Innovest Strategic Value Advisors

Factors Influencing Firm`s Disclosure About Environmental Liabilities

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Courtesy of Innovest Strategic Value Advisors

RESULTS: Large firms disclose more than small firms. Increased SEC oversight of disclosures related to environmental liabilities from 1990-1993 is associated with increased disclosure by firms. Size of liability does not correlate with increased regulatory pressure to disclose more. Disclosure decreases with the number of PRPs on the site and increases when a firm is the only PRP on its sites. Firms that are the only PRPs on their sites are less concerned with potential exposure to costly litigation and negotiation effects from increased disclosure than other firms. Uncertainty about how remediation costs will be allocated across PRP is more important than in firms’ accrual decisions than uncertainty about site costs. Findings indicate that firms with older sites and a larger percentage of sites with Records of Decisions for all operable units disclose less than other firms.
Firms disclose more when they are able to camouflage site-specific information. Firms with good news and those that access the capital market more frequently than other firms disclose more. The following effects significantly influence firms’ decisions to disclose voluntarily that they accrue for environmental liabilities: litigation and negotiations concerns, capital market effects, and other regulatory effects. Allocation uncertainty is marginally significant and site uncertainty is not significant.  The role of litigation and negotiation concerns, although statistically significant, is less conclusive because its proxies may relate to other factors.

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