Tone at the top: CEO environmental rhetoric and environmental performance

In this study we attempted to ascertain the environmental leadership and commitment of the CEO as evidence of “tone at the top” in the belief that this would lead to enhanced environmental performance. We measure “tone at the top” by the environmental disclosure score which is collected from a content analysis of CEO letters to shareholders. We adopt the two environmental performance measures: (1) Environmental Impact Score (EIS) from Newsweek Green Ranking and (2) Modeled Hazard Population Results (MHPR) based on Risk-Screening Environmental Indicator (RSEI) models built by EPA. The results indicate that the environmental disclosure score from the CEO letter is inversely correlated with environmental performance. The overall findings support legitimacy theory in that CEOs essentially “spin” firms' environmental performance so it looks better than it actually is.     

Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis

Previous empirical evidence provides mixed results on the relationship between corporate environmental performance and the level of environmental disclosures. We revisit this relation by testing competing predictions from economics based and socio-political theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely discretionary environmental disclosures and by developing a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the US, we find a positive association between environmental performance and the level of discretionary environmental disclosures. The result is consistent with the predictions of the economics disclosure theory but inconsistent with the negative association predicted by socio-political theories. Nevertheless, we show that socio-political theories explain patterns in the data (“legitimization”) that cannot be explained by economics disclosure theories.     

An evaluation of environmental disclosures made in corporate annual reports

This paper evaluates the quality and accuracy of environmental disclosures made in corporate annual reports. Annual report disclosures made by 26 firms in environmentally sensitive industries are examined. An indexing procedure is used to measure the contents of the disclosures, and the relationship between the disclosure contents and the firms' environmental performance is tested. The study provides a detailed measure of environmental disclosure contents. Results indicate that corporate environmental disclosures are incomplete and are not related to the firms' actual environmental performance.     

Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore

Drawing on prior empirical research based on disclosure behavior in developed western markets, this study examines the association of ownership structure with the voluntary disclosures of listed companies in the Asian settings of Hong Kong and Singapore. An analysis of annual reporting practices shows that the extent of outside ownership is positively associated with voluntary disclosures. In particular, the results also indicate that the level of information disclosure is likely to be less in “insider” or family-controlled companies, a significant feature of the Hong Kong and Singapore stock markets.     

Corporate social responsibility orientation and textual features of financial disclosures

This paper examines the relationship between corporate social responsibility (CSR) orientation and textual attributes of financial disclosures. Using a large U.S. sample from 1999 to 2017, we find that firms with high CSR orientation provide more readable disclosures and use a less ambiguous tone in their annual reports. These findings are consistent with the notion that managers in CSR-conscious firms adhere to high ethical standards and commit to improving the transparency of their firms' financial disclosures. Our results are robust to alternative measures of readability and CSR performance, potential endogeneity, and sampling methods. Moreover, in a cross-sectional analysis, we show that the impact of CSR on corporate readability/tone ambiguity is more pronounced for firms with weak corporate governance. Overall, the results suggest that CSR serves as a substitute for traditional corporate governance mechanisms to ensure transparent disclosure.     

Accounting for climate change and the self-regulation of carbon disclosures

Adopting a form of “critical dialogic engagement” (Bebbington et al., 2007), this paper explores how dominant environmental discourses can influence and shape carbon disclosure regulation. Carbon-related disclosures have increased significantly in the last five years, and many of these disclosures remain voluntary. This paper considers both the construction of self-regulated carbon disclosure practices and the role that this kind of carbon information may have in climate change-related decision making. Our preliminary findings indicate that the methodological diversity underpinning carbon disclosures may inhibit the usefulness of climate change-related data. To explore these issues, this paper focuses on the Carbon Disclosure Project (CDP) and the use of the Greenhouse Gas (GHG) Protocol as a reporting model within it.     

Managerial career concerns and the content of corporate disclosures: An analysis of the tone of earnings press releases

This study examines how the narrative content of corporate disclosures is affected by managers’ career concerns, measured by the enforceability of noncompete provisions in employment contracts. We provide empirical evidence that career concerns lead managers to manipulate the content of corporate disclosures by inflating the tone of earnings press releases to convey a more optimistic picture about the firm’s financial performance. We ensure the causality of our findings by exploiting changes to noncompete enforceability following court rulings. We also show that tone inflation is stronger when CEOs are younger, less capable and less experienced, as well as for managers of firms with more independent boards, more analysts following and better governance.     

Managing Public Impressions: Environmental Disclosures in Annual Reports

Through the juxtaposition of theory and a meso-level empirical illustration of the environmental disclosures included in the annual reports of Canadian public companies operating in the mineral extraction, forestry, oil and gas, and chemical industries over the 1982 to 1991 period, the current study attempts to increase our understanding of the role and functioning of environmental disclosures. Our analyses focus on three concerns: the influence of external pressure on environmental disclosures in annual reports, including the amount and types of strategies used in disclosure; the characteristics of environmental disclosure vis-á-vis other “social” disclosures; and the association between environmental disclosures and actual performance. We question whether such disclosures highlight positive environmental actions, obfuscate negative environmental effects or both.     

