Revisiting the Association between Environmental Performance and Environmental Disclosure: The Case of the American Utility Industry

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  In Poster Session: Table 2

Abstract

The American utility industry is considered one of the most environmentally sensitive sectors of the American economy owing to its great contribution to environmental pollution. As such, the industry is increasingly under a high level of scrutiny by its stakeholders (investors, regulators, and consumers). Proponents of the legitimacy theory, particularly Paten (1991), argue that polluting industries crippled with poor environmental performance records are likely to voluntarily disclose more environmental information to legitimize themselves in the eyes of their stakeholders and ‘put a positive spin’ on how they are being perceived. Based on an empirical study of a sample of US utility companies, we seek to revisit the underlying relationship between environmental performance and environmental disclosure in their annual reports, 10-K reports, and sustainability reports and shed the light on key variables that may affect the extent of environmental disclosures.
The study finds that there is no association between US utility companies’ environmental disclosure and their environmental performance except for one measure of soft disclosure, suggesting that operating in a highly regulated sector reduces the disclosure gap between the high and low performers. We also posit that disclosure in motivated by economic demand for information. For instance, we find, in conformance with financial accounting research, that the existence of a large block-holder is associated with lower levels of disclosure. In contrast to prior research, we find no evidence to suggest that firms’ environmental disclosures are motivated by external pressures to legitimize their environmental performance.

Authors

• Hani Tadros, Elon University

• Mohsen Souissi, Fayetteville State University