Environmental Violations and Mandatory Disclosures by Oil and Gas Companies

Abstract

Environmental degradation will continue if the corporate continues to misbehave. This study offers evidence for whether environmental violators are more likely to disclose if they are in sensitive industries, faced higher penalties, and required to implement an environmental project. This chapter examines how environmental violations have shaped the mandatory and discretionary environmental disclosures of oil and gas companies in 10-k reports filed with the US Securities and Exchange Commission from 2011 to 2020. Using the Leximancer text mining tool, the violators' annual reports were examined before and after the violations. The results suggest that disclosure tended to be discretionary, and it is possible that selective information was traded off with other discretionary non-financial information for the sake of legitimacy. This chapter provides evidence of the effectiveness of regulators' efforts for higher mandated disclosures to encourage firms to deal with environmental matters proactively to prevent further environmental misbehaviour.