The Role of Environmental Disclosures as Tools of Legitimacy - Annotated Bibliography Example

The role of environmental disclosures as tools of legitimacy Lecture: Cho, C.H & Pattern, D.M. (2007). ‘The role of environmental disclosures as tools of legitimacy: A research note’, Journal of accounting, organizations and society, 32 (2007), pp 639-647. 1.0 Topic and journal article methodological assumptions: Experiment research The mainstream accounting research methodology assumes that accounting seeks to mediate the relationships between people and their environment and thus accounting theories are true if not falsified by empirical events. The mainstream accounting research is dominated by a belief in physical realism of the existence of objective reality. The research is based on the assumption that there is a theory-independent set of observation statements that can verify the truth of accounting theories through empirical testing. Experimental accounting research relies in quantitative data collection approaches and is based on objectivism and positivism theoretical perspectives. The research methods will include quantitative data collection through use of interviews and surveys and statistical analysis in order to determine the relationship between the environmental disclosures and need to legitmise the operations of the firm. Zwick & Rapoport (2001) asserts that experimental accounting research examines the perceptions, decisions and decision processes of the companies in environmental disclosures. Cho & Pattern (2007) discusses the legitimacy theory of social disclosure that suggests the extent of environmental disclosures is a function of public pressure from the political environment. The firms with poor environmental performance provide more environmental disclosures in order to encounter their threats to legitimacy. Cho and Pattern (2007) have assumed that previous studies have failed to identify the relationship between firm size, industry classification and performance and assume that firms with poor environmental performance have incentive of providing more disclosures in order to address the threats to their legitimacy. The research will also highlight whether the size of the company and the nature of the industry influences the issue of environmental disclosures (Smith 2011). Methodology enables accounting researchers to explain and analyse methods including the types of questions and nature of evidence that will be generated by the research (Zwick & Rapoport 2001). The selection of research paradigm, data collection methods and types of data determines the expected research findings. In the development of the hypotheses, Cho and Pattern (2007) assume that lack of consistency in the environmental performance and environmental disclosure results is related to the failure to look at the management’s motivation for the disclosures that ultimately leads to problems with the disclosure metrics applied (Hoque 2006). The research findings are truth when there is sufficient internal and external validity since the observations can be used to verify the accounting theory (Cho & Pattern 2007). Hypothetico-deduction is used in scientific explanation and empirically reality is assumed to be external to the subject. Accordingly, firms are assumed to maximise utility and societies are dysfunctional conflicts that requires the implementation of the appropriate accounting control. The research study is based on measurable evidence and is guided by certain aspects of reasoning that are consistent with the formulation and testing of the research hypothesis. Positivists stress the importance of validity, reliability and generalisability of the research findings and internal validity is measured by the adequate testing of the hypotheses while external validity is determined by the ability to apply the findings in a wide setting (Smith 2011). The research hypothesis assumes that firms from the environmentally sensitive industries will have will have higher monetary environmental disclosures for the worst environmental performers. The study has eliminated the size of the firm effect through constructing four groups of 25 firms (Cho & Pattern 2007). Cho & Pattern (2007) considered the non-monetary disclosures and a t-test score is used to identify whether firms that have either or no environmental concern have a higher or lower monetary disclosures. However, the study concludes that environmental disclosures is a legitimacy tool, but the nature of disclosure varies with regard to non-monetary or monetary information since the motives of disclosure is influenced by the existing environmental concerns and sensitivity of the industry to the environment (Cho & Pattern 2007). 2.0 Another methodological assumption: case study approach . However, alternative assumptions are based on philosophical interests that stress on the importance of language, interpretation and understanding in social science (Smith 2011). Knowledge is assumed to be intentionally sought and its adequacy is evidenced by the logical consistency and subjective interpretation. The approach assumes meanings and norms are objective and there are stable constructs that are institutionalised (Mallin 2009). The researcher aasumes that social order is produced, and reproduced on daily basis and guides the rules that structure social world (Smith 2011). The researchers will also question the motives of action, and models are expected to be consistent. The other question raised by the researchers will be the adequacy of theory, and how to interpret the findings. Schutz asserts that accounting models must be constructed in a manner that allows common sense interpretation on a daily basis and consistency of the social constructs. The empirical knowledge entails discovery through controlled interface and must be verifiable through observation. The methodological assumptions are concerned with the theoretical generalisation of the findings and research tends to use terms such as dependability credibility, transferability and conformability (Smith 2011). The research questions that the alternative methodology will seek to answer include whether words, concepts and statements in environmental disclosure practices by the firms in high-environmental sensitive industries constitute legitimisation theory. Accordingly, the research will answer questions regarding whether companies with less environmental performance use language and legitimisation strategies in their 10-K environmental disclosures that the high-performing companies. In addition, the study will illustrate whether environmental disclosures are a response to public pressure due to changing perceptions of the company on impact of its activities on the environment (Freedman & Jaggi 2010). 2.1 Research method: case study A case study approach on leading companies operating in environmental-sensitive industries such as mining and gas operations in Australia is useful in understanding the relationship between legitimacy and environmental reporting. The case study approach will assume that companies with poor environment performance increasingly use legitimacy in their selection of disclosure words and statements. Furthermore, the case study approach will assume that the quality of information offered in the disclosure depends on the seriousness of the perceived threat or existence of environmental pollution crisis during the period leading to the disclosure (Smith 2011). The main research methods that are involved include case studies are participant observation. Case studies are useful in understanding the roles of environmental disclosures as tools of legitimacy through interpretation of the qualitative information in order to allow for construction of the accounting theory (Riahi-Belkaoui 1996). Case study approach is essential in understanding this accounting research since unique and dynamic contexts can be explored in the understanding the role of environmental disclosures as a tool of legitimacy. Although there is a resonance between case studies and interpretive research, some scholars may argue that they apply to all methodologies (Hibbitt 2004). Reckers (2003) is of the idea that case study approach is appropriate for exploratory research where the researcher is committed at discovering the appropriate constructs and understanding the complex organisational processes that entail multiple participants that interact in sequence. For instance, case study will be useful in understanding the role of environmental disclosures as tool of legitimacy by analysis case data from various non-monetary disclosure and monetary disclosure data in order to determine the real cause of environmental disclosures (Riahi-Belkaoui 1996). Richardson (2002 points out that a case study approach will provide vivid descriptions that relate to the case and focus on individual actors within the accounting field. The case study method is useful in building the theory and testing its accuracy and the constructs of interest must not be known in advance (Reckers 2003). The case study approach allows for in depth inquiry on the phenomenon in real-life or field-based setting thus facilitating discovery of more information relating to the environmental disclosures. However, case study approach has an inherent weakness since the internal validity of the inferences is weak just like all other research methods other than experimental research (Hoque 2006). At the same time, critics may assert that findings are subjective since some researchers may identify certain patterns of case study data that are not capable of being identified by novice researcher (Riahi-Belkaoui 1996). 2.2 Data and empirics According to Hoque (2006), the consequences of the interpretive perspective in the study of the roles of environmental disclosures as tools of legitimacy, the environmental disclosures will not be perceived as something that exists as an exogenous variable and the research will aim at explaining the use of environmental disclosures in terms of a contract between the principal and agent. The research will assume there is a complex network of contexts and subjective meanings that can be construed to understand to understand the phenomenon (Mallin 2009). The concepts , words, and disclosure statements will be collected from the annual 10-K environmental reporting disclosure reports, the company bronchures, and the sustainability reports and media sources such as newspapers on the activities of the company towards sustainability of the environment. The main standards that will be useful in understanding the depth of disclosure include the authenticity and trustworthiness of the language