disclosures in order to lower their cost of capital (in line with the argument madefor leverage). Therefore if firms were raising additional finance in the year that we observe thedisclosures, this could impact our observations. We control for this by measuring financing raised dur-ing 2005 as the issues of shares (preference and ordinary) less the repurchase of shares plus the issueof long-term debt minus the reduction of long-term debt divided by total assets. We use net financing(not new financing) because (1) firms will generally not issue new stock while they are also purchas-ing stock, rendering the argument moot as far as stock is concerned, and (2) the roll-over of existingdebt may attract a lower level of scrutiny than increased borrowing. Our measure therefore reflectsonly this higher scrutiny caused by new debt financing and the issuing of stock. We expect that firmsthat raised financing during 2005 will disclose more in all media (positive).

4.3.7. Information asymmetry – TOBIN_Q and VOLATManagers use voluntary disclosures to reduce information asymmetry and thereby to lower the

cost of capital of the firm (Healy and Palepu, 2001). We use the same proxies as Clarkson et al.(2008) for information asymmetry. The first measure is Tobin’s Q which was discussed above. The sec-ond measure is the volatility of share (stock) prices measured as the standard deviation of market ad-justed monthly stock returns during the 2004 financial year. We used the CRSP database to determinethis variable. Information asymmetry is normally measured by stock return volatility, based on theargument that full information available to all market participants would cause stock prices tosmoothly adjust (displaying less volatility) over time based on changes related to the time value ofmoney. We expect that firms with higher share price volatility will disclose more in all media(positive).

4.3.8. Equipment age and capital spending – NEW and CAPINIn line with the expectation raised by Clarkson et al. (2008) that firms with newer and cleaner

technologies will have better environmental performance and may want to reveal this throughdiscretionary disclosures, we control for the average age of the firm’s equipment. We calculatethe newness of the equipment by dividing the net property plant and equipment by the grossproperty plant and equipment for 2004. We expect firms with newer equipment to disclose morein all media (positive).

Firms with higher capital expenditure will therefore also be expected to have newer equipmentand would therefore want to make more discretionary disclosures. We use capital intensity as a proxyof capital expenditure and measure this as capital expenditure for 2004 divided by sales. We expectthat firms with higher capital intensity will disclose more in all media (positive).

5. Results and findings

We first consider whether a univariate analysis supports our hypotheses and then do a multivariateanalysis controlling for the factors described above.

5.1. Univariate analysis

The main results and comparisons, on a univariate basis, are given in Table 2. In these comparisons,we already control for industry and size with our matched sample design.

Table 2 shows the results of matched samples t-tests of means of environmental sentences dis-closed by the various types of firms in the different media. Column 1 shows sentences disclosed inthe annual report (excluding litigation related) while Column 2 shows website sentences dealing withthe environment. There are two comparisons which are described below and the third line of eachcomparison shows the t-statistic and the significance level at the 1%, 5% and 10% levels.

Table 2Univariate analysis – matched samples t-test of means.

Column 1 Column 2Annual rep. sentences Website sentences

Panel A: Bad vs. non-bad firmsCriteria evaluated N Mean (std. dev.) Mean (std. dev.)Bad env. reputation 60 97.050 (80.053) 142.650 (206.322)Non-bad env. reputation 60 41.880 (55.088) 99.270 (173.631)t-Stat and significance 4.430*** 1.184

Panel B: Crisis firms vs. no crisis firmsCriteria evaluated N Mean (std. dev.) Mean (std. dev.)Crisis (env.) 60 75.730 (83.109) 179.200 (224.967)No crisis (env.) 60 63.200 (63.275) 62.720 (127.139)t-Stat and significance 1.162 4.185***

Column 1: sentences of environmental disclosure in the annual report not relating to litigation.Column 2: sentences of environmental disclosure on firm websites (environmental reports and sections dealing with theenvironment).Bad env. reputation = firms with bad environmental reputations.Non-bad env. reputation = firms with good or neutral environmental reputations.Crisis = firms experiencing an environmental crisis.No crisis = firms experiencing no environmental crisis. env. = environmental.t-Stat = t-statistic.*** Significance at the 1% level.


Hypothesis 1. The first comparison is between all bad firms and all non-bad firms (a total of 60 ineach group). Note in Table 2 (Panel A, Column 1) that bad firms disclose significantly more (at the 1%level) environmental information in their annual reports than non-bad firms, with bad firms disclosinga mean of 97 sentences and non-bad firms disclosing 42 sentences. Note further that the difference inthe website disclosures of bad firms and non-bad firms is not significant (Panel A, Column 2). Thissupports our first hypothesis.

Hypothesis 2. The second comparison is between all crisis firms and all non-crisis firms (a total of 60in each group). Note in Table 2 (Panel B, Column 2) that crisis firms disclose significantly more envi-ronmental information on their websites than non-crisis firms. Overall crisis firms disclose a mean of179 sentences whereas non-crisis firms disclose 63 sentences and this difference is significant at the1% level. Panel B, Column 1 (annual report disclosure) indicates that the difference for annual reportdisclosure is not statistically significant, so crisis firms do not disclose more than non-crisis firms intheir annual reports. This supports our second hypothesis.

