Norm spillover? How environmental regulation in downstream industries affects upstream corporate environmental disclosure

Abstract

ABSTRACT Although firms nowadays widely adopt environmental information disclosure (EID) to respond to stakeholder pressures, their EID quality is quite different. In this study, we examine this EID variation from the perspective of spillover. We argue that EID regulation in downstream buying firms is likely to foster a ‘norm’ of high-quality EID. This norm is likely to spill over to the upstream supplying firms via the influence of buying firms. Using publicly listed firms in China’s stock exchanges during 2011–2020 as a sample, we find that firms are more likely to have high-quality EID when their key buying firms are located in EID regulated (heavy-polluting) industries. Further, media coverage of the supplying firms and the state ownership of buying firms are likely to exaggerate the norm spillover effect. The results still hold after several robustness tests. Additional analysis shows that interlocking directors between buying and supplying firms amplify the effect of buying firms’ EID regulation, which suggests the underlying mechanism of spillover. Finally, heterogeneity analysis shows that the effect of buying firms’ EID regulation varies across suppliers with different firm characteristics. Our findings contribute to the literature on both corporate EID quality and spillover effect in the supply chain settings.