EFFECTS OF ENVIRONMENTAL EXPOSURE ON UNITED STATES AND CANADIAN FIRMS' RESPONSES TO PROVIDING RECOMMENDED ENVIRONMENTAL DISCLOSURES

This study evaluates the content of environmental information in the annual reports of U.S. firms and Canadian firms that have potentially significant environmental risks. Interactive relationships between firms and firm stakeholders are theorized to influence firms' environmental disclosure quality. Firms' environmental exposure is examined in relation to environmental disclosure quality. Variables potentially affecting reported environmental capital costs and environmental operating costs are studied. Additionally, U.S. firms' and Canadian firms' environmental disclosure quality is compared and annual report location of disclosure is evaluated. Environmental disclosure quality is measured against environmental disclosure recommendations by the American Institute of Certified Public Accountants (AICPA) and the Canadian Institute of Chartered Accountants (CICA).; The results of this study indicated that U.S. firms provided higher quality environmental disclosures than did Canadian firms. In general, changes in disclosure levels over time were not significantly different between U.S. firms and Canadian firms. Also, U.S. firms provided most of their environmental disclosures in the financial statement section and the management discussion and analysis section of the annual report. Canadian firms primarily used the introduction section and the management and discussion and analysis section for reporting environmental information. Regression results revealed that firms' environmental disclosure quality increased as pollution levels increased, and also that there was no significant relationship between the number of firm facilities and firms' environmental disclosure quality. Also, no significant relationship was found between environmental capital expenditures and either the number of polluting facilities or the amount of pollution released. However, both U.S. and Canadian firms reported significantly lower environmental operating expenses as their pollution levels increased.