Blog Post

Fracking in Focus: A Look at Voluntary Environmental Information Disclosure and Firm Size

Dec 16, 2014 | Zhongmin Wang

CoverThe potential environmental risks posed by fracturing fluids—usually some mixture of chemicals and water—make hydraulic fracturing a highly controversial industrial process. These risks have prompted many stakeholders to request chemical disclosure reports on the fluids used by well operators. The oil and gas industry has responded by creating a fracturing chemical registry website—www.FracFocus.org—that allows operators to post information online about the location of each well and the chemicals used in its production. (Operators can also disclose their chemical usage to state agencies, but this information can be hard for the public to access because it is not available online.)

In the last few years, a number of high-production states have passed fracturing disclosure regulations that require operators to convey well and fluid information to one, both, or either of FracFocus and a state agency. Before they were passed, disclosure was voluntary in all situations; after their adoption, it became voluntary only in some cases. The voluntary disclosure of such information is considered to be a type of corporate social responsibility (CSR) activity, in which a company goes beyond minimum legal requirements.

Some debate exists in the literature about whether a company’s size makes it more or less likely to participate in these CSR activities voluntarily. On the one hand, small- and medium-sized firms are subjected to less public scrutiny and have fewer resources than their larger counterparts; on the other, their involvement in local communities and tendency to be managed by their owners may increase their desire to commit to CSR actions. In a new RFF discussion paper, Voluntary Environmental Information Disclosure and Firm Size: Evidence from the Hydraulic Fracturing Chemical Registry FracFocus, I examine well and fluid disclosure information from nine states to find out how firm size relates to the likelihood that they independently relay information about their hydraulic fracturing practices to the FracFocus database.

This research samples information from 11,553 wells drilled by 388 firms, whose relative “size,” or market share, is based on the number of wells drilled. I also account for the date that each state’s disclosure regulations go into effect, as well as the type of disclosure they require. Using a logit model, I estimate how firm size affects disclosure probability by comparing disclosure percentages across a range of companies measured by size. The results revealed that larger firms were more likely to voluntarily submit information to the FracFocus website, regardless of whether the firms were operating under specific state regulations.

How should we interpret these findings? While they suggest that size affects the likelihood that a firm engages in CSR activities, they don’t necessarily imply that small firms are less inherently socially responsible—small and medium-sized companies may or may not undertake CSR activities that I didn’t  consider in this study. The results also hint at a number of mechanisms that may be behind the relationship between firm size and engagement, and it would be interesting to further investigate what they are and how they influence corporate behaviors.