Environmental disclosures and changes in firm value: new evidence from the BP oil spill

Abstract

Purpose

The purpose of this study is to use a sample of oil and gas firms and examine the relationship between environmental disclosure in the USA Form 10-K and the stock market reaction after the BP oil spill.

Design/methodology/approach

The study focused on three important time periods associated with the oil spill: the time period beginning with the explosion on April 20, 2010 and ending August 5, 2010, one day after BP permanently sealed the oil leak; the period beginning with the explosion on April 20 and ending with the sinking of the Deepwater Horizon oil rig on April 22; and the period associated with President Obama’s first public comments on the oil spill and his administration’s ban on oil drilling, i.e. April 29-30 and May 3.

Findings

The results show a negative relationship between environmental disclosure and stock market reaction.

Social implications

The findings of a negative association could be the result of higher disclosure by firms with more environmental risk because they indeed are riskier and/or they engage in “window dressing” to legitimize their operations and practices and maintain acceptance by society.

Originality/value

The results in this study run counter to a positive association documented in prior research studying the effects of environmental disasters.

Citation

Garner, S.A. and Lacina, M.J. (2019), "Environmental disclosures and changes in firm value: new evidence from the BP oil spill", Accounting Research Journal, Vol. 32 No. 4, pp. 610-626. https://doi.org/10.1108/ARJ-06-2018-0095