H1a: Site uncertainty is associated with more a negative relation between the existence of contingent Superfund liabilities and firm value.H1b: Allocation uncertainty is associated with a more negative relation between the existence of contingent Superfund liabilities and firm value. The greater the uncertainty surrounding the ultimate claim the firm faces for a particular Superfund site, the more negative the association between the contingent liability and firm value.
H2a: Firm-provided private information about environmental liability reduces site uncertainty and its negative impact on valuation of contingent Superfund liabilities.
H2b: Firm-provided private information about environmental liability reduces allocation uncertainty and its negative impact on valuation of contingent Superfund liabilities.
Regression calculations, using two equations (disclosure & accrual). The proxy for site uncertainty is based on the EPA hazard rating score (HRS), which reflects the extent and complexity of contamination across multiple dimensions (ground, water, air) and is used by the EPA in assigning NPL ranks. The proxy for allocation uncertainty is based on aggregate settlements at sites with which firms are associated as PRPs. Aggregate site settlements represent an upper bound for any individual firm’s responsibility for site clean-up costs settled to date and is consistent with the legal interpretation of Superfund liability. The proxy for private disclosure of financial information was developed using a scoring system (0-7) to assess annual reports and 10-K filings.