09 Aug 2011Working Paper Summaries

How Firms Respond to Mandatory Information Disclosure

by Anil R. Doshi, Glen W.S. Dowell and Michael W. Toffel

Companies are facing increasing pressure to reveal information about their operations, including their environmental performance. This research examines which types of organizations are especially likely to reduce their pollution levels once they face mandatory disclosure requirements. Research conducted by Anil Doshi and Michael Toffel of Harvard Business School, and Glen Dowell of the Johnson School of Management at Cornell University compares the responses of companies based on their proximity to headquarters and to corporate siblings, organizational size and the density of their surrounding communities, and whether they are part of publicly- or privately-held firms. Key concepts include:

Environmental performance improved more among establishments in the same geographic area as their headquarters, compared with those located far away from headquarters.
Environmental performance improved more among establishments located near corporate siblings.
Environmental performance improved more among establishments owned by privately held firms than among establishments owned by publicly traded firms.
The results suggest that corporate managers and policy makers can predict general trends about which establishments are most (and least) likely to improve their performance once they are required to disclose operational performance.

Author Abstract

We explore which organizations are particularly likely to resist, or acquiesce to, new institutional pressures that arise from mandatory information disclosure regulations. We hypothesize that when information is disclosed about organizational performance, certain organizational characteristics amplify pressures to improve. Examining organizational responses to a change in a prominent information disclosure program, we provide some of the first empirical evidence characterizing organizations' heterogeneous responses to information disclosure regulations. We find that private ownership and proximity to headquarters and corporate siblings are associated with superior performance trends following information disclosure. We also find that regional density moderates effect of establishment size on performance improvement. We find no evidence that capability transfers are associated with performance improvement. We highlight implications for institutional theory, managers, and policymakers.