The Determinants of Environmental Performance: An Empirical Analysis of Four Environmentally Sensitive Industries
Posted: 3 Nov 1997
Date Written: June 1997
Prior accounting research examining the relation between a firm's environmental performance and its environmental disclosure has yielded mixed results. Some studies have found a significant relation while others have not. One explanation for the disparity in prior results is that these studies fail to recognize systematic differences in disclosure incentives. I contend that two firms with similar environmental performance may have different incentives to publicly disclose sensitive information. Since these incentives are not directly observable, one could proxy for disclosure incentives using the following firm characteristics: economic performance, environmental exposure, environmental liability, geographic location, environmental history, and environmental concern. I employ a sample of ninety-one firms from four environmentally-sensitive industries, and examine the relation between some of these firm characteristics and environmental performance. I find a positive, significant relation between environmental performance and both economic performance and leverage. Given that these firm characteristics are significantly associated with environmental performance, if they are also related to disclosure incentives, these correlated, omitted variables could explain differences in prior studies. This suggests that future research examining the relation between environmental performance and environmental disclosure should control for cross-sectional differences in disclosure incentives.
JEL Classification: M41, M45, Q25
Suggested Citation: Suggested Citation