5.2. Multivariate analysis

In our multivariate analysis we analyze annual report and website disclosures separately. In addi-tion to the three independent variables discussed earlier, we add the eight control variables that wehave motivated earlier. We first consider some descriptive statistics for the variables, then we considerthe correlation between variables, and finally we discuss the findings of the regression analyses.

Table 3 provides descriptive data for the variables. The mean (median) for annual report sentences,being sentences disclosed in the annual report excluding litigation related sentences, is 69 (43) with arange from 0 to 353. The mean (median) for website sentences, being sentences on the website dealingwith the environment, is 121 (22) with a range from 0 to 735.15 Note that the mean of website sen-tences is much higher than that of annual reports. However, the median for annual report sentences

15 One firm disclosed 1686 sentences. The next highest was 735. We set the web disclosure for the outlier at 735 and use this inall our analyses. We also used the raw figures in robustness tests (untabulated) and our results were still significant at the samelevel (i.e. 5% one-tailed for Hypothesis 2).

Table 3Descriptive statistics.

Variable Mean Median Q1 Q3 Std. dev.

AR_SENTENCES 69.470 43.0 16.0 97.0 73.818WEB_SENTENCES 120.960 22.0 4.0 154.0 191.121BAD �0.725 �1.0 �2.0 0.0 1.223CRISIS 0.500 0.50 0.0 1.0 0.502BAD X CRISIS �0.375 0.0 �1.0 0.0 1.005FIN �0.018 0.0 �0.1 0.0 0.078TOBIN_Q 1.708 1.4 1.1 2.0 0.894VOLAT 0.078 0.1 0.1 0.1 0.040ROA 0.064 0.1 0 0.1 0.081LEV 0.262 0.3 0.2 0.4 0.139SIZE 8.333 8.4 7.2 9.4 1.462NEW 0.505 0.5 0.4 0.6 0.124CAPIN 0.061 0.0 0.0 0.1 0.088

AR_SENTENCES = annual report sentences dealing with the environment as defined.WEB_SENTENCES = website sentences dealing with the environment as defined.BAD = long-term environmental performance indicator.CRISIS = crisis/No crisis of an environmental nature.BAD X CRISIS = interaction term.FIN = finance raised during 2005.TOBIN_Q = Tobin’s Q.VOLAT = volatility of share price.ROA = return on assets.LEV = leverage.SIZE = log of total assets.NEW = newness of assets.CAPIN = capital intensity.Q1 and Q3: first and third quartiles.Std. dev.: standard deviation.

Table 4Correlation statistics with Pearson above the diagonal and Spearman below.

BAD CRISIS INTER FIN TOBIN_Q VOLAT ROA LEV SIZE NEW CAPIN

BAD – �0.021 0.714** 0.027 0.304** �0.052 0.036 �0.039 �0.286** �0.195* �0.005CRISIS �0.012 – �0.375** 0.050 �0.087 �0.171 0.018 0.113 0.314** �0.008 �0.109INTER 0.652** �0.407** – �0.004 0.219* 0.070 �0.001 �0.053 �0.321** �0.227* 0.030FIN �0.022 0.045 �0.045 – �0.171 0.122 �0.195 0.127 �0.194* 0.098 �0.049TOBIN_Q 0.365** �0.130 0.217* �0.294** – �0.093 0.318** �0.262** �0.163 �0.041 �0.052VOLAT 0.001 �0.170 0.124 0.213* �0.140 – �0.091 �0.008 �0.318** �0.117 �0.040ROA 0.092 �0.057 �0.015 �0.311** 0.556** �0.103 – �0.244** 0.148 �0.131 0.082LEV �0.057 0.092 �0.064 0.048 �0.297** 0.032 �0.383** � 0.227* 0.224* 0.014SIZE �0.272** 0.322** �0.318** �0.239** �0.206* �0.350** 0.029 0.203* � 0.175 0.196*

NEW �0.163 �0.047 �0.166 0.082 �0.156 �0.039 �0.101 0.259** 0.201* – 0.228*

CAPIN �0.106 �0.129 �0.053 0.012 0.059 �0.072 �0.016 0.128 0.253** 0.293** –

INTER = interaction term (BAD X CRISIS).For all other variable descriptions, see Table 3.* Significance (two-tailed) at the 5% level.** Significance (two-tailed) at the 1% level.


is higher than that of websites. The more prolific environmental disclosers have a more marked effect onthe website mean than on the annual report mean.16

16 WEB_SENTENCES may not be normally distributed, therefore we used the natural log of WEB_SENTENCES in a sensitivity test(untabulated). We get similar results to our main analysis (Hypothesis 2). In addition, we code a dummy variable 1 for firms withweb disclosures higher than the median, otherwise 0. We use this dummy as the dependent variable in a logistic regression.Results are again qualitatively similar.

Table 5Annual report and website environmental disclosure linear regressions (OLS).

