GDP manipulation and environmental information disclosure: evidence from China

ABSTRACT We investigate the relation between gross domestic product (GDP) manipulation at the government level and the quality of firms’ environmental information disclosures. Using a sample of Chinese firms, we find that firms in the cities where GDP is manipulated by local leaders are more likely to disclose environmental information by using soft and unverifiable information. We also find that the results are stronger for state-owned companies, for high-polluting firms, and for firms with low-quality internal control. We further find that GDP manipulation is negatively associated with the level of trust in local government, which could potentially explain the relation between GDP manipulation and soft disclosures. This is the first study to investigate the influence of local politicians, who have incentives to inflate GDP growth, on a firm’s disclosure quality.