Roland W. Scholz: Environmental Literacy in Science and Society. From Knowledge to Decisions. Cambridge University Press 2011

This study pursues the following aims: to examine how news stories use frames, emotions, and uncertainty to present environmental risk information; to identify which aspects of risk issues they highlight; and to analyze how these stories’ representations of risk and uncertainty might differ according to the sources they use. Content analysis of 641 news stories in South Korea over the last decade yields three findings: (1) reassurance was the most frequently used news frame, while uncertainty and emotion were used less often than expected; (2) news stories using government/industry/experts as sources vs. activists/lay people highlighted different news frames and risk information; and (3) the two most frequently used uncertainty presentation formats were single point estimate and verbal estimate. This study contributes to existing literature on the roles of media in environmental risk communication in two ways. First, it examines the specific formats journalists use to present uncertainty about risks. Second, it integrates news frames with the emotional characteristics of risk communication and with differences in risk information characteristics according to source. Implications are discussed regarding how a better understanding of news representations of risk could inform and enhance cooperation between experts and journalists, and lead to more effective environmental risk communication. Finally, this content analysis provides a stepping stone for future research that could further investigate and test how publics respond to risk messages that have varying permutations of emotional content and risk presentation formats.     

The influence of business strategy on annual report readability

Concerns about the complexity of firm disclosures have prompted regulators to initiate projects to improve the readability of annual reports. We investigate business strategy as a determinant of annual report readability. As business strategy fundamentally determines a firm’s product and market domain, technology, and organizational structure, it influences a firm’s operating complexity, environmental uncertainty and information asymmetry. Consequently, business strategy frames the level, wording, and complexity of disclosures. We capture a firm’s business strategy based on the Miles and Snow (1978) strategic typology and measure 10-K readability with Li’s (2008) Fog index. We find that firms pursuing an innovation-oriented prospector strategy have less readable 10-Ks relative to firms pursuing an efficiency-oriented defender strategy. We also find that prospectors display more negative and uncertainty tones while defenders exhibit more litigious tone in their 10-Ks. Our study provides useful insights to policy makers as it suggests that efforts to improve annual report readability may be limited for some firms given that business strategy is a fundamental determinant of readability and pronouncements accommodating different strategic orientations are not feasible.     

异质性环境规制与企业盈余信息质量——基于传染效应视角

利用2011—2017年重污染企业数据,检验传染效应视角下异质性环境规制对企业盈余信息质量的影响。研究发现：传染效应强化了显性环境规制对企业盈余信息质量的负向影响,削弱了隐性环境规制对企业盈余信息质量的正向影响。进一步研究发现：对于规模较大、环境不确定性较低和向下盈余管理的企业,传染效应的调节作用更为明显;内部控制质量和社会信任能削弱传染效应的正向调节作用;立法强度、环境补贴和公众参与是影响企业盈余信息质量的主要环境规制。     

Uncertainty Associated with Future Environmental Costs and the Market's Differential Response to Earnings Information

This study examines whether the uncertainty arising from a firm's exposure to future environmental costs (environmental uncertainty) affects the market's price sensitivity to reported earnings. Specifically, when environmental uncertainty is significantly high, are investors more responsive to reported earnings released by 'high-polluting' firms than reported earnings announced by 'low-polluting' firms within the same industry? The initial impact of Title IV (the acid rain provisions) of the 1990 Clean Air Act Amendments (1990 CAAA) on the US electric utility industry provides the research setting required to isolate the effects of environmental uncertainty while addressing this question. Consistent with theoretical predictions, we find that the earnings response coefficients (ERCs) of high-polluting electric utilities are significantly greater than those of their low-polluting counterparts during a predicted period of elevated environmental uncertainty. In adjoining sample years associated with lower environmental uncertainty, we observe no statistical difference in the magnitude of the ERCs between these two groups. In addition, the study's findings suggest that the magnitude of the ERC is increasing in the firm's exposure to future environmental costs, after controlling for other factors that potentially affect ERCs.     

