The Impact of a Change in Regulation on Environmental Disclosure: SAB92 and the US Chemical Industry

Kathryn Bewley, Vanessa Magness


This study investigates environmental disclosure in the annual reports of US public companies in the chemical industry during a time when there was a substantial change in reporting regulation. This change concerned contingent environmental liabilities. We draw on signal theory and the economic cost perspective to generate predictions about environmental disclosure strategies. We find evidence that managers use disclosure to distinguish their companies from other companies: first by disclosing environmental liabilities that many other companies did not reveal; and later by disclosing other future-oriented financial information. We assumed initially, that this behaviour was indicative of signaling strategy. We find, however, that the companies which we initially thought were signaling have
higher levels of pollutant emissions (per dollar of assets) than non- signaling companies. This evidence does not support our earlier assumption. We argue that public concern about this industry, and the fact
that emissions levels are open to public scrutiny, lowers the disclosure-cost threshold for high emission companies, leading managers to disclose information they previously withheld.


Environmental disclosure, environmental performance, signal theory, voluntary disclosure theory.

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