AND MARTIN FREEDMAN* INTRODUCTION Since 1969 several legislative actions in the United States have been aimed at abating industrial pollution, and the US Securities and Exchange Commission has been engaged in developing pollution disclosure requirements to ensure adequate disclosure of pollution information. The legislative activities, disclosure requirements, and social, political and economic pressures were expected to encourage management to become socially responsible and pay greater attention to environmental and social consequences of corporate activities. (For a debate on corporate social responsibilities, see Sethi, 1975). Pollution abatement activities may involve substantial amounts of capital expenditures which could have an impact on the economic performance of firms. As a result of this economic impact, there may be a stock market reaction which would influence management decisions relating to pollution abatement activities. If the economic impact of these activities is negative and this is followed by a negative market reaction, management may be encouraged to postpone or reduce pollution related activities. Previous research studies on the association between pollution and economic performance have provided conflicting results. Bragdon and Marlin (1972) and Spicer (1978) have found that there was a positive association between the economic and pollution variables at the firm level.
Journal of Business Finance & Accounting – Wiley
Published: Sep 1, 1992