anexaminationofenvironmentalliabilitydisclosures-Gmu.docVIP

FACTORS INFLUENCING THE LEVEL OF ENVIRONMENTAL LIABILITY DISCLOSURE IN 10K REPORTS by Carol Cox Leary, Ph.D., C.P.A. Assistant Professor George Mason University School of Management 4400 University Drive, MSN 5F4 Fairfax, VA 22030-4444 (703) 993-1804 Fax: (703) 993-1809E-mail: cleary1@ ABSTRACT This study examines factors influencing the level of environmental disclosure in 10K reports. Sample firms consist of Fortune 500 companies identified by the Environmental Protection Agency as Potentially Responsible Parties. The study utilizes a comprehensive environmental disclosure index to measure the extent to which sample firms disclosed environmental liability information required by Generally Accepted Accounting Principles (GAAP). Empirical tests demonstrate that the extent of required environmental disclosure is associated with size, profitability, and industry classification; however, the results regarding regulatory influence are mixed. The study uses data from COMPUSTAT, EDGAR, and the Superfund Public Information System for years 1991-1997. The environmental disclosure index is compiled based on relevant authoritative guidance contained in Regulation S-K, SAB 92, and SFAS 5. Policy implications indicate that the Securities and Exchange Commission must improve monitoring and enforcement efforts designed to promote adequate recognition and disclosure related to environmental liabilities. FACTORS INFLUENCING THE LEVEL OF ENVIRONMENTAL LIABILITY DISCLOSURE IN 10K REPORTS I. INTRODUCTION Over the past decade, there has been increased attention on the environment and how companies measure and report environmental exposure (Cox, 2001). Compliance with environmental regulations has a significant impact on corporate earnings, particularly for certain industries. Fitzgerald (1996) estimates that in excess of $7 billion a year is spent for U.S. Superfund site remediation. Furthermore, between $500 and $750 billion will be required to remediate all sites id