The Impact of SEC Interpretative Guidance on Firms' Environmental Disclosures

• In Event: Current Issues in Governmental Accounting, Environmental Disclosures and Sustainability

Abstract

We investigate if firms changed the size and verbal tone of environmental disclosures in 10-K annual reports following SEC interpretative guidance released in 2010. The size of environmental disclosure is measured as the number of counts from a list of related words. Verbal tone is measured using the content analysis software DICTION. For a sample of large companies in both environmentally sensitive and non-sensitive industries, we do not find evidence to support the hypothesis of a significant increase in environmental disclosures in the year following the release of the guidance. We do, however, find significant changes in the size of disclosure and in verbal tone measures of “optimism”, “realism”, and “certainty” in the years preceding the guidance, signaling that companies may have anticipated an interpretive release from the SEC. Furthermore, these results hold after controlling for environmental performance and other firm specific factors.

Authors

• Lucia Gao, University of Massachusetts Boston

• Guangwei Qin, University of Massachusetts Boston