Environmental audits and signaling: The role of firm organizational structure

This study examines the extent of environmental management practiced by U.S. chemical manufacturing facilities, as measured by the number of environmental internal audits conducted by facilities annually. In particular, this study focuses on the effects of firm-level organizational structure on facility-level environmental management practices. For its theoretical analysis, the study employs the framework of signaling, including both signals sent to customers and signals sent to regulators. For its empirical analysis, the study exploits unique data gathered by a survey distributed to all U.S. chemical manufacturing permitted to discharge wastewater as of 2001; the survey data provide information on audits conducted annually between the years 1999 and 2001. As one example, empirical results reveal a difference in auditing behavior based on whether facilities are owned by firms operating within a single state or multiple states.