Expected Column 1 Column 2Sign Annual rep. Website

Intercept 25.285 �351.613***

BAD – �16.230** �5.573CRISIS + 4.423 81.747**

BAD X CRISIS �5.500 14.665FIN + �91.596 64.487TOBIN_Q � �23.076*** 16.372VOLAT + 259.508** �169.955ROA �134.342* �68.384LEV + 41.136 39.044SIZE + 3.183 55.772***

NEW + 34.105 �145.513CAPIN + �2.515 370.039**

Adjusted R2 0.312 0.235

Unstandardized coefficients reported.Dependent variable indicated by column headings:Column 1: sentences of environmental disclosure in the annual report not relating to litigation.Column 2: sentences of environmental disclosure on firm websites (environmental reports andsections dealing with the environment).For variable descriptions refer to Table 3.

* Significance at the 10% level.** Significance at the 5% levels.

*** Significance at the 1% level.


The mean (median) for the BAD indicator is �0.725 (�1.0) with a range from �4 to 2. We use thecalculated scores derived from KLD for this indicator and the mean shows the effect of our sample con-sisting of 60 firms with negative scores, 14 with positive scores and 46 with scores of zero. We use adummy variable of 0 or 1 for the CRISIS indicator and the descriptive statistics are as expected. Thetable also shows the descriptive statistics of the other variables in our model. Firms in our sample havean average ROA of 6.4%, average leverage of 26.2% and on average have assets that are halfway throughtheir life cycle.

Table 4 contains both parametric and non-parametric correlations between all the variables(excluding the dependent variables). As may be expected, the highest correlation (Pearson(P) = 0.714 and Spearman (S) = 0.652) is between BAD and the interaction term in our model thatincludes BAD, because the one is part of the make-up of the other. The next highest correlation isbetween Tobin’s Q and ROA (S = 0.556) and is at an acceptable level for both variables to be includedin the same regression model. The correlations between the variables are not high enough to causeconcerns with multi-collinearity when used in the same model. The correlation between our depen-dent variables (annual report sentences and website sentences) is weak (0.12 – untabulated). Thisindicates that the disclosures in the two media are different and confirms the importance of consid-ering them separately.

Table 5 reports the results of our linear regressions.Hypothesis 1: Table 5, Column 1 indicates that bad firms disclose significantly (at the 5% level)

more in their annual reports, after controlling for various other variables. Tobin’s Q was also significant(at the 1%), as were our share price volatility measure and our profitability measure, but even aftercontrolling for these, the BAD indicator was still significant, indicating that bad firms disclose morein annual reports. The CRISIS indicator was not significant, showing that bad firms rather than crisisfirms prefer to use annual report disclosures. This provides evidence in support of our first hypothesis.

Hypothesis 2: Table 5, Column 2 indicates that crisis firms disclose significantly (at the 5% level) moreenvironmental information on their websites than non-crisis firms after controlling for various othervariables. Size (1% level) and capital intensity (5% level) were also significant, but even after controllingfor these, the CRISIS measure was still significant, indicating that crisis firms disclose more on websites.The BAD measure was not significant, showing that crisis firms rather than bad firms prefer to use


website disclosures. The fact that the interaction term is not significant shows that the result is not drivenby any one of the four conditions. This provides evidence in support of our second hypothesis.

In summary, we find support for our hypothesis that bad reputation firms report significantly moreenvironmental information in their annual reports. Our hypothesis is that the managers of bad repu-tation firms provide their providers of capital (both shareholders and lenders) with additional envi-ronmental disclosure in their annual reports in order to reduce information asymmetry and therebyreduce cost of capital.17 Furthermore, we find support for our hypothesis that crisis firms report signif-icantly more environmental information on their websites. Our hypothesis is that managers use firmwebsites to provide activists, regulators, government agencies, politicians and the general public withinformation when they experience an environmental crisis in order to reduce potential political costsby showing they are adequately managing the situation and that consumer action and regulation isnot required.18

5.3. Sensitivity analyses

We supplement our main analyses regarding Hypotheses 1 and 2 with further sensitivity analyses.Table 6 provides summary results of some of our sensitivity analyses. Since we selected 30 firms withbad environmental performance that experienced a crisis and matched these firms with 30 firms withbad environmental performance and that didn’t experience a crisis and did the same with 30 firmswith non-bad environmental performance, we can distinguish between the four groups of 30 firmseach in our sensitivity analyses (robustness tests).

We determine whether our results hold within the categories of firms. For example, for Hypothesis1 (bad firms’ disclosure in annual reports) we check whether our results hold when we consider onlycrisis firms and then when we consider only non-crisis firms. Similarly, for Hypothesis 2 (crisis firms’disclosure on websites) we check whether our results hold when we consider only bad reputationfirms and then whether our results hold when we consider only non-bad reputation firms.

Table 6, Panel A shows the results for Hypothesis 1. We first give the results for all firms (thesewere already given in Tables 2 and 5) and then show the results separately for crisis firms and non-crisis firms. Our results hold under all these conditions. It is noteworthy that we get stronger multi-variate results (than in our main analysis, where the significance level was 5%) among non-crisis firmswhere bad reputation firms disclose more in their annual reports (significant at the 1% level).

