Learning to be green: Accounting comparability and environmental violations

Abstract

Over recent years there has been an increasing awareness of the costs to the environment of corporate actions. We posit that accounting comparability between a firm and its peers, facilitates firm learning of the impact peer firm activities have on the environment. This learning allows the firm to reduce its own environmental violations. In line with this conjecture, our findings show that accounting comparability is negatively associated with environmental violations. Further, the reduction in firm environmental violations is larger in the presence of comparable peer firms disclosing low toxic releases, suggesting that firms are better able to learn from peer firms with low environmental impact. Our results provide novel evidence that accounting comparability facilitates green learning and therefore benefits society at large by reducing environmental harm.