Abstract
This paper examines the environmental disclosure decisions of New Zealand firms in response to political costs arising from the enactment of the Resource Management Act (RMA) in 1991. Unlike prior disclosure studies, this study provides a more rigorous test of the political cost hypothesis by identifying firms that were directly affected by RMA and by measuring the change in environmental disclosures over the pre‐ to post‐RMA period. We hypothesise that the increase in environmental disclosures will be a positive function of the firm's political visibility. Using six different measures of political visibility and three composite measures derived from a factor analysis of the individual measures, the evidence indicates that, in general, politically visible firms were more likely to increase their environmental disclosures after RMA whether the change was measured on a dichotomous or continuous basis. Overall these results provide support for the political cost hypothesis.
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