Table 6, Panel B shows the result for Hypothesis 2. We first give the results for all firms (these werealready given in Tables 2 and 5) and then show the results separately for bad and non-bad reputationfirms. Our results hold under all these conditions with one exception, namely that among bad repu-tation firms only, a multivariate analysis shows that crisis firms do not disclose significantly moreon their websites. In other words, our result that crisis firms disclose more environmental informationon their websites does not hold if we only consider bad reputation firms and control for various othervariables.

We noticed the presence of an outlier in the volume of web disclosure (mentioned before). This ledus to do a full truncation (remove the top 5% and bottom 5%) of the dependent variable only and thesummary results are reported in Table 6, Panel C. For both Hypotheses 1 and 2 the results hold (i.e.crisis firms are significantly related to web disclosure and bad firms to annual report disclosure). Inthe case of Hypothesis 1, the significance level improves from the 5% level to the 1% level.

Our definition of disclosure in the annual report in the main results section is based on Cho andPaton (2007) and excludes only litigation-related disclosure. We now use a different definition of

17 Furthermore it is worth noting that our information asymmetry motivated control variables (TOBIN_Q and VOLAT) issignificantly related to annual report disclosure, but not to website disclosure, providing support for our position that the annualreport is the medium for making disclosures to limit information asymmetry. Also note that the main political cost controlvariable, SIZE, is highly significant in the website disclosures, but not in annual report disclosures, providing support for ourposition that political cost motivations may be at play when website disclosure decisions are made.

18 Size is often associated in the literature with the political cost argument (e.g. Watts and Zimmerman, 1978; Patten, 1992;Lemon and Cahan, 1997; Belkaoui and Karpik, 1989). It is worthwhile to note that size is significantly associated with websitedisclosure, but not with annual report disclosure, providing support for our position that the website is the medium for makingdisclosures to limit political costs.

Table 6Sensitivity tests.

Firms Reporting type N Univariate Multivariatet-stat and signif. B-stat AND signif.

Panel A: Hypothesis 1 – Bad reputation firms report more in annual reportsAll firms Annual report 120 4.430*** �16.230**

Crisis firms Annual report 60 2.398** �15.687**

Non-crisis firms Annual report 60 4.230*** �19.964***

Panel B: Hypothesis 2 – Crisis firms report more on WebsitesAll firms Website 120 4.185*** 81.747**

Bad reputation firms Website 60 3.261*** 41.420Non-bad reputation firms Website 60 2.608** 89.812**

Panel CTruncate (top and bottom 5% of observations based on sentences disclosed)Hypothesis 1 all firms Annual report 108 �14.608***

Hypothesis 2 all firms Website 108 55.533**

Panel DAlternative definition of voluntary in annual reports, i.e. excluding financial statement disclosures and still excluding litigation-related disclosuresHypothesis 1 all firms Annual report 120 4.109*** �9.052**

Hypothesis 2 (n/a – concerns websites)

Panel EUsing performance ratings of other years to test enduring and non-enduring effectsHypothesis 1 all firms Bad measured using 2003 KLD ratings �13.745**

Hypothesis 1 all firms Bad measured using 2005 KLD ratings �14.434**

Hypothesis 2 all firms Crisis measured using 2003 TRICAT2 info �81.951Hypothesis 2 all firms Crisis measured using 2005 TRICAT2 info �23.412

Web = all environmental information (as defined) on the website. Annual report = all environmental information (as defined) in the annual report. TRICAT2 info = information used todetermine crisis firms and non-crisis firms. KLD ratings = ratings used to determine bad reputation firms.

** Significance (one-tailed) at the 5% level.*** Significance (one-tailed) at the 1% level.

520C.de

Villiers,C.J.van

Staden/J.A

ccount.PublicPolicy

30(2011)

504–525


disclosure as a robustness test. In addition to litigation related disclosures, we also exclude disclosuresin the financial statements and notes thereto, because these sections may contain mainly mandatedinformation. We report the results of the relevant statistical tests in Table 6, Panel D. Both theunivariate and the multivariate result remain significant. This provides further evidence that bad firmsdisclose more voluntary environmental information in their annual reports even when we use anarrower definition of discretionary disclosures.

We test the assertion that our BAD measure of environmental performance is a longer termmeasure and that our CRISIS measure is a shorter term measure. If this is true, we expect our resultsto disappear if we replace our 2004 TRI CRISIS measure with similar 2003 or 2005 measures. We fur-ther expect our results to endure even if we replace our 2004 KLD BAD measure with 2003 or 2005measures. The summary regression results of these tests are shown in Table 6, Panel E and ourexpectations are supported. The results show that when we replace the 2004 KLD BAD measure witha 2003 measure and a 2005 measure, the BAD measure remains significantly related to annual reportdisclosure. However, if we replace the 2004 TRI CRISIS measure with a 2003 measure and with a 2005measure, the CRISIS measure is no longer significantly related to website disclosure. This provides sup-port for the proposition that our KLD BAD measure is longer-term in nature and that our TRI CRISISmeasure is shorter term in nature.

