Journal of Management & Governance

, Volume 19, Issue 4, pp 897–925 | Cite as

Does corporate governance enhance the appreciation of mandatory environmental disclosure by financial markets?

  • Denis CormierEmail author
  • Pascale Lapointe-Antunes
  • Michel Magnan


This paper investigates if mandated disclosure about environmental risks and obligations enhances the information set available to analysts and how a firm’s governance affects such a relation. Government policies mandating such disclosure are potentially a tool to force firms to change their environmental practices, especially if financial markets pick up on the released information and exert pressures upon corporate management for further actions. We focus on 172 non-financial firms subject to mandated environmental disclosure. Results show that mandated disclosure enhances financial analysts’ information set, as proxied by their forecast consensus and overall uncertainty. Analysts seem able to assess if there are inconsistencies between a firm`s disclosure and its environmental impact. Moreover, mandated environmental disclosure substitutes for weak corporate governance in enhancing analysts’ information set. In other words, mandated environmental disclosure does not relate to analysts’ information set in the presence of good governance but does for firms with weak governance. Hence, mandatory disclosure may act as an environmental governance mechanism, either complementing or substituting for a firm’s own governance.


Analyst forecasts Corporate governance Environmental disclosure Information environment 



We acknowledge financial support from Autorité des marchés financiers (Québec), Chair in Financial and Organizational Information and the Stephen A. Jarislowsky Chair in Corporate Governance. All usual caveats apply.


