Abstract
This paper examines factors related to environmental liability disclosure decisions for firms in industries with substantial Superfund site involvement. We hypothesize that the extent of disclosure about environmental liabilities is associated with five factors: (1) regulation, including enforcement activity, (2) managements' information, including site uncertainty and allocation uncertainty, (3) litigation and negotiation concerns, (4) capital market concerns, and (5) other regulatory influence. Our empirical tests examine the association between measures of environmental liability disclosure, based on disclosures in firms' annual reports and Forms 10-K, and proxies for the five factors, based on information from other public sources, including the EPA. We find that all of our hypothesized factors except site uncertainty significantly influence firms' environmental disclosure decisions.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
American Institute of Certified Public Accountants. (1996). Statement of Position 96-1: Environmental RemediationLiabilities (Including Audit Guidance). New York, NY: AICPA.
Bamette, J. D. (1991). "Conflict Between Bankruptcy and Environmental Law and Policy: The Courts Are Still Out." Environmental Finance, 191-200.
Barth, M. E., and S. Kallapur. (1996). "Effects of Cross-Sectional Scale Differences on Regression Results in Empirical Accounting Research." Contemporary Accounting Research 13, 527-567.
Barth, M. E., and M. F. McNichols. (1994). "Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites." Journal of Accounting Research 32 (Supplement), 177-209.
Bath, M. E., and A. P. Sweeney. (1995). "Differential Information Environments: Effects on Cost of Capital and Reflection in Share Prices of Recognized and Disclosed Accounting Amounts." Working paper, Harvard Business School.
Belsley, D. A., E. Kuh, and R. E. Welsch. (1980). Regression Diagnostics. New York: John Wiley and Sons.
Diamond, D. W. (1985). "Optimal Release of Information by Firms." Journal of Finance 40(4), 1071-1094.
Diamond, D. W. (1989). "Reputation Acquisition in Debt Markets." Journal ofPolitica1 Economy 97(4), 828-862.
Dinkins, C. E. (1992). "SEC Disclosure of Environmental Matters and Management of Those Matters Through an Aggressive Audit Program." Eleventh Annual SEC and Financial Reporting Institute Conference, University of Southern California. Los Angeles, California.
Dirks, H. J. (1991). "Accounting for the Costs of Environmental CleanupWhere Things Stand Today." Environmental Finance 1(1), 89-92.
Dominy, G. L. (1991). "Accounting for Environmental Contingencies and Losses." Environmental Finance 1(1), 45-51.
Duvel, W. A., Jr. (1991). "How to Use Engineering Estimates of Environmental Contingencies and Liabilities." Environmental Finance 1(1), 53-63.
Dye, R. A. (1985). "Disclosure of Nonproprietary Information." Journal of Accounting Research 23(1), 123-145.
Financial Accounting Standards Advisory Council. (1992). "Overview of Environmental Regulation in the United States and Nature of Environmental Liabilities." FASB Memorandum, 1-10.
Financial Accounting Standards Board. (1975). FASB Statement No. 5, Accounting for Contingencies. Nonvalk, CT.
Financial Accounting Standards Board. (1976). FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. Norwalk, CT.
Fishman, M. J. and K. M. Hagerty. (1989). "Disclosure Decisions by Firms and the Competition for Price Efficiency." The Journal of Finance 44(3), 633-646.
Frankel, R., M. McNichols, and G. P. Wilson. (1995). "Discretionary Disclosure and External Financing." The Accounting Review 70(1), 135-150.
Gibbins, M., A. Richardson, and J. Waterhouse. (1990). "The Management of Corporate Financial Disclosure: Opportunism, Ritualism, Policies, and Processes." Journal of Accounting Research 28(1), 121-143.
Healy, P. M., and K. G. Palepu. (1993). "The Effect of Firms' Financial Disclosure Strategies on Stock Prices." Accounting Horizons 7(1), 1-11.
Ingram, R. W., and E. G. Chewning. (1983). "The Effect of Financial Disclosure Regulation on Security Market Behavior." The Accounting Review 58(3), 562-580.
King, R., G. Pownall, and G. Waymire. (1990). "Expectations Adjustment via Timely Management Forecasts: Review, Synthesis, and Suggestions for Future Research." Journal of Accounting Literature 9, 113-144.
Lavelle, M. (1992). "Superfund Studies Begin to Fill Hole in Data-Dry Field." Business Watch, The National Law Journal 14(20), 19-20.
Merton, R. C. (1987). "A Simple Model of Capital Market Equilibrium with Incomplete Information." The Journal of Finance 42(3), 483-510.
Mitchell, L. (1994). "Comparability in Accounting for Contingencies: The Case of Superfund." Working paper, Columbia University.
Price Waterhouse. (1991). Environmental Accounting: The Issues, The Developing Solutions-A Survey of Corporate America's Accounting for Environmental Costs.
Price Waterhouse. (1992). Accounting for Environmental Compliance: Crossroad of GAAP, Engineering, and Government-A Survey of Corporate America's Accounting for Environmental Costs-Second in a Series.
Rabinowitz, D. L., and M. Murphy. (1991). "Environmental Disclosure: What the SEC Requires." Environmental Finance 1(1), 3143.
Reich, G. W., and K. Kaplan. (1991). " 'Sudden and Accidental' Means Different Things to Different Courts." Environmental Finance 1(2), 161-168.
Roberts, R. Y. (1992). "Remarks of Richard Y. Roberts Commissioner, U.S. Securities and ExchangeCommission, Washington, D.C. 'Recent Developments Concerning Environmental Disclosure.' " Attachment to Accounting and Auditing Bulletin No. 92-109, Dallas, TX.
Sivakumar, K. N., and G. Waymire. (1993). "The Information Content of Earnings in a Discretionary Reporting Environment: Evidence from NYSE, 1905-1910." Journal of Accounting Research 31(1), 62-91.
Skinner, D. J. (1994). "Why Firms Voluntarily Disclose Bad News." Journal of Accounting Research 32(1), 38-60.
Stanny, E. (1995). "Effect of an SEC Enforcement Criterion on Environmental Accrual and Disclosure Practices." Working paper, University of Chicago.
Surma, J. P., and A. A. Vondra. (1992). "Accounting for Environmental Costs: A Hazardous Subject. How to Cope with a Changing Regulatory and Legal Framework." Journal of Accountancy 173(3), 51-55.
Thompson, L. H. (1991). "Testimony of GAO Before the House Subcommittee on Health Relating to the Impact on Corporate Health Care Liabilities of Reducing Medicare Age to 60." FASB Memorandum.
Verrecchia, R. E. (1983). "Discretionary Disclosure." Journal of Accounting and Economics 5(3), 179-194.
Watts, R. L., and J. L. Zimmerman. (1986). Positive Accounting Theory. Englewood Cliffs: Prentice-Hall, Inc.
White, H. (1980). "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity." Econometrica 48(4), 817-838.
Zuber, G. R., and C. G. Beny. (1992). "Assessing Environmental Risk Financial Statement Users Are Carefully Scrutinizing the Adequacy of Environmental Cleanup Disclosures." Journal of Accountancy 173(3), 43-48.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Barth, M.E., McNichols, M.F. & Wilson, G.P. Factors Influencing Firms' Disclosures about Environmental Liabilities. Review of Accounting Studies 2, 35–64 (1997). https://doi.org/10.1023/A:1018321610509
Issue Date:
DOI: https://doi.org/10.1023/A:1018321610509