We also replicate our main analysis using the KLD environmental concerns score of a firm as theBAD measure instead of the KLD net score used in the main analysis (untabulated). By confirming thatbad firms (based on KLD concerns only) disclose more in their annual reports (significant at the 1%level), this test shows the robustness of our long term environmental performance measure.

We realize that management can choose how much information to disclose regarding mandatorydisclosure items, such as litigation-related information. Therefore, we use all annual report environ-mental disclosure, including litigation-related disclosure, to re-estimate hypothesis 1 (untabulated).We get qualitatively similar results, i.e. significance at the 5% level for BAD and no significance forCRISIS.

6. Conclusion

We introduce the concept that environmental performance can be of a longer term reputationalnature or of a shorter term crisis nature and that firms’ environmental performance influences theirreporting decisions, specifically where they disclose.

We find that bad environmental reputation firms report more environmental information in theirannual reports, providing support for our hypothesis that managers attempt to reduce informationasymmetry and thereby reduce cost of capital. Accordingly, the information is provided for the benefitof providers of capital (shareholders, potential shareholders and lenders) and address firm environ-mental risks and future costs. These findings are robust to a narrower definition of discretionary dis-closures, i.e. excluding disclosures in the financial statement and the notes thereto from annual reportdisclosures. We find that firms experiencing an environmental crisis report more environmental infor-mation on their websites than non-crisis firms, providing support for our hypothesis that managersattempt to avoid or reduce political costs. Accordingly, managers explain their crisis in a cost effectiveway to outside stakeholders (such as environmental activists, local community groups, governmentagencies, journalists and the general public) in order to show they are taking appropriate actionand to thereby avoid political actions, such as consumer boycotts or additional regulation. We showin robustness tests that our BAD measure is a longer term measure and that our crisis measure is ashorter term measure.

Our findings of negative relations between environmental disclosure and performance confirmmost of the prior findings except Clarkson et al. (2008) for websites and Al-Tuwaijri et al. (2004)for 10-Ks (we used annual reports that contain similar information). Both of these papers usedshort-term environmental performance measures, although they did not select firms with higher toxicreleases than usual, as we did. However, the disclosure measure used is the main contributor to thedifference in findings. We consider the volume of environmental disclosure, whereas both of the othertwo studies focus on specific disclosure items. We consider the volume of disclosure to be important,


because it increases visibility of the disclosure and shows what managers regard as important infor-mation that is needed in order to reduce information asymmetry and to reduce (potential) politicalcosts. A search for specific types of disclosure, as was done in Clarkson et al. (2008) and Al-Tuwaijriet al. (2004), merely shows whether managers concur with the research team regarding disclosure pri-orities. These studies ignore some of the voluntary disclosure managers deemed to be important.

6.1. Implications

Our findings show that managers’ voluntary disclosure decisions are influenced by their firm’senvironmental performance. The implication for investors, lenders, public policy makers and otherstakeholders interested in environmental information are that annual report disclosures and websitedisclosures should be considered complementary, i.e. a complete picture will only emerge when bothare contemplated. Public policy makers can also use our results in deliberations on whether to pursueregulating additional disclosure types and where this information should be disclosed. Our findingsalso suggest that the public policy agenda can potentially be influenced by corporate disclosures inboth annual reports and on websites.

The relevance for research is that the measure of environmental performance used (long-term per-formance/reputation or short-term crisis type measures) makes a difference to findings, and also thatfirms use disclosure media (e.g. the annual report and websites) differently. These results enhance ourunderstanding of the relationship between firms’ environmental performance and their voluntary dis-closure decisions. We recommend that future voluntary disclosure research consider both annual re-port and website disclosures and, in addition, that future environmental disclosure/performancestudies carefully consider and motivate the nature of the performance measures they use.

6.2. Limitations

Our hypotheses regarding the volume of environmental disclosure by bad environmental perform-ing firms experiencing environmental crises or not, are simplifications and additional factors mayhave been overlooked. However, our explanations at least provide more texture than studies drawingsimple conclusions based on a positive or a negative correlation. Future research may also consider theimpact of environmental reputation and crisis on environmental reporting quality by, for example,distinguishing information based on specificity or using a quality index to evaluate the reportingquality.

There are many influences on the volume of environmental disclosure and we control for the mostimportant ones described in the literature (we include eight control variables). Furthermore, ourarchival method is not particularly suited to ascribe certain motivations to management to the exclu-sion of others and management may have multiple motivations. We therefore acknowledge somespillover effects, i.e. investors may also to an extent be targeted in web disclosures, but they are likelyto find it less reliable than annual reports; and other stakeholders may be targeted with annual reportdisclosures, but they are likely to find other sources more user-friendly.

