Alternatives from policies of disclosure of companies

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Alternatives from policies of disclosure of
companies environmental performance
connections with the reduction of information
asymmetry and signalling
Javier Delgado Ceballos (UGR) Alberto Aragón
Correa (UGR) George Kassinis (U. Cyprus)
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Motivation 1/2

• Spread of Pollutant Releases and Transfer
  Registers around the world
• Governments spend a large amount of money on
  developing them
• Firms have to publish their emissions
• Env information affects financial performance

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Motivation 2/2

• Information may be not accurate
• Small installations escape from pressures
• Large installations (env efforts ? bad
  reputation)
• Divide installations to escape from the control
• Questions
• Do these registers signal installations properly?
• Whether these registers include operational
  dynamics information, would it be sent a more
  accurate signal?

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Introduction 1/4

• Literature shows stakeholders influence firms
  environmental behaviour (Kassinis Vafeas, 2006)
• Regulatory stakeholders appear to play the most
  influential role (Buysse Verbeke, 2003).

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Introduction 2/4

• Growing importance of public disclosure policies
  - Pollutant Release and Transfer Registers
  (China, México, UE)
• Disclosure of installations env. emissions
  pressures firms to improve their env. performance
• SO FAR, LITERATURE has not analyzed the potential
  implications of the information emerging from
  these registers!!

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Introduction 3/4

• Governments
• Modify firms env performance
• Cost
• Provide information to s/hs
• Reduce info. asymmetry
• Increase s/hs pressure to firms
• S/Hs society
• Focus their pressure
• Right-to-know

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Introduction 4/4

• Managers
• The extent to which firms respond to stakeholder
  pressures is a critical concern (Kassinis and
  Vafeas, 2006 Bansal and Clealland, 2004).
• Financial performance (Klassen Whybark, 1999)
• The competitiveness and innovation benefits (King
  Lenox, 2002)

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Regulatory S/H and the Environment

• Stakeholder theory (Freeman, 1984)
• Community, regulatory, organizational s/h, and
  the media (Henriques and Sadorsky, 1999)
• S/H regulatory (governments and legislators)
• Command-and-control methods
• Market-based incentives (tradable permits)
• Environmental information disclosure ? PRTRs

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Regulatory S/H and the Environment

• Stakeholder theory (Freeman, 1984)
• Community, regulatory, organizational s/h, and
  the media (Henriques and Sadorsky, 1999)
• S/H regulatory (governments and legislators)
• Command-and-control methods
• Market-based incentives (tradable permits)
• Environmental information disclosure ? PRTRs

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PRTRs background

• Willingness to know what was happening within
  industrial plants
• Public Right-to-know Bhopal (India)
• Existence of environmental information asymmetry
  between firms and communities
• Consumers and community are only partially aware
  of installations env behaviour

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PRTRs background

• PRTRs send signals to s/hs and markets about
  installations performance
• Signaling theory suggests that key attributes of
  the firm provide information that shapes the
  impression that individuals form of the
  organizations and it can be used to examine firm
  reputation and its impact on individual
  behaviours, attitudes and decision making

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PRTRs background

• S/Hs are increasingly using PRTRs data to
  measure organizations env performance (Toffel
  Marshall, 2004)
• Community s/h are concerned about installations
  env info released by PRTRs because of the
  consequences for env impacts and human hazards.

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PRTRs background

• PRTRs rank installations summing annual emissions
  of substances released by a facility in a given
  year.
• It may be clear that it is a poor and crude proxy
  to indicate installations env performance as it
  depends on various factors as the chemicals
  characteristics and the medium which is release
  (Toffel Marshall, 2004)
• As a consequence, some researchers (Karam, Craig
  and Currey, 1991 Toffel and Marshall, 2004)
  argue that in order to measure installations
  environmental data, it could be appropriate the
  use of the weighting emissions data using the
  each PRTRs standard limits or toxicity estimates
  so that TRI-based measures more accurately
  reflect real differences

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PRTRs background

• PRTRs rank installations summing annual emissions
  of substances released by a facility in a given
  year.
• It may be clear that it is a poor and crude proxy
  to indicate installations env performance as it
  depends on various factors as the chemicals
  characteristics and the medium which is release
  (Toffel Marshall, 2004)
• As a consequence, some researchers (Karam, Craig
  and Currey, 1991 Toffel and Marshall, 2004)
  argue that in order to measure installations
  environmental data, it could be appropriate the
  use of the weighting emissions data using the
  each PRTRs standard limits or toxicity estimates
  so that TRI-based measures more accurately
  reflect real differences

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Hyphoteses

• Hypotheses 1 Toxicity-weighted environmental
  information classifies installations differently
  than in an absolute environmental pollution
  terms.

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Further info Operational dynamics

• Importance of operational dynamics to measure
  installations env performance (Cairncross,
  1992 and others)
• To know how efficient firms
• Need to adjust data from PRTRs (Karam et
  al.,1991)

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Hyphoteses

• Hypotheses 2 a Environmental information
  expressed in terms that take into account number
  of employees and toxicity-weighted environmental
  information may send a more accurate signal to
  firm management, regulators or market regarding a
  firms environmental performance.
•  
• Hypotheses 2 b Environmental information
  expressed in terms that take into account number
  of operating hours and toxicity-weighted
  environmental information may send a more
  accurate signal to firm management, regulators or
  market regarding a firms environmental
  performance.

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Methodology

• Sample
• European Pollutant Emission Register (EPER)
• Year 2004
• Spain
• Chemical Industry (90 installations)
• Energy Industry (50 installations)

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Methodology

• Creamos tres rankings
• Ranking A Instalaciones clasificadas por el
  pollution index
• Ranking B Instalaciones ordenadas por el ratio
  PI/número de horas de actividad productiva
• Ranking C Instalaciones clasificadas por el
  ratio PI/número de trabajadores
• Comparamos en ambas industrias
• A vs B
• A vs C

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Methodology

• Pollution index (King and Lenox, 2004)
• PIi ( ? weightc waste generatedcij )

Reportable quantity Weighting Examples of chemicals
1 1.0 Brominated diphenylether
10 0.1 Cadmium
100 0.01 Benzene
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Methodology

• Test no paramétrico
• Prueba de los rangos con signo de Wilcoxon

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Results

• La clasificación de las instalaciones varía si
  incluimos la información sobre el número de hora
  operativas (0,1 y 0.05)
• No existe diferencia en los rankings si se
  incluye la información relativa al número de
  trabajadores en la instalación.

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Discussion 1/2

• Puede que EPER envíe una información
  distorsionada
• Una mayor complejidad en la información m.a. de
  las instalaciones puede implicar el envío de
  señales más adecuadas a la sociedad.

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Discussion 2/2

• Ciertas pequeñas empresas pueden escaparse de la
  presión por parte de los gobiernos.
• Las empresas responsables m.a. pueden tener un
  incentivo para presentar la información
  recalculada ya que pueden enviar una señal mejor
  y, por tanto, mejorar su prestigio y/o imagen.

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• GRACIAS!!!