The Impacts of the 'Right to Know': Information Disclosure and the Violation of Drinking Water Standards

Bennear, Lori S.; Olmstead, Sheila M.

doi:10.2139/ssrn.939590

Cited by 56 publications

(66 citation statements)

References 36 publications

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“…Ioannou and Serafeim (2015) finds that firms in four countries (China, Denmark, Malaysia, and South Africa) not only increase disclosure, but also seek assurance of those disclosures and adopt reporting guidelines that increase comparability of disclosed information. Other research reveals that mandatory disclosure programs have forced companies to improve their operating performance relating to the environment (Delmas, Montes-Sancho, and Shimshack 2010) or food and water safety (Bennear and Olmstead, 2008;Jin and Leslie, 2003). However, no research examines investor perceptions of the expected costs and benefits to the announcement of regulations mandating such nonfinancial disclosures.…”

Section: Background and Hypothesis Development Backgroundmentioning

confidence: 99%

Market Reaction to Mandatory Nonfinancial Disclosure

2015

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This paper examines the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure, which affected firms listed on EU exchanges or having significant operations in the EU. The mandated disclosures relate to firms' environmental, social, and governance performance. Using a crosscountry sample, we first document an on average negative market reaction to events increasing the likelihood of passage for this regulation, consistent with equity investors anticipating net costs with the directive's passage for most firms. Exploiting cross-sectional variation, we then predict and document a more negative market reaction for firms having: (i) low pre-directive nonfinancial disclosure levels, consistent with investors anticipating these future disclosures to reveal worse-than-expected news; (ii) weaker performance on nonfinancial issues, consistent with expectations for these firms to incur future costs to internalize current externalities; and (iii) lower ownership by institutional asset owners, consistent with such investors demanding further disclosures than mandated by the directive. The average market reaction for firms with superior nonfinancial performance and disclosure in our sample is positive, suggesting that investors expect net benefits from the passage of the directive for these firms.Key Words: event study; ESG reporting; international; nonfinancial disclosure; sustainability; environmental; social responsibility; governance Acknowledgments: We thank the following for useful comments and discussion: Bob Eccles, Alan Jagolinzer, Janine Maniora, Estelle Sun, and Tingting Ye. * Market Reaction to Mandatory Nonfinancial DisclosureAbstract: This paper examines the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure, which affected firms listed on EU exchanges or having significant operations in the EU. The mandated disclosures relate to firms' environmental, social, and governance performance. Using a crosscountry sample, we first document an on average negative market reaction to events increasing the likelihood of passage for this regulation, consistent with equity investors anticipating net costs with the directive's passage for most firms. Exploiting cross-sectional variation, we then predict and document a more negative market reaction for firms having: (i) low pre-directive nonfinancial disclosure levels, consistent with investors anticipating these future disclosures to reveal worse-than-expected news; (ii) weaker performance on nonfinancial issues, consistent with expectations for these firms to incur future costs to internalize current externalities; and (iii) lower ownership by institutional asset owners, consistent with such investors demanding further disclosures than mandated by the directive. The average market reaction for firms with superior nonfinancial performance and disclosure in our sample is positive,...

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Section: Background and Hypothesis Development Backgroundmentioning

confidence: 99%

Market Reaction to Mandatory Nonfinancial Disclosure

2015

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“…Information strategies that aim to correct this information asymmetry are increasingly common (Foulon et al, 2002;Kennedy et al, 1994). These include mercury and air pollution advisories (Cutter and Neidell, 2009;Shimshack and Ward, 2010;Shimshack et al, 2007;Zivin and Neidell, 2009); mandatory and voluntary corporate disclosure (Bennear and Olmstead, 2008;Delmas, et al, 2010;Evans et al, 2009;Khanna, 2001;Konar and Cohen, 1997;Lyon and Maxwell, 2007;Powers et al, 2011) and ecolabels (Hallstein and VillasBoas, 2013;Teisl et al, 2002). Such strategies are based on the principle that more and better information about the environmental impact of activities will encourage consumers to conserve.…”

Section: Introductionmentioning

confidence: 99%

Information strategies for energy conservation: A field experiment in India

Chen¹,

Delmas²,

Locke³

et al. 2017

Energy Economics

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Little is known about the effectiveness of information strategies on energy conservation in developing countries. In this study, we conduct a field experiment in an apartment complex in India to test how information about electricity usage impacts the electricity consumption of urban middle class households. Our results, based on fifteen-minute electricity readings over an academic year, show that nonmonetary messages that framed electricity consumption in terms of environmental and health impacts were more effective than messages emphasizing the monetary savings of reducing electricity consumption. Households in the environmental/health group accessed the online energy-monitoring dashboard more frequently and reduced their electricity usage by 18.4% relative to the control group. Households in the monetary group did not significantly alter their usage. These results about revealed preferences are contrasted with stated preferences disclosed in a survey of urban Indians who describe money, not health, as the main motivation for energy conservation. Our findings have important implications for the development non-monetary strategies for energy conservation in developing countries.

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“…They find expenditures on bottled water increased by 17 to 22 percent upon receiving news of a violation, which is comparable of our result, which finds consumers are 21 more likely to purchase bottled water upon receiving news of a violation. Bennear and Olmstead [2008] study the impact of WQRs mailed to consumers brought about by SDWAA96, but look at water suppliers' response, not consumer response. They find that utilities required to mail these WQRs reduced their violations by between 30 and 44%.…”

Section: Introductionmentioning

confidence: 99%

Reports of Water Quality Violations Induce Consumers to Buy Bottled Water

Pape¹,

Seo

2015

Agric. resour. econ. rev.

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Abstract. The 1996 Safe Drinking Water Act Amendments require that water utilities mail drinking water quality reports to their customers annually. The public uses this information; the news of a water quality violation makes a household 21% more likely to purchase bottled water in the following year.We measure reports of violations with Environmental Protection Agency (EPA) data about violation reports from 1,300 water utilities, with a service population of approximately 10 million people total. We measure the consumer response using the Consumer Expenditure (CEX) survey from 2006-2008 with 10,874 households, and we match consumers to utilities geographically. JEL Codes: Q25, Q53

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The Impacts of the 'Right to Know': Information Disclosure and the Violation of Drinking Water Standards

Cited by 56 publications

References 36 publications

Market Reaction to Mandatory Nonfinancial Disclosure

Market Reaction to Mandatory Nonfinancial Disclosure

Information strategies for energy conservation: A field experiment in India

Reports of Water Quality Violations Induce Consumers to Buy Bottled Water

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