We also accept that our measure of an environmental crisis could be a limitation. We used theemissions reported by CEPD. There may be better measures of environmental crisis. Crises should leadto increased media coverage, therefore, we reassess our measure in the following way: we find theaverage number of environmental news articles on the Factiva database for the period from January2004 to December 2004 to be 28 for CRISIS firms compared to 13 for non-crisis firms, providing sup-port for the construct validity of our crisis measure, especially bearing in mind that crisis and non-cri-sis firms are matched for industry and size. Similarly, the reliability of the KLD measure for long-termenvironmental performance/reputation can be questioned. However, as we explain in the method sec-tion, these measures are provided by firms that specialize in this area, ensuring a measure of reliabil-ity, both in terms of their commercial value and their research validity. Both measures have alreadybeen used extensively in academic research. Furthermore, our results endure when we use a KLD mea-sure derived from the previous year as well as when we use one derived from the next year. Theserobustness tests provide evidence of the longer term nature of the KLD environmental performancemeasure.


Websites are continuously updated. Similar to all website content analysis studies, it is possiblethat some environmental disclosure relating to 2005 may have been removed before we analysedthe websites. However, in sensitivity tests, when we replace our 2004 CRISIS measure with similar2003 or 2005 measures, our results disappear, providing some reassurance regarding construct valid-ity, i.e. that we capture the 2005 web disclosures correctly.

Acknowledgements

We acknowledge the following individuals who have commented on various versions of the paper:Steven Cahan, Stephen Courtney, Rob Gray, Graeme Harrison, Kathy Herbohn, Robert Knechel, DennisPatten, and participants at the ARA conference, the AFAANZ conference and at research seminars/workshops at several universities.

References

Adams, C., Frost, G., 2004a. Stakeholder Engagement Strategies: Possibilities for the Internet? Paper presented at the Fourth AsiaPacific Interdisciplinary Research in Accounting Conference, Singapore, July.

Adams, C., Frost, G., 2004b. The Development of Corporate Web-Sites and Implications for Ethical Social and EnvironmentalReporting through these Media. The Institute of Chartered Accountants of Scotland.

Adams, C., Hill, W.Y., Roberts, C.B., 1998. Corporate social reporting practices in Western Europe: legitimating corporatebehaviour? The British Accounting Review 30 (1), 1–21.

Agle, B.R., Mitchel, R.K., Sonnenfeld, J.A., 1999. Who matters to CEOs? An investigation of stakeholder attributes and salience,corporate performance, and CEO values. The Academy of Management Journal 42 (5), 507–525.

Al-Tuwaijri, S.A., Christensen, T.E., Hughes II, K.E., 2004. The relations among environmental disclosure, environmentalperformance, and economic performance: a simultaneous equations approach. Accounting, Organizations and Society 29(5–6), 447–471.

Azzone, G., Brophy, M., Noci, G., Welford, R., Young, W., 1997. A stakeholders’ view of environmental reporting. Long RangePlanning 30 (5), 699–709.

Bae, S.H., Seol, I., 2006. An exploratory empirical investigation of environmental audit program in S&P 500 companies.Management Research News 29 (9), 573–579.

Belkaoui, A., Karpik, P.G., 1989. Determinants of the corporate decision to disclose social information. Accounting, Auditing andAccountability Journal 2 (1), 36–51.

Berman, S.L., Wicks, A.C., Kotha, S., Jones, T.M., 1999. Does stakeholder orientation matter? The relationship betweenstakeholder management models and firm financial performance. The Academy of Management Journal 42 (5), 488–506.

Blacconiere, W.G., Patten, D.M., 1994. Environmental disclosures, regulatory costs, and changes in firm value. Journal ofAccounting and Economics 18, 357–377.

Cahan, S.F., 1992. The effect of monopoly antitrust investigations on discretionary accruals: a refined test of the political costhypothesis. The Accounting Review 67 (1), 77–95.

Cahan, S.F., Chavis, B.M., Elmendort, R.E., 1997. Earnings management of chemical firms in response to political costs fromenvironmental legislation. Journal of Accounting, Auditing, and Finance 12 (1), 37–65.

Chatterji, A.K., Levine, D.I., Toffel, M.W., 2009. How well do social ratings actually measure corporate social responsibility?Journal of Economics and Management Strategy 18 (1), 125–169.

Cho, C.H., Paton, D.M., 2007. The role of environmental disclosures as tools of legitimacy: a research note. Accounting,Organizations and Society 32 (7–8), 639–647.

Clarkson, P.M., Li, Y., Richardson, G.D., Vasvari, F.P., 2008. Revisiting the relation between environmental performance andenvironmental disclosure: an empirical analysis. Accounting, Organizations and Society 33 (3), 303–327.

Cormier, D., Gordon, I., 2001. An examination of social and environmental reporting strategies. Accounting, Auditing andAccountability Journal 14 (5), 587–616.

Cormier, D., Magnan, M., 2003. Environmental reporting management: a continental European perspective. Journal ofAccounting and Public Policy 22 (1), 43–62.

Courtis, J.K., 1986. An investigation into annual report readability and corporate risk-return relationships. Accounting andBusiness Research 16 (64), 285–295.

Davis-Walling, P., Batterman, S.A., 1997. Environmental reporting by the Fortune 50 firms. Environmental Management 21 (6),865–875.

De Villiers, C.J., Van Staden, C.J., 2010. Shareholders’ requirements for corporate environmental disclosures: a cross countrycomparison. British Accounting Review 42 (4), 227–240.

