Mandatory Environmental Disclosure and Public Avoidance Behavior

73 Pages Posted: 3 Apr 2024

See all articles by Yile (Anson) Jiang

Yile (Anson) Jiang

HKU Business School, The University of Hong Kong

Baohua Xin

University of Toronto - Rotman School of Management

Date Written: February 23, 2024

Abstract

We study whether access to corporate environmental information prompts public avoidance behavior. We focus on the disclosure policy change in the US fracking industry, where the use of chemicals in operations may impact local water quality, but the chemical information was previously concealed from the public. Following the chemical disclosure mandates by states, we document a 12% increase in defensive spending (bottled water sales) in fracking counties. These results are consistent with the notion that mandatory environmental disclosure alters the public’s perception of health risk exposure and prompts avoidance behavior. The behavioral change is more pronounced in counties where operators frequently use toxic chemicals or hide chemicals as trade secrets. Media coverage and information search are key drivers triggering avoidance behavior. We observe heterogeneity in public response based on demographic characteristics such as at-risk populations, risk tolerance, and employment in extraction industries. We also provide suggestive evidence that regulators’ effort in environmental management can crowd out the public’s need for avoidance behavior. Taken together, our findings highlight the societal benefits of environmental disclosure mandates.

Keywords: Mandatory Environmental Disclosure, Reporting Regulation, Real Effects, Pollution Information, Consumer Behavior, Avoidance Behavior, Fracking

JEL Classification: D10, H31, I12, K32, L71, L72, M41, M48, Q58

Suggested Citation

Jiang, Yile and Xin, Baohua, Mandatory Environmental Disclosure and Public Avoidance Behavior (February 23, 2024). Available at SSRN: https://ssrn.com/abstract=4736785 or http://dx.doi.org/10.2139/ssrn.4736785

Yile Jiang (Contact Author)

HKU Business School, The University of Hong Kong ( email )

Hong Kong
China

Baohua Xin

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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