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This study investigates whether CEOs exercise discretion in recognizing environmental liabilities surrounding their turnover. Extant theories on the agency problem predict that outgoing CEOs tend to boost or maintain the reported earnings in their final years (“Horizon” problem or “Cover-up”) and incoming CEOs sacrifice the reported earnings in their transitions year (“big-bath”). We find empirical evidence that incoming CEOs recognize significantly higher environmental liabilities in their transition year compared to the following years, supporting the “big-bath” hypothesis. This finding provides evidence that CEOs use environmental liabilities as a tool of earnings management surrounding their turnover in an attempt to maximize their accounting-based compensation.

The purpose of this paper is to encourage accounting regulators to address diversity in practice in the reporting of environmental liabilities. When Canada changed to International Financial Reporting Standards (IFRS) in 2011, Canadian regulators asked the IFRS Interpretations Committee to interpret whether the discount rate to value environmental liabilities should be a risk-free discount rate. Old Canadian GAAP, and current US GAAP, allow for a higher discount rate, resulting in commensurately lower liabilities. International regulators refused to address this issue expecting no diversity in practice in Canada.

The focus is on a sample of Canadian oil and gas and mining firms. These domestic industries play a major role internationally and have significant environmental liabilities. The method is empirical archival, tracking firm characteristics and discount rate choice on transition to IFRS.

There is significant diversity in practice. About one-third of the sample firms choose a higher discount rate, avoiding a major increase in environmental liabilities on transition to IFRS. The evidence suggests that these firms have relatively larger environmental liabilities and that the discount rate decision is a strategic choice.

The sample is based on one country and may only be reflecting local anomalies that have no broader implications.

Diversity in practice in accounting for environmental liabilities is not acceptable. Accounting regulators should act to create consistent and comparable reporting practice.

Firms and managers facing larger environmental liabilities can choose to minimize environmental liabilities under IFRS, while it is the general public and society at large that bear the ultimate risk.

The paper pushes forward the debate on whether recognized environmental liabilities should reflect the interests of equity investors, or if other investors and stakeholders should be taken into account.

There is ample evidence that many firms do not fully disclose environmental liabilities. Since it is likely that full disclosure of these liabilities may lead to greater accountability by a firm, it is important to identify factors related to the treatment and disclosure of these specific liabilities. This study reports on factors found to be related to the intentions of 263 financial executives to accrue and disclose environmental liabilities based on scenarios developed for this research. Using the Theory of Planned Behavior, we find that intentions to accrue and disclose environmental liabilities are positively related to an executive's attitudes, subjective norms, perceived behavioral control, and sense of obligation. We also provide evidence that the magnitude of the environmental and financial consequences has a positive, significant relation to these intentions and find that financial executives from privately held companies are less likely to accrue and disclose environmental liabilities than those from companies that are publicly traded. These findings suggest that encouraging positive attitudes toward environmental accruals and disclosures, enhancing the behavioral control of financial executives over the accrual decision, and heightening their moral obligation to disclosure these liabilities may lead to better accounting treatment and transparency of environmental matters.

We examine the relationship that exists among bond ratings, bond yields, and various estimates of a firm's contingent environmental remediation liability using a sample of new bond issues. Our results indicate that the largest external EPA-based estimates of the firm's environmental obligations are significantly associated with a firm's bond rating, providing relevant incremental information beyond that supplied by the environmental accruals presented in the financial statements. Furthermore, while the accrued environmental liability is shown to have a direct association with the bond yield, the external EPA-based estimates provide an indirect relationship with the bond yield through their influence on the bond rating. These results contribute to the extant literature by empirically clarifying the role of various environmental liability estimates in establishing a firm's bond rating and further indicating their connection with the pricing of corporate debt.

Financial assurance rules, also known as financial responsibility or bonding requirements, foster cost internalization by requiring potential polluters to demonstrate the financial resources necessary to compensate for environmental damage that may arise in the future. Accordingly, assurance is an important complement to liability rules, restoration obligations, and other regulatory compliance requirements. The paper reviews the need for assurance, given the prevalence of abandoned environmental obligations, and assesses the implementation of assurance rules in the United States. From the standpoint of both legal effectiveness and economic efficiency, assurance rules can be improved. On the whole, however, cost recovery, deterrence, and enforcement are significantly improved by the presence of existing assurance regulations.