De Villiers, C.J., Van Staden, C.J., 2006. Can less environmental disclosure have a legitimising effect? Evidence from Africa.Accounting, Organizations and Society 31 (8), 763–781.

Deegan, C., Blomquist, C., 2006. Stakeholder influence on corporate reporting: an exploration of the interaction between theworld wide fund for nature and the Australian minerals industry. Accounting, Organizations and Society 31 (4–5), 343–372.

Deegan, C., Gordon, B., 1996. A study of the environmental disclosure practices of Australian corporations. Accounting andBusiness Research 4, 187–199.

Deegan, C., Rankin, M., 1996. Do Australian companies report environmental news objectively? An analysis of environmentaldisclosures by firms prosecuted successfully by the environmental protection authority. Accounting, Auditing andAccountability Journal 9 (2), 50–67.


Deegan, C., Rankin, M., Tobin, J., 2002. An examination of the corporate social and environmental disclosures of BHP from 1983–1997, a test of legitimacy theory. Accounting, Auditing and Accountability Journal 15 (3), 312–343.

Entine, J., 2003. The myth of social investing: a critique of its practice and consequences for corporate social performanceresearch. Organization and Environment 16 (3), 352–368.

Francis, J., Nanda, D., Olsson, P., 2008. Voluntary disclosure, earnings quality, and cost of capital. Journal of Accounting Research46 (1), 53–88.

Freedman, M., Wasley, C., 1990. The association between environmental performance and environmental disclosure in annualreports and 10Ks. Advances in Public Interest Accounting 3, 183–193.

Frost, G., Jones, S., Loftus, J., Van der Laan, S., 2005. A survey of sustainability reporting practices of Australian reporting entities.Australian Accounting Review 15 (1), 89–96.

Graves, S.B., Waddock, S.A., 1994. Institutional owners and corporate social performance. Academy of Management Journal 37(4), 1034–1046.

Gray, R., Kouhy, R., Lavers, S., 1995. Methodological themes: constructing a research database of social and environmentalreporting by UK companies. Accounting, Auditing and Accountability Journal 8 (2), 78–101.

Griffin, J.J., Mahon, J.F., 1997. The corporate social performance and corporate financial performance debate. Business andSociety 36 (1), 5–31.

Hackston, D., Milne, M.J., 1996. Some determinants of social and environmental disclosures in New Zealand companies.Accounting, Auditing and Accountability Journal 9 (1), 77–108.

Hall, S.C., 1993. Political scrutiny and earnings management in the oil refining industry. Journal of Accounting and Public Policy12 (4), 325–351.

Hall, S.C., Stammerjohan, W.W., 1997. Damage awards and earnings management in the oil industry. The Accounting Review 72(1), 47–65.

Halme, M., Huse, M., 1997. The influence of corporate governance, industry and country factors on environmental reporting.Scandinavian Journal of Management 13 (2), 137–157.

Hamilton, J.T., 1995. Pollution as news: media and stock market reactions to the toxics release inventory data. Journal ofEnvironmental Economics and Management 28 (1), 98–113.

Harrison, J.S., Freeman, R.E., 1999. Stakeholders, social responsibility, and performance: empirical evidence and theoreticalperspectives. Academy of Management Journal 42 (5), 479–485.

Hart, S.L., Ahuga, G., 1996. Does it to pay to be green? An empirical examination of the relationship between emission reductionand firm performance. Business Strategy and the Environment 5 (1), 30–37.

Healy, P.M., Palepu, K.G., 2001. Information asymmetry, corporate disclosure, and the capital markets: a review of the empiricaldisclosure literature. Journal of Accounting and Economics 31 (1–3), 405–440.

Hughes, S.B., Anderson, A., Golden, S., 2001. Corporate environmental disclosures: are they useful in determining environmentalperformance? Journal of Accounting and Public Policy 20 (3), 217–240.

Ingram, R.W., Frazier, K.B., 1980. Environmental performance and corporate disclosure. Journal of Accounting Research 18 (2),614–622.

Jensen, M., Meckling, W., 1976. Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal ofFinancial Economics 3 (4), 305–360.

Jones, S., Frost, G., Loftus, J., Van der Laan, S., 2007. An empirical examination of the market returns and financial performance ofentities engaged in sustainable reporting. Australian Accounting Review 17 (1), 78–87.

Key, K., 1997. Political cost incentives for earning management in the cable television industry. Journal of Accounting andEconomics 23 (3), 309–327.

Konar, S., Cohen, M.A., 1997. Information as regulation: the effect of community right to know laws on toxic emissions. Journalof Environmental Economics and Management 32 (1), 109–124.

Lang, M., Lundholm, R., 1993. Cross-sectional determinants of analyst ratings of corporate disclosures. Journal of AccountingResearch 31 (2), 246–247.

Lang, M., Lundholm, R., 2000. Voluntary disclosure and equity offerings: reducing information asymmetry or hyping the stock?Contemporary Accounting Research 17 (4), 623–662.

Lindblom, C.K., 1993. The implications of organizational legitimacy for corporate social performance and disclosure. In: Paperpresented at the Critical Perspectives on Accounting Conference, New York.

