Investigating the level and quality of the information in the environmental disclosure report of a corporation considering government intervention

Abstract

We study the effect of quantity and quality of environmental disclosure of a corporation, and also assess the impact of government intervention through subsidies on the corporation. Both positive and negative information levels and respective subsidies, and three different government policies (i.e., environmental policy, disclosure benefit policy, and social welfare policy) are considered. The resulting interaction between the government and the corporation is modeled in a game theoretic framework, which is then solved to find equilibrium decisions and to develop insights. It was concluded that offering both positive and negative disclosure subsidy benefits both parties than when the government does not intervene. Furthermore, given high positive and negative disclosure cost, the corporation would prefer that the government adopt a pure environmental policy, however, the latter would prefer the social welfare policy. Finally, under environmental policy, the corporation benefits more when the sensitivity to negative disclosure level to environmental factor is less, however, both parties benefit under the two other policies.