We investigate the state of environmental financial reporting since the increased regulation imposed by the Securities and Exchange Commission and other regulatory bodies during the 1990s by examining mandatory environmental disclosures for a sample of petroleum firms. Our results indicate that while the majority of firms stated that they accrued remediation liabilities and environmental exit costs, only about half or less of these firms disclosed the amount of the accrual, even though disclosure is required if the amount is material. Consistent with prior research, we find that cross-sectional variation in disclosure is positively related to firm size and financial leverage. Our results show that environmental disclosures increased during the 1990s, concurrent with increased regulatory pressure and corresponding threats to oil companies’ legitimacy. Firms’ disclosure levels in 1998 were strongly related to their disclosure levels in 1989 –i.e., those companies that reported more (less) information in 1989 did the same in 1998. Thus, individual firms appear to have distinctive environmental disclosure policies.

This paper explores the role that environmental disclosures might play in producing a legitimating effect on investors within the context of the chemical industry. By way of an experimental decision case it examines effects of negative, and the offsetting effects of positive, environmental disclosures surrounding chemical firms’ liabilities for toxic waste site liabilities. The paper outlines the theoretical bases for the process of organizational legitimation, and sets the decision experiment in a detailed historical analysis of the toxic waste problems of the 1970s that led to the enactment of legislation requiring clean up and imposing significant liabilities on chemical firms. The results from the decision experiment, which indicate that under some circumstances positive disclosures can restore or repair an organization’s legitimacy, are discussed in the context of the earlier theoretical and historical analysis.

The paper aims to examine the question whether legislative reform is the silver bullet for the problems generated by the failure of a company which is exposed to claims arising from the non-fulfilment of its environmental obligations. The limited capacity of the UK insolvency regime to facilitate the fulfilment of a debtor company’s environmental obligations is often illustrated with reference to some significant judicial decisions. However, no real picture has emerged of the frequency with which these issues arise, based on which firm proposals for reform could be advanced. This paper argues that greater regard should be paid to existing mechanisms which provide a means of enabling insolvency risks to be managed or minimised because these point towards the scope for these issues to be resolved through the environmental protection framework rather than through reliance on company and/or insolvency law.

Research was conducted into the statutory and non-statutory regulations (such as statutory guidance) and case law principles, which underpin the treatment of the claims against an insolvent (or potentially insolvent) company resulting from its environmental activities. This included research into policies which have a bearing on this area, developed through governmental and civic consultations and studies.

The paper concludes that the likelihood of a case for legislative reform being made out is weak, and the focus should accordingly shift to strengthening the effectiveness of existing law, policy and practice.

This paper is the first (in the UK context) to challenge the perceived need for reform in this area, engaging with recent examples of such corporate failures and the impact of recent legislative and policy developments.

The purpose of this paper is to demonstrate whether or not lenders are environmentally liable by the simple act of lending money. The concept of “lender liability” is one of the more critical issues which seems to be ready to upset the “apple cart” of environmental calm, which the English law enjoyed until recently. Why should banks be held liable for pollution and clean-up costs? The banks’ responsibility should end when it has granted the loan to the borrower to carry out its commercial activities. It is argued that a lender who becomes involved in the borrower’s financial management is unlikely to incur a clean-up liability, but it will become liable to clean it up if it forecloses or takes possession of the land. Can the bank be regarded as the “owner” of the land? In some English statutes, there is no definition of the word “owner”. Does a mortgagee in possession entitle him to ownership of the property to hold him responsible for liabilities for environmental harm?

The development of domestic environmental liability and the Trans-Atlantic position with the USA will be examined. The “owner” concept will also be critically reviewed to see whether banks and mortgagees can be regarded as owners on possession of the property. The dilemma of the English courts with regards to lender issues and lender self-protection will also be examined. This will all be analysed and criticised in this paper.

This paper aims to demonstrate whether or not lenders are environmentally liable by the simple act of lending money. It will also discuss “owner” concept to see whether banks and mortgagees can be regarded as owners on possession of the property.

In this paper, the “owner” concept will be critically reviewed to see whether banks and mortgagees can be regarded as owners on possession of the property. The dilemma of the English courts with regards to lender issues and lender self-protection will also be critically analysed and compared with different legal systems.

Liabilities associated with environmental matters have become a major concern worldwide. Clearly, environmental impact must be a major element of a corporation’s decision process and should be timely reported in its financial statements. The SEC intensely reviews the adequacy of the environmental disclosures of its registrants. This review covers both required environmental disclosures and the adequacy of financial disclosures ingeneral. Despite this scrutiny, SEC Commissioner Roberts believes that accruals of environmental liabilities do not appear in financial statements quickly enough.This study reviewed the annual report environmental disclosures of 645 Forbes 500 firms. The study results revealed that the majority of firms provide no disclosure of environmental issues. The environmental disclosures that are included tend to be limited in terms of their informational content. It is also apparent that certain industries are more likely to include environmental disclosures than are other industries. Given the enormous impact of environmental cleanup costs to companies, the authors suggest that certain environmental issues be disclosed by all firms regardless of industry affiliation.