Lindenberg, E.B., Ross, S.A., 1981. Tobin’s q ratio and industrial organization. Journal of Business 54, 1–32.Lemon, A., Cahan, S., 1997. Environmental disclosures and political costs: New Zealand evidence. Asian Review of Accounting 5

(1), 75–105.Mahoney, L., Roberts, R.W., 2007. Corporate social performance, financial performance and institutional ownership in Canadian

firms. Accounting Forum 31 (3), 233–253.Milne, M.J., Tregidga, H., Walton, S., 2003. The triple bottom line: benchmarking New Zealand’s early reporters. University of

Auckland Business Review 5 (2), 37–48.Neimark, M.D., 1992. The Hidden Dimensions of Annual Reports. Paul Chapman, London.Neu, D., Warsame, H., Pedwell, K., 1998. Managing public impressions: environmental disclosures in annual reports. Accounting,

Organizations and Society 23 (3), 265–282.Patten, D.M., 1992. Intra-industry environmental disclosures in response to the Alaskan oil spill: a note on legitimacy theory.

Accounting, Organizations, and Society 17, 471–475.Patten, D.M., 2002. The relation between environmental performance and environmental disclosure: a research note.

Accounting, Organizations and Society 27 (8), 763–773.Patten, D.M., 2005. The accuracy of financial report projections of future environmental capital expenditures: a research note.

Accounting, Organizations and Society 30 (5), 457–468.Patten, D.M., Trompeter, G., 2003. Corporate responses to political costs: an examination of the relation between environmental

disclosure and earnings management. Journal of Accounting and Public Policy 22, 83–94.Roberts, R.W., 1992. Determinants of corporate social responsibility disclosure: an application of stakeholder theory.

Accounting, Organizations and Society 17, 595–612.


Schroeder, N., Gibson, C., 1990. Readability of management’s discussion and analysis. Accounting Horizons 4 (4), 78–87.Sharfman, M., 1996. The construct validity of the Kinder, Lydenberg & Domini social performance ratings data. Journal of

Business Ethics 15 (3), 287–297.Simnett, R., Vanstraelen, A., Chua, W.F., 2009. Assurance on sustainability reports: an international comparison. The Accounting

Review 84 (3), 937–967.Stengel, R., 2009. The responsibility revolution. Time 174 (11), 24–27 (21 September).Szewczyk, S.H., Tsetsekos, G.P., Zantout, Z., 1996. The Valuation of Corporate R&D Expenditures: Evidence from Investment

Opportunities and Free cash flow. Financial Management (Financial Management Association). Spring, 1996, pp. 105–110.Tilt, C.A., 2008. Environmental disclosure outside the annual report. International Journal of Management and Decision Making

9 (3), 288–309.Van der Laan Smith, J., Adhikari, A., Tondkar, R.H., Andrews, R.L., 2010. The impact of corporate social disclosure on investment

behavior: A cross-national study. Journal of Accounting and Public Policy 29, 177–192.Van Staden, C.J., Hooks, J., 2007. A comprehensive comparison of corporate environmental reporting and responsiveness. British

Accounting Review 39 (3), 197–210.Verrecchia, R., 1983. Discretionary disclosure. Journal of Accounting and Economics 5, 179–194.Waddock, S.A., Graves, S.B., 1997. The corporate social performance-financial performance link. Strategic Management Journal

18 (4), 303–319.Walden, W.D., Schwartz, B.N., 1997. Environmental disclosures and public policy pressures. Journal of Accounting and Public

Policy 16 (2), 125–154.Watts, R.L., Zimmerman, J.L., 1978. Towards a positive theory of the determination of accounting standards. The Accounting

Review 53 (1), 112–134.Wiseman, J., 1982. An evaluation of environmental disclosures made in corporate annual reports. Accounting, Organizations and

Society 7 (1), 53–63.Worthington, J., 1978. Footnotes: readability or liability. The CPA Journal 48, 27–32.

Charl de Villiers is a Senior Lecturer in Management Accounting at the University of Auckland. He also holds the position ofExtraordinary Professor at the University of Pretoria, South Africa, where he fulfils a research mentorship role. His researchexplores the impact of accounting choice (mostly around social and environmental issues), corporate governance, theaccounting profession, and accounting control systems. He has published in several accounting journals, including inAccounting, Organizations and Society, and the British Accounting Review. He serves on several editorial boards, e.g. Issues inAccounting Education.

Chris J. van Staden is Professor of Accounting at the University of Canterbury, New Zealand. He teaches courses in FinancialAccounting, Social and Environmental Accounting and Research Methods to undergraduate and post graduate students. Hisresearch focuses on the disclosure of financial information, especially environmental and social disclosures. He is also doingresearch in the area of ethics and relating that to social responsibility. A more recent interest is the relationship betweencorporate governance and environmental performance. He has published in international refereed accounting journalsincluding Accounting Organizations and Society, ABACUS, Accounting and Finance, and the British Accounting Review, amongstothers. Chris serves on the editorial board of three journals and review for a whole range of international journals.

where firms choose to disclose voluntary environmental information

Documents