The relevance of environmental disclosures: Are such disclosures incrementally informative?

Establishing the information content of transparent voluntary environmental disclosures and the source of this information content is of fundamental importance for corporate social responsibility (CSR) practitioners. Our results indicate that: (1) incremental to information provided by current Toxics Releases Inventory (TRI) data, voluntary environmental disclosures provide valuation relevant information; (2) the various disclosure categories are similar in value relevance, implying that each category is informative of management’s current environmental strategies; (3) current TRI is positively associated with cost of capital but there is no association between voluntary environmental disclosures and cost of capital; and (4) taken together, the above results point to a signaling role for such disclosures and financial performance prediction as the means by which voluntary environmental disclosures enhance firm value. This advances the literature by pinning down the source of firm value enhancement of such disclosures. Our results suggest that a proactive environmental strategy and the signaling of such a strategy to investors can enhance a firm’s stock price, a finding which will assist CSR practitioners in convincing top management that proactive environmental strategies combined with transparent voluntary environmental disclosures are worthwhile.     

Environmental,social and governance disclosure,integrated reporting,and the accuracy of analyst forecasts

The International Integrated Reporting Council advocates that integrated reporting (IR) should become the worldwide norm for corporate reporting aimed at serving the needs of investors. Nonetheless, only in South Africa has IR been mandated. We study the impact of the reporting regime change in South Africa on analyst forecast accuracy over the period 2008 to 2012, as a way of evaluating users’ perceptions of the usefulness of IR. We theorise that any effects of IR will be greater the greater is the level of disclosures of environmental, social and governance performance. We find results consistent with those who support IR and our theory that the level of environmental, social and governance disclosures is a mediating variable in determining the effectiveness of IR. The results are driven by the levels of environmental disclosure and, to a lesser extent, governance disclosure. Our results provide some support for those who advocate the virtues of integrated reporting.     

Where firms choose to disclose voluntary environmental information

Corporate environmental performance is of increasing importance to investors, public policy makers and the general public. Firms disclose environmental information (mostly) voluntarily in their annual reports and on their websites. These disclosures are important, because they provide environmental performance information and influence capital markets. We compare environmental disclosure in annual reports and on websites with a long-term (bad) and a short-term (crisis) environmental performance measure. We find evidence to support our hypotheses that different levels of environmental disclosure are made in annual reports and on websites under different conditions. More specifically, firms disclose more environmental information on their websites when faced with an environmental crisis and more in their annual reports when they have a bad environmental reputation.     

Board generational cohorts,gender diversity and corporate environmental and social disclosures: Evidence from China

We examine the association between board generational cohorts and corporate environmental and social disclosure. We find that older board members have a positive association with corporate environmental and social disclosures. In contrast, the moderately younger and youngest board members limit corporate environmental and social disclosures. Our results are robust to potential endogeneity with the use of alternative model specifications, with the youngest board members accounting for a lower level of corporate environmental and social disclosures. Furthermore, we find that the presence of gender diversity on the board moderates the relationship between board generational cohorts and corporate environmental and social disclosures and reporting incentives are important to oldest and youngest board members in their push for environmental and social disclosures. Finally, additional analysis indicates that firms with governmental shareholding are associated with a higher level of corporate environmental and social disclosures as compared to firms without governmental shareholding when board members are moderately young.     

The changing nature of financial disclosure in Japan

This paper investigates whether Japanese companies listed on the Tokyo Stock Exchange (TSE) altered their voluntary accounting disclosure behavior over the period of the 1990s. It implicitly tests for whether the collapse of Japan's “Financial Bubble” in the late 1980s altered the incentives of Japanese managers to be more forthcoming about corporate information. Previous research on Japanese disclosure practices highlights the “secretive” nature of Japanese managers and suggests that cultural preferences strongly discourage disclosure. Our findings suggest that Japanese disclosure practices are sensitive to economic conditions.     

Can less environmental disclosure have a legitimising effect? Evidence from Africa

Organizational legitimacy theory predicts that corporations will do whatever they regard as necessary in order to preserve their image of a legitimate business with legitimate aims and methods of achieving it. Legitimacy is mostly used in the social and environmental accounting research (SEAR) literature to support the idea that social disclosures will be maintained at present levels, or increased over time, to avert legitimacy crises. However, the SEAR literature contains some references to reasons for, and incidents of, reductions in social disclosures. We submit that legitimacy theory predicts these reductions as much as it predicts maintaining or increasing disclosure levels.We conduct a content analysis of more than 140 corporate annual reports over a 9-year period in order to identify the trends in environmental disclosure by South African companies over time. We find a reduction in environmental reporting after an initial period of increases for both Mining companies and Top-100 industrial companies. The decrease for Mining companies was bigger than that for Top-100 companies, both overall and when the results were split between specific and general information. The publication of general and specific information increased from 1994 to 1999; disclosure of specific information then declined by five times more than the decline in disclosure of general information. These trends are consistent with legitimacy theory and we conclude that legitimising objectives may also be served by changing the type (general/specific) or reducing the volume of environmental disclosures.     

