The Impact of the Disclosure of the Environmental Effects of Organizational Behavior on the Market

Corporations interact with their environment. Guiding their behavior is the goal of maximizing shareholder wealth, an objective which is not obviously affected by social costs associated with pollution and other externalities 2. These social costs should be identified, measured and reported if corporations are to fulfill their social as well as their shareholder responsibilities 1. The accounting profession has taken few positive steps to report social costs and the expenditures made by corporations to reduce them. However, the 1970-71 annual reports of companies in industries as diverse as chemical, food, petroleum, and pulp and paper do include information on pollution control either in the president's letter or in the review of operations. This disclosure suggests that the managers of some corporations see an advantage in making these expenditures and see some reason for disclosing that information to investors. The pollution abatement expenditures are not trivial. For some large firms they may reach to 4% of sales and 10% of capital investment 10. In the steel industry, the abatement costs are reported to be as high as 25% of capital investment 4. Their size supports the conclusion that these expenditures provide material information to investors. The information is essential if investors are