The accuracy of financial report projections of future environmental capital expenditures: a research note

Financial report environmental disclosure has been widely criticized because the extent of disclosure both varies in response to exposures facing the firm and because it is not an accurate measure of firm environmental performance. This study suggests there are at least two potential problems that need to be addressed before this disclosure can be completely condemned as meaningless. A first potential problem is the earlier studies' focus on broad measures of environmental disclosure. Hidden within those broader measures may be pieces of meaningful information. Second, while the disclosure examined previously may not correspond well with past environmental performance, it, or at least parts of it, may still provide meaningful information for assessing future environmental action. This study attempts to address these shortcomings by examining one specific, but potentially useful, category of environmental disclosure: projections of future spending for pollution abatement and control equipment.Based on 355 sets of projected/actual spending drawn from 10K reports filed with the US's Security and Exchange Commission between 1993 and 2002, inclusive, results suggest that the projections may be more misleading than meaningful. Actual spending was lower than the projected amount for more than 75% of the observations, and the mean projection error (the difference adjusted for the size of the projection) was a negative 16.4%. Analysis of projection errors for a 2-year, rather than a 1-year window revealed a similar distribution. In contrast to the accuracy of the environmental capital expenditure projections, the actual/projection difference for total capital expenditures was very small, suggesting that it is not a difficulty in estimating future capital spending that is driving the error results. The projection errors also did not appear to be a function of changes in company revenues or profitability. Overall, therefore, it appears that, similar to broader measures of corporate environmental disclosure, projections of future spending on environmental control lack value.     

Uncertainty triggers overreaction: evidence from corporate takeovers

Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to it. We test this theoretical prediction in an M&A framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, acquiring firms generate highly positive and significant gains following the announcement of private stock and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty, when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition. Overall, we provide empirical evidence that shows that information uncertainty plays a significant role in explaining short-run acquirer abnormal returns.     

The Effects of Uncertainty on the Informativeness of Earnings: Evidence from the Insurance Industry in the Wake of Catastrophic Events

This study examines the effects of uncertainty associated with large-scale catastrophes on the informativeness of earnings announcements by property and casualty insurers. It contributes to the literature on the effects of uncertainty on the informativeness of earnings announcements by distinguishing between: (1) uncertainty due to exogenous events that obscure the firm's future prospects, and (2) uncertainty due to noise in earnings. Results suggest that heightened uncertainty associated with exposure to catastrophe losses is significantly positively associated with the market's response to earnings reports, even after controlling for uncertainty due to noise in earnings. This implies that during periods of high uncertainty, investors find earnings information more useful in assessing the future prospects of the firm.     

Linking environmental uncertainty to non-financial performance measures and performance: a research note

Several previous research studies have reported mixed results concerning the direct association between non-financial performance measures and performance. The presence of environmental uncertainty on this relationship has not been established. This paper makes a contribution to this area by proposing that it is in conditions of environmental uncertainty that non-financial measures are most useful in improving organizational performance. It analyses empirical data from a sample of New Zealand manufacturing organizations to test the hypothesis that non-financial measures of performance would lead to improved organizational performance under conditions of increased environmental uncertainty. Multiple regression analysis of the data suggests that performance should be a declining function of the size of the ‘mismatch’ between an organization's environment and use of the different combinations of non-financial performance measures. Further, the paper concludes that prior mixed results may be attributed to the omission of environmental uncertainty.     

The Usefulness of a Measure of Wealth

Income has been defined by Beaver and Demski (1979) as a fundamental measurement which will give a unanimous ranking of alternative production plans. This notion of income has been examined in a variety of settings running from that of certainty with perfect and complete markets to uncertainty and incomplete markets. Such analysis shows that income cannot necessarily be determined and therefore may not be useful, in a setting of incomplete markets. In this paper the same kind of analysis is applied to wealth and it is shown that a measure of wealth provides information which is useful for all financial decisions, in the sense that decision-makers would prefer to base their decisions on the information rather than act without it. In making this suggestion, a notion of accounting information is proposed which does not suffer from the intransitivity or indeterminancy associated with income in some settings. This alternative information concept satisfies the requirement for a fundamental measurement. It also provides an example of the type of information that Beaver and Demski, in the latter part of their article, seem to encourage for incomplete markets.     