Intertemporal Dynamics of Corporate Voluntary Disclosures

While empirical evidence alludes to the intertemporal nature of corporate voluntary disclosures, most of the existing theory analyzes firms' voluntary disclosure decisions within single‐period settings. Introducing a repeated, multiperiod, disclosure setting, we study the extent to which firms' strategic disclosure behavior in the past affects their prosperity to provide voluntary disclosures in the future. Our analysis demonstrates that by voluntarily disclosing private information firms make an implicit commitment to provide similar disclosures in the future, and therefore are less willing to voluntarily disclose information in the first place. This effect is expected to be of larger magnitude for firms (1) with a long history of absence of voluntary disclosures and an impressive past operating performance, or (2) that operate in a relatively stable and predictable business and information environment, or (3) whose managers have a long time horizon and a high degree of risk aversion.     

Market Efficiency, Bounded Rationality, and Supplemental Business Reporting Disclosures

The AICPA Special Committee on Financial Reporting has urged disclosure of relevant forward-looking information on risks and opportunities to supplement conventional financial statements. We conduct a laboratory market experiment to assess the effects of such disclosures on capital allocation decisions. We develop two sets of competing hypotheses regarding how capital markets react to supplemental disclosures. One set is based on the assumption of semi-strong market efficiency, while the other posits that the bounded rationality of individual traders leads to inefficient market prices. We find that explicit disclosure of management's best estimate of an uncertain quantity improves market efficiency, even though this disclosure is redundant with information in financial statements. Second, we find disclosure of an upper bound of management's estimate has the potential to bias security prices upward, while informationally equivalent disclosure of both upper and lower bounds removes this bias. These results suggest that experimental market reactions to these supplemental disclosures are inconsistent with market efficiency. Supplemental analyses of individuals' price predictions and trading behavior support our conclusion that inefficiencies are at least partially attributable to individual information processing biases.     

Disclosure responses to mining accidents: South African evidence

Mining activities generate significant social concerns in terms of employee safety and stakeholder scrutiny has increased considerably in recent years. Social and environmental accounting research is largely dedicated to environmental issues and the study of other components of social accounting is limited. This study examines safety disclosures in the annual reports, sustainability reports, and reactive corporate press releases of South African mining organisations following two major mining accidents occurring at Harmony Gold and Gold Fields’ mines. Results show that organisations react to perceived legitimacy threats through increased safety disclosures. The entire mining industry evidences an increase in disclosure levels after the incidents, suggesting that organisations do respond to increased stakeholder scrutiny threatening their legitimacy. Furthermore, our results provide evidence of an association between safety disclosure levels and firm size, social performance, risk, and number of fatalities, while the media attention devoted to mining accidents appears to be unrelated to safety disclosure levels. It is possible that stakeholder pressure, which motivates corporate social disclosures according to legitimacy and stakeholder theories, consists of various factors, which combined form the motivation to report. Media attention, therefore, cannot be considered in isolation as a driver of disclosure. Rather, a combination of variables such as size, social responsibility performance, number of fatalities, risk, and media attention could serve as a proxy for social pressure.     

VOLUNTARY DISCLOSURE OF ACCOUNTING RATIOS IN THE UK

This paper investigates whether the voluntary disclosure of ratios in corporate annual reports can be explained by agency and signalling theory. The two theories are discussed and the applicability to explaining ratio disclosures considered. Drawing on agency and signalling theory, seven hypotheses are tested using data collected over five years, for 313 UK companies. More specifically, associations are considered between ratio disclosure and the following characteristics: company profitability; return on investment; gearing; liquidity; company efficiency; size and industry. The paper finds some evidence of an association between ratio disclosure and company performance, size and industry. The implications of these findings are considered and areas of further research discussed.     

Disclosure tone management and labor unions

By analyzing the influence of labor unions on the narrative content of corporate disclosures, we provide empirical evidence that managers deflate the tone of earnings press releases in order to convey to unions a less optimistic image of firm financial performance. We find that the tone of the qualitative information in earnings press releases is significantly less optimistic as the degree of unionization increases, and particularly when financial performance is strong. The results of quasi‐natural experiments suggest that labor unions causally affect the use of tone deflation, and the deflation is stronger during labor negotiations. Our findings also indicate that labor unions lead to a significant weakening of the signaling value of the tone of earnings press releases in predicting future performance.