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AN EMPIRICAL INVESTIGATION OF THE ENVIRONMENTAL DISCLOSURE STRATEGY OF FRENCH LISTED COMPANIES Florence DEPOERS Business school of Lyon 3 6 cours Albert Thomas 69008 LYON FRANCE [email protected] ABSTRACT Over the last 30 years, many studies have investigated the practices of environmental disclosure by companies. More specifically, researchers have examined the nature and the extent of environmental disclosure, and related environmental disclosure scores to some firms’ characteristics. The results of these studies can be summarised as following: longitudinal studies show a significant increase of corporate environmental disclosure ; the quality and the amount of disclosures depend of firms’ industry and size. They may also be related to lagged profits ; information disclosed may not reflect firm’s environmental performance. All these studies are based upon the observation that firms tend to report (more and more) environmental information through annual reports or any other forms of communication. But environmental disclosure is not a systematic activity. In addition, the quality of information disclosed seems relatively low. The purpose of this paper is to examine environmental disclosure decision by taking into account both incentives to disclose and incentives to withhold information. As a matter of fact, disclosure will only occur if the perceived benefits outweigh the perceived costs. (1) The first objective of this paper is to identify from literature the incentives for environmental disclosure and to organize them into a hierarchy. (2) The second objective concerns the factors restricting corporate environmental disclosure. As incentives, identified constraints are organised into a hierarchy. (3) The third objective connects incentives and restricting factors in order to analyse the disclosure decision. The latter is likely to depend on specific items of disclosure and forms of communication. The cost/benefit arbitration of 11 items of information disclosed in the annual report and in the environmental report is then examined. The extent to which each factor influences the disclosure decision is assesed by a sample of french listed companies’ financial directors. The industries selected for the study represent companies whose operations could have a negative material impact on the environment such as for example chemistry. 216 questionnaires were sent to the sampled companies. To date, 42 of them sent back a filled up questionnaire. Our findings suggest a strong influence of stakeholders’ demand and ethical considerations on disclosure decision. Business issues and compliance with what other firms do also encourage to a certain degree firms to disclose information while stock market considerations are relatively unimportant. The hierarchy of factors constraining environmental communication is as follows: the uselessness of environmental information, material costs which include production and communication costs, technical processing problems and proprietary costs (possibility of regulators’ interventions). As expected, results also indicate that the cost/benefit arbitration depends on the nature of the disclosure. Narrative and non-financial items, information about the past, give rise to the greatest net benefits. Companies perceive the disclosure of some items as resulting in an net cost. Taken overall, the perceived net costs or net benefits of the items are significantly different according to the form of communication used – ie annual report or environmental report.