China Policy Journal Volume 1, Number 1, Fall 2018 | Page 118

Environmental Performance Rating and Disclosure: An Empirical Investigation in Jiangsu, China
trol instruments are often inefficient
and ineffective in developing countries,
because firms may fail to report adequately,
regulators may lack the technical
and administrative capacity for
effective monitoring and enforcement,
and judicial systems may be weak and/
or corrupt. These weaknesses limit regulators’
ability to employ market-based
instruments, which also work less effectively
in countries where market
failures are common and legal and institutional
supports for formal market
activities are weak.
Information-based instruments
can be effective in developing countries
where strong regulatory institutions
and/or well-developed markets are absent,
but where enough information can
be reliably obtained to provide credible
performance ratings. In practice, diverse
information programs have served as
complements to command-and-control
and market-based instruments
(Kleindorfer and Orts 1998). Information
programs reduce the information
asymmetry between polluters and environmental
stakeholders (consumers,
communities, NGOs, and investors),
empowering these stakeholders to
pressure polluters for improved environmental
performance (Bui and Mayer
2003; Chaklader and Gulati 2015;
Kennedy, Laplante, and Maxwell 1994;
Meng et al. 2014; Oberholzer-Gee and
Mitsunari 2006).When implemented
appropriately, information instruments
promote better interaction and dialogue
among firms, stakeholders, and regulators
(Cormier and Magnan 2015; Garcia,
Sterner, and Afsah 2007).
Information instruments also
leverage markets in significant ways.
An extensive empirical literature suggests
that disclosure of firms’ bad environmental
performance reduces their
stock prices both in developed countries
(Foulon, Lanoie, and Laplante
2002; Hamilton 1995; Kiel 1995; Konar
and Cohen 1997; Lonoie and Roy 1998;
Lyon and Shimshack 2015) and developing
countries such as Argentina, Chile,
Mexico, and the Philippines (Dasgupta,
Laplante, and Mamingi 2001). Jackson
(2001) and Boyle and Kiel (2001) review
the impacts of disclosure on U.S. housing
prices, which are found to be lower
near Superfund sites (Kohlase 1991;
Reichert 1997), hazardous waste sites
(Thayer, Albers, and Rahmatian 1992),
non-hazardous landfills (Michaels and
Smith 1990), nuclear radiation sources
(Gamble and Downing 1982), and polluting
manufacturing plants (Garcia,
Afsah, and Sterner 2009). Housing prices
also negatively respond to publicized
environmental contamination incidents
(Kiel 1995; Kiel and McClain 1995).
Information instruments have
diverse forms, including reports of
measured pollution, environmental accident
reports, and environmental performance
ratings. In the United States,
for example, the Toxics Release Inventory
(TRI) discloses toxic chemical releases
and waste management activities
by significant toxic polluters and federal
facilities. However, regulatory institutions
in developing countries face significant
challenges to implement such
emission inventories due to the weak
monitoring and enforcing power. In addition,
despite an emerging literature on
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