Do Financial Disclosures Affect Corporate Sustainability Practices?
Jing, C., Xu, B. & Zuo, L. (2026). Do financial disclosures affect corporate sustainability practices? Journal of Accounting & Economics, forthcoming. https://dx.doi.org/10.2139/ssrn.4817939
We examine whether financial disclosures affect firm sustainability practices. Using mandatory segment reporting in the United States as the setting, we find that disclosing financial information about previously hidden segments in polluting industries reduces toxic emissions from firm plants. This effect is consistent with the notion that segment disclosures enhance monitoring of firm pollution by highlighting the financial materiality of polluting segments and drawing stakeholders’ attention to their environmental impact. The effect is stronger when the newly disclosed segments are more polluting. Disclosing firms achieve this reduction by implementing better pollution prevention practices, reducing waste generation, and increasing green innovation. Overall, our study highlights the role of mandatory financial disclosures in shaping corporate practices beyond the scope of the disclosed information.