IMAP Lunch Seminar: Greenhushing: Unintended Consequences of Conditionally Mandatory Disclosures

Regulators intend for conditionally mandatory disclosures to balance compliance costs with investors’ desires for greater information about firms’ activities, operations, and risks. We explore the consequences of conditionally mandatory disclosures by studying managers’ responses to the SEC’s recent Climate Disclosure Rule. Included with this rule was the requirement to disclose scenario analyses around how the firm assessed the firm-level financial consequences of climate change, but only if prepared internally. Using a 2x2x2 between-participant experiment, we find that under a conditionally mandatory disclosure regime, managers choose to prepare climate-risk disclosures less frequently versus a voluntary disclosure regime. The presence of a safe harbor and previous preparation of a scenario analysis also are positively associated with the decision to prepare a new scenario analysis. Our findings suggest that conditionally mandatory disclosures may incentivize managers to end the underlying activity to avoid disclosure.

Jesse Chan, Assistant Professor in Accounting at Questrom School of Business, will present.