Factors Influencing Firms’ Disclosures about Environmental Liabilities

This paper examines factors related to environmental liability disclosure decisions for firms in industries with substantial Superfund site involvement. We hypothesize that the extent of disclosure about environmental liabilities is associated with five factors: (1) regulation, including enforcement activity, (2) managements’ information, including site uncertainty and allocation uncertainty, (3) litigation and negotiation concerns, (4) capital market concerns, and (5) other regulatory influence. Our empirical tests examine the association between measures of environmental liability disclosure, based on disclosures in firms’ annual reports and Forms 10-K, and proxies for the five factors, based on information from other public sources, including the EPA. We find that all of our hypothesized factors except site uncertainty significantly influence firms’ environmental disclosure decisions.