Innovation and Information Acquisition under Time Inconsistency and Uncertainty

When an agent invests in new industrial activities, he has a limited initial knowledge of his project's returns. Acquiring information allows him both to reduce the uncertainty on the dangerousness of this project and to limit potential damages that it might cause on people's health and on the environment. In this paper, we study whether there exist situations in which the agent does not acquire information. We find that an agent with time-consistent preferences, as well as an agent with hyperbolic ones, will acquire information unless its cost exceeds the direct benefit they could get with this information. Nevertheless, a hyperbolic agent may remain strategically ignorant and, when he does acquire information, he will acquire less information than a time-consistent type. Moreover, a hyperbolic-discounting type who behaves as a time-consistent agent in the future is more inclined to stay ignorant. We then emphasize that this strategic ignorance depends on the degree of precision of the information. Finally, we analyse the role that existing liability rules could play as an incentive to acquire information under uncertainty and with regard to the form of the agent's preferences.     

Economic policy uncertainty and stock market activity: Evidence from China

The effects of various China economic policy uncertainty (EPU) indices on Chinese listed firms' stock price behavior are examined in this study. We find that the mass media in China-based index is the best indicator of stock price crash risk for Chinese A- or B-share listings, but the index based on independent Chinese media is better for H-share listings. Chinese firms face a greater risk of stock price crashes during high EPU periods, but for B-share listings this relationship becomes negative after more media coverage is considered. We follow Baker, Bloom, and Davis (2016) and construct an EPU measure for the Chinese economy based on a Chinese character search of newspapers. We compare our EPU index with the BBD index of Baker, Bloom, and Davis (2016), which is based on an English-language Hong Kong news source. We find that the BBD index is a reasonable proxy for China's EPU but that it omits some useful information. We further demonstrate that our EPU index predicts China's economic trends more effectively than the BBD index, particularly when based on mass media in China.     

The valuation relevance of environmental performance revisited: The moderating role of environmental provisions

This study attempts to broaden our understanding of the value relevance of environmental performance by providing empirical evidence on the moderating role of financial environmental reporting. Previous studies find that firms' environmental performance can be both positively and negatively associated with market value. Such contradictory findings can be attributed to the fact that environmental performance is associated with future economic benefits and costs. This study suggests that firms with recognized environmental provisions on their balance sheets enable investors to disentangle these opposite effects either by signaling strong future financial performance or by enhancing the reliability of environmental performance information. Regardless of the mechanism by which this moderation effect is invoked, it is hypothesized that capital market participants place a positive and significantly higher value on the environmental performance ratings of firms with recognized environmental provisions than on the ratings of firms without environmental provisions. Utilizing a sample of 692 firm-year observations of French listed firms and employing a linear price-level model that associates the market value of a firm's equity with its environmental performance, I provide empirical evidence to corroborate this thesis. In addition to contributing to the academic debate on the market valuation implications of environmental performance, this study intends to provide useful insights from a country that can be considered a pioneer of environmental reporting legislation; hence, it provides valuable lessons for other jurisdictions that are in the process of developing their sustainability reporting regulations. Finally, the findings of this study support the calls for more integrated reporting showing that the interaction of financial and non-financial information has market valuation implications.     

High-Technology Intangibles and Analysts' Forecasts

This study examines the association between firms' intangible assets and properties of the information contained in analysts' earnings forecasts. We hypothesize that analysts will supplement firms' financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers.     

Lay views on uncertainty in environmental health risk assessment

It has been argued that presenting uncertainty in environmental health risk estimates may increase citizens' risk knowledge and trust in the honesty and competence of the institutions providing such estimates; on the other hand, careless communication could have undesirable results. Reported here is a study of how American laypeople think about uncertainty in risk assessment, and its implications for risk management, extending earlier experimental research (Johnson and Slovic, 1995). A long closedended questionnaire (based in part on qualitative research) was given to 280 Eugene, Oregon, residents (largely college students). Uncertainty was presented in the form of a range of risk estimates, primarily in a hypothetical case of a chemical in drinking water. The findings suggest that it will be a challenge to present uncertainty in environmental health risk estimates to the public in ways that inform, rather than confuse or outrage, this important audience.     

