Responding to “Discrediting” Events: Annual Report Disclosure Responses to Environmental Fines

In this study we consider how a discrediting event such as an environmental fine influences the quality of environmental disclosures in subsequent annual reports. Starting from prior work in the areas of impression management along with environmental and social responsibility disclosures, we propose that environmental disclosures provide organizations with a method of “managing” such discrediting events. Using a matched‐pair sample of publicly traded Canadian companies that have been subject to environmental fines and those that have not; we analyze changes in pre‐fine and post‐fine environmental disclosure quality. After controlling for firm‐specific characteristics, the provided results are consistent with this explanation.