Accounting, Auditing & Accountability Journal

Purpose – The purpose of this paper is to examine three potential explanations for the corporate choice to disclose environmental capital spending amounts.

Design/methodology/approach – Using archival data from a sample of Fortune 500 US firms operating in industries subject to both the Environmental Protection Agency's (EPA) TRI program and the Occupational Safety and Health Administration's Hazard Communication Standards, the authors conduct quantitative threshold tests to first investigate whether disclosure appears to be a function of the materiality of the spending. Using statistical tests, including multiple regression analyses, the authors next attempt to differentiate the choice to disclose across voluntary disclosure theory and legitimacy theory arguments.

Findings – First, the authors find that, for the overwhelming majority of observations, the disclosed amounts are not quantitatively material. This suggests that non-disclosure is likely due to immateriality. Next, their findings show that disclosing firms do not exhibit improved subsequent environmental performance relative to non-disclosing companies. Further, controlling for firm size and industry class, they find the choice to disclose is associated with worse environmental performance.

Research limitations/implications – The sample includes only relatively larger firms from certain industries and this limits the generalizability of the findings. Smaller firms and those from excluded industries may have other reasons to choose to disclose environmental information. Further, the authors rely on TRI data to assess pollution performance, but TRI is self-reported and its reliability is only as good as the inputs. Finally, although environmental capital spending is potentially relevant information, this investigation does not examine other types of environmental information disclosure.

Practical implications – This paper provides corroborating evidence that companies use the disclosure of environmental capital spending as a strategic tool to address their exposures to political and regulatory concerns. Hence, interpreting disclosed environmental information would appear to require careful understanding of the underlying motivations.

Originality/value – This paper extends the environmental accounting and reporting literature by contributing to the unresolved question of what drives differences in the corporate disclosure of environmental information. The authors add to this body of research by investigating the disclosure of one specific piece of environmental information, the amount of capital expenditures incurred for pollution abatement and control.