Appropriateness of accounting data in performance evaluation: An empirical examination of environmental uncertainty as an intervening variable

Rooted in contingency theory, this study puts forth propositions stating (1) that superiors of business units which face higher environmental uncertainty will use a more subjective performance appraisal approach whereas superiors of business units which face lower environmental uncertainty will use a more formula-based performance evaluation approach, and (2) that a stronger fit between environmental uncertainty and performance evaluation style would be associated with higher business unit performance. Findings from 58 business units in eight Fortune 500 firms provide strong support to both sets of these propositions.     

Uncertainty and Export Performance: Evidence from 18 Countries

We study a sample of nine developed and nine developing countries to evaluate the questions of how foreign income uncertainty and real exchange rate (RER) uncertainty impact international trade and how those impacts vary according to stage of development. RER uncertainty has a negative and significant impact on export growth for six of the nine less developed countries in our sample, while it has an insignificant effect for a majority of the developed countries. In both groups, foreign income uncertainty has a more pervasively significant (and frequently larger) influence on trade than does RER uncertainty.     

Political uncertainty and firms' information environment: Evidence from China

How political uncertainty affects the supply of value relevant information about a firm is an important but unresolved question. Using an emerging market setting where political leaders are expected to exert significant influence on economic activities, we examine the effect of political uncertainty caused by turnovers of local government leaders on a firm’s information environment. We find that during periods of political uncertainty, the total amount of idiosyncratic information about a firm that is available to the market is reduced. The adverse effect on information supply is manifest in firms that are more politically dependent and stronger when uncertainty is more severe. Further, we provide evidence suggesting that firms react to political uncertainty by reducing the amount and the quality of information provided to investors. We find that information intermediaries such as financial analysts and the media have a moderating effect on the information environment as they increase the production of information during periods of political uncertainty. However, these intermediaries do not negate the net loss of information.     

Environmental management control systems: The role of contextual and strategic factors

This study examines the role of contextual and strategic factors in the development of environmental management control systems in manufacturing companies. In particular, the authors test the roles of perceived ecological environmental uncertainty, perceived stakeholder pressures, and the degree of corporate environmental proactivity on the development of environmental management control systems. The main results from a survey of 256 manufacturing companies suggest that companies that perceive greater ecological environmental uncertainty are less inclined to develop a proactive environmental strategy, environmental information system, or formal environmental management control system. Market, community, and organizational stakeholders motivate environmental proactivity, as well as the development of different environmental management control systems. Regulatory stakeholders only encourage the development of an environmental information system.     

Credible discovery,settlement, and negative expected value suits

We introduce discovery into a model of settlement and negative expected value (NEV) suits under asymmetric information. The option to conduct discovery has several important effects. First, because discovery is cheaper than litigation, it reduces the defendant's incentive to settle under asymmetric information. Second, discovery must be credible. Because discovery is more valuable the greater the uncertainty it resolves, this introduces a credibility constraint on pre‐discovery settlement offers. This can further reduce the probability and size of a defendant's pre‐discovery settlement offer. Lastly, discovery reduces the ability of NEV plaintiffs to use asymmetric information to extract significant settlements from defendants.     

Finding diamonds in the rough: Analysts’ selective following of loss‐reporting firms

Investors face greater difficulty valuing loss‐reporting than profit‐reporting firms: losses may be due to very different reasons (e.g., poor operating performance or investments in intangibles, and financial accounting information is of more limited use for valuing loss‐making firms than profit‐making firms. Because of increased uncertainty about loss firms’ future financial and business viability, we hypothesize that financial analysts will be more selective when choosing to follow loss firms than profit firms, with the result that “abnormal” analyst following will be more informative to investors regarding the future performance of loss firms than profit firms. Consistent with this prediction, we find that abnormal analyst coverage is useful for predicting firms’ future prospects, and is more strongly associated with future performance (stock returns and ROA) for loss firms than for profit firms. The market, however, does not seem to use this useful information when pricing loss firms: for loss firms a portfolio investment strategy based upon abnormal analyst following can generate positive excess returns over 1‐ to 3‐year holding periods. These results are stronger for persistent‐loss firms than for occasional‐loss firms. We conclude that abnormal analyst following contains useful information about firms’ future prospects, and even more so for loss firms than for profit firms.