Disclosure of Private Information and Reduction of Uncertainty: Environmental Liabilities in the Chemical Industry

53 Pages Posted: 30 May 2001

See all articles by Katherine Campbell

Katherine Campbell

University of Maryland

Naomi S. Soderstrom

University of Melbourne

Stephan Sefcik

University of Washington - Department of Accounting

Date Written: April 2001

Abstract

We investigate the potential uncertainty-reducing role of accounting information in the context of contingent Superfund liability valuation. We first develop theoretical arguments for the way reduction of uncertainty regarding these contingent liabilities is expected to affect security prices. Empirical proxies are developed for two types of uncertainty surrounding contingent Superfund liabilities: site uncertainty and allocation uncertainty. In a valuation framework, we then investigate whether financial statement disclosures and accruals reduce uncertainty and thereby affect security valuation. Specifically, we analyze the interaction of private information contained in firm disclosures and accruals with inherent uncertainty surrounding contingent Superfund liabilities. Results suggest that in a regulatory environment allowing substantial reporting discretion, firm-provided financial statement information affects valuation of contingent Superfund liabilities by reducing uncertainty. Further, we find that information revealed through accruals versus disclosures is differentially effective at reducing site and allocation uncertainty.

Keywords: Environmental accounting; Disclosure; Market valuation; Contingent liability

JEL Classification: G12, M41, M45

Suggested Citation

Campbell, Katherine and Soderstrom, Naomi S. and Sefcik, Stephan E., Disclosure of Private Information and Reduction of Uncertainty: Environmental Liabilities in the Chemical Industry (April 2001). Available at SSRN: https://ssrn.com/abstract=269223 or http://dx.doi.org/10.2139/ssrn.269223

Katherine Campbell

University of Maryland ( email )

College of Business & Management
Smith School, Rm. 4457
College Park, MD 20742-9157
United States
301-405-5481 (Phone)

Naomi S. Soderstrom (Contact Author)

University of Melbourne ( email )

Victoria
Melbourne, 3010
Australia

Stephan E. Sefcik

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States

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