  1. Aerts, W., & Cormier, D. (2009). Media legitimacy and corporate environmental communication. Accounting, Organizations and Society, 34(1), 1–27.CrossRefGoogle Scholar
  2. Aerts, W., Cormier, D., & Magnan, M. (2008). Corporate environmental disclosure, financial markets and the media: An international perspective. Ecological Economics, 64(3), 643–659.CrossRefGoogle Scholar
  3. Ajinkya, B., Bhojraj, S., & Sengupta, P. (2005). The association between outside directors, institutional investors and the properties of management earnings forecasts. Journal of Accounting Research, 43(2), 343–376.CrossRefGoogle Scholar
  4. Al-Tuwaijri, S., Christensen, T. E., & Hughes, K. E., II (2004). The relations among environmental disclosure, environmental performance, and economic performance: A simultaneous equations approach. Accounting, Organizations and Society, 29(5/6), 447–471.CrossRefGoogle Scholar
  5. Baghat, S., Bolton, B., & Romano, R. (2008). The promise and peril of corporate governance indices. Columbia Law Review, 108(8), 1803–1882.Google Scholar
  6. Barron, O. E., Byard, D., & Kim, O. (2002). Changes in analysts’ information around earnings announcements. The Accounting Review, 77(4), 821–846.CrossRefGoogle Scholar
  7. Barron, O. E., Kim, O., Lim, S., & Stevens, D. E. (1998). Using analysts’ forecasts to measure properties of analysts’ information environment. The Accounting Review, 73(4), 421–433.Google Scholar
  8. Berthelot, S., Cormier, D., & Magnan, M. (2003a). Environmental disclosure research: review and synthesis. Journal of Accounting Literature, 22, 1–44.Google Scholar
  9. Berthelot, S., Cormier, D., & Magnan, M. (2003b). La gestion stratégique des résultats: le cas des provisions environnementales. Comptabilité, Contrôle, Audit, 9(2), 109–135.CrossRefGoogle Scholar
  10. Bhat, G., Hope, O. K., & Kang, T. (2006). Does corporate governance transparency affect the accuracy of analyst forecasts? Accounting and Finance, 46(5), 715–732.CrossRefGoogle Scholar
  11. Binkley, J. K. (1982). The effect of variable correlation on the efficiency of seemingly unrelated regression in a two-equation model. Journal of the American Statistical Association, 77(380), 890–895.CrossRefGoogle Scholar
  12. Blacconiere, W. G., & Northcut, W. D. (1997). Environmental information and market reactions to environmental legislation. Journal of Accounting, Auditing and Finance, 12(2), 149–178.Google Scholar
  13. Blacconiere, W. G., & Patten, D. M. (1994). Environmental disclosures, regulatory costs, and changes in firm value. Journal of Accounting and Economics, 18(3), 357–377.CrossRefGoogle Scholar
  14. Botosan, C. (1997). Disclosure level and the cost of equity capital. The Accounting Review, 72(3), 323–349.Google Scholar
  15. Brickley, J. A., Lease, R. C., & Smith, C. W., Jr. (1994). Corporate voting: Evidence from charter amendment proposals. Journal of Corporate Finance, 1(1), 5–31.CrossRefGoogle Scholar
  16. Brickley, J. A., & Zimmerman, J. L. (2010). Corporate governance myths: Comments on Armstrong, Guay, and Weber. Journal of Accounting and Economics, 50(2), 235–245.CrossRefGoogle Scholar
  17. Bronson, S. N., Carcello, J. V., & Raghunandan, K. (2006). Firm characteristics and voluntary management reports on internal control. Auditing: A Journal of Practice & Theory, 25(2), 25–39.CrossRefGoogle Scholar
  18. Chen, G., Firth, M., Gao, D. N., & Rui, O. M. (2006). Ownership structure, corporate governance, and fraud: Evidence from China. Journal of Corporate Finance, 12(3), 424–448.CrossRefGoogle Scholar
  19. Cheng, E., & Courtenay, S. M. (2006). Board composition, regulatory regime and voluntary disclosure. The International Journal of Accounting, 41(3), 262–289.CrossRefGoogle Scholar
  20. Clarkson, P., Li, Y., & Richardson, G. D. (2004). The market valuation of environmental capital expenditures by pulp and paper companies. The Accounting Review, 79(2), 329–354.CrossRefGoogle Scholar
  21. Clarkson, P., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Accounting, Organizations and Society, 33(4/5), 303–327.CrossRefGoogle Scholar
  22. Coffee Jr, J. C. (2007). Law and the market: The impact of enforcement. University of Pennsylvania Law Review, 156(2), 229–311.Google Scholar
  23. Cormier, D., Ledoux, M. J., Magnan, M., & Aerts, W. (2009). Corporate governance and information asymmetry between managers and investors. Corporate Governance, 10(5), 574–589.CrossRefGoogle Scholar
  24. Cormier, D., Ledoux, M. J., & Magnan, M. (2011). The informational contribution of social and environmental disclosures for investors. Management Decision, 49(8), 1276–1304.Google Scholar
  25. Cormier, D., & Magnan, M. (2003). Environmental reporting management: A continental European perspective. Journal of Accounting and Public Policy, 22(1), 43–62.CrossRefGoogle Scholar
  26. Craighead, J., Magnan, M., & Thorne, L. (2004). The impact of mandated disclosure on performance-based CEO compensation. Contemporary Accounting Research, 21(2), 369–398.CrossRefGoogle Scholar
  27. Daily, C. M., Dalton, D. R., & Cannella, A. A. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review, 28(3), 371–382.Google Scholar
  28. DeCoster, J., Iselin, A. M., & Gallucci, M. (2009). A conceptual and empirical examination of justifications for dichotomization. Psychological Methods, 14(4), 349–366.CrossRefGoogle Scholar
  29. Doidge, C., Karolyi, G. A., & Stulz, R. M. (2007). Why do countries matter so much for corporate governance? Journal of Financial Economics, 86(1), 1–39.CrossRefGoogle Scholar
  30. Durnev, A., & Kim, E. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. The Journal of Finance, 60(3), 1461–1493.CrossRefGoogle Scholar
  31. Easterbrook, F. H., & Fischel, D. R. (1984). Mandatory disclosure and the protection of investors. Virginia Law Review, 70(4), 669–715.CrossRefGoogle Scholar
  32. Easton, P. (2004). PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review, 79(1), 73–95.CrossRefGoogle Scholar
  33. Eng, L. L., & Mak, Y. T. (2003). Corporate governance and voluntary disclosure. Journal of Accounting and Public Policy, 22(4), 325–345.CrossRefGoogle Scholar
  34. Enriques, L., & Volpin, P. (2007). Corporate governance reforms in continental Europe. The Journal of Economic Perspectives, 21(1), 117–140.CrossRefGoogle Scholar
  35. Ferrell, A. (2004). The case for mandatory disclosure in securities regulation around the world. Harvard Law and Economics Discussion Paper, 492.Google Scholar
  36. Fox, M. B. (1999). Required disclosure and corporate governance. Law and Contemporary Problems, 62(3), 113–127.CrossRefGoogle Scholar
  37. Freedman, M., & Stagliano, A. J. (1995). Disclosure of environmental cleanup costs: The impact of the superfund act. Advances in Public Interest Accounting, 6, 163–176.Google Scholar
  38. Freedman, M., & Stagliano, A. J. (2002). Environmental disclosure by companies involved in initial public offerings. Accounting, Auditing & Accountability Journal, 15(1), 94–105.CrossRefGoogle Scholar
  39. Gunningham, N. (2009). Shaping corporate environmental performance: A review. Environmental Policy and Governance, 19(4), 215–231.CrossRefGoogle Scholar
  40. Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2009). Multivariate data analysis (7th ed.). Upper Saddle River: Prentice Hall.Google Scholar
  41. Healy, P. M. & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1/3), 405–440.Google Scholar
  42. Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453–486.CrossRefGoogle Scholar
  43. Klein, P., Shapiro, D., & Young, J. (2005). Corporate governance, family ownership and firm value: The Canadian evidence. Corporate Governance: An International Review, 13(6), 769–784.CrossRefGoogle Scholar
  44. Lambert, R., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 385–420.CrossRefGoogle Scholar
  45. Leuz, C., & Verrecchia, R. E. (2000). The economic consequences of increased disclosure. Journal of accounting research, 38, 91–136.CrossRefGoogle Scholar
  46. Li, Y., & McConomy, B. J. (1999). An empirical examination of factors affecting the timing of environmental accounting standard adoption and the impact on corporate valuation. Journal of Accounting, Auditing & Finance, 14(3), 279–313.Google Scholar
  47. Lyon, T. P., & Maxwell, J. W. (2011). Greenwash: Corporate environmental disclosure under threat of audit. Journal of Economics and Management Strategy, 20(1), 3–41.CrossRefGoogle Scholar
  48. McGuire, J., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.CrossRefGoogle Scholar
  49. Michelon, G., & Parbonetti, A. (2012). The effect of corporate governance on sustainability disclosure. Journal of Management and Governance, 16(3), 477–509.CrossRefGoogle Scholar
  50. Mills, D., & Gardner, M. (1984). Financial profiles and the disclosure of expenditures for socially responsible purposes. Journal of Business Research, 12(4), 407–424.CrossRefGoogle Scholar
  51. Murray, A., Sinclair, D., Power, D., & Gray, R. (2006). Do financial markets care about social and environmental disclosure? Accounting, Auditing and Accountability Journal, 19(2), 228–255.CrossRefGoogle Scholar
  52. Neu, D., Warsame, H., & Pedwell, K. (1998). Managing public impressions: Environmental disclosures in annual reports. Accounting, Organizations and Society, 23(3), 265–282.CrossRefGoogle Scholar
  53. Nunnaly, J. (1978). Psychometric theory (2nd ed.). New York: McGraw Hill.Google Scholar
  54. Ontario Securities Commission. (2004). National Instrument (NI 51-102).Continuous disclosure obligations. Google Scholar
  55. Ontario Securities Commission. (2009). OSC corporate sustainability reporting initiative.Google Scholar
  56. Patelli, L., & Prencipe, A. (2007). The relationship between voluntary disclosure and independent directors in the presence of a dominant shareholder. European Accounting Review, 16(1), 5–33.CrossRefGoogle Scholar
  57. Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: A research note. Accounting, Organizations and Society, 27(8), 763–773.CrossRefGoogle Scholar
  58. Pfarrer, M. D., Pollock, T. G., & Rindova, V. P. (2010). A tale of two assets: The effects of firm reputation and earnings surprises on investors’ reactions. Academy of Management Journal, 53(5), 1131–1152.CrossRefGoogle Scholar
  59. Piot, C., & Janin, R. (2007). External auditors, audit committees and earnings management in France. European Accounting Review, 16(2), 429–454.CrossRefGoogle Scholar
  60. Pollock, T. G., & Rindova, V. P. (2003). Media legitimation effects in the market for initial public offerings. Academy of Management Journal, 46(5), 631–642.CrossRefGoogle Scholar
  61. Pollock, T. G., Rindova, V. P., & Maggitti, P. G. (2008). Market watch: Information and availability cascades among the media and investors in the US IPO market. Academy of Management Journal, 51(12), 335–358.CrossRefGoogle Scholar
  62. Rodrigue, M., Magnan, M., & Cho, C. (2013). Is environmental governance substantive or symbolic? An empirical investigation. Journal of Business Ethics, 114(1), 107–129.CrossRefGoogle Scholar
  63. Roe, M. J. (2002). Political determinants of corporate governance—political context, corporate impact. Oxford, UK: Oxford University Press.Google Scholar
  64. Scott, T. W. (1994). Incentives and disincentives for financial disclosure: Voluntary disclosure of defined benefit pension plan information by Canadian firms. The Accounting Review, 69(1), 26–43.Google Scholar
  65. Sinclair-Desgagne, B., & Gozlan, E. (2003). A theory of environmental risk disclosure. Journal of environmental Economics and Management, 45(2), 377–393.CrossRefGoogle Scholar
  66. Taylor, C., Pollard, S., Rocks, S., & Angus, A. (2012). Selecting policy instruments for better environmental regulation: A critique and future research agenda. Environmental Policy and Governance, 22(4), 268–292.CrossRefGoogle Scholar
  67. Wiseman, J. (1982). An evaluation of environmental disclosures made in corporate annual reports. Accounting, Organizations and Society, 7(1), 53–63.CrossRefGoogle Scholar
  68. Zeckhauser, R. J., & Pound, J. (1990). Are large shareholders effective monitors? An investigation of share ownership and corporate performance. In Asymmetric information, corporate finance, and investment (pp. 149–180). Chicago, USA: University of Chicago Press.Google Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Denis Cormier
    • 1
    Email author
  • Pascale Lapointe-Antunes
    • 2
  • Michel Magnan
    • 3
    • 4
  1. 1.ESG UQAMMontrealCanada
  2. 2.Brock UniversitySt. CatharinesCanada
  3. 3.John Molson School of BusinessConcordia UniversityMontrealCanada
  4. 4.CIRANOMontrealCanada

Personalised recommendations