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The association between the extent of pollution disclosures and economic performance of firms belonging to four highly polluting industries — chemicals, steel, oil and paper and pulp is examined. The economic performance is determined by calculating ratios on return of assets, return on equity and operating performance. For measurement of the extensiveness of pollution disclosures, a disclosure index has been developed. The results do not indicate a significant association between the economic performance and pollution disclosures for the total sample. However, when the sample is segmented by industry group, a significant positive correlation is detected for the oil industry, indicating an association between economic performance and pollution disclosures. Furthermore, when the sample is divided on the basis of the firm size, the results show that the sub-group of large firms with poor economic performance provides detailed pollution information. For smaller firms, no association between the two variables is observed.
Freedman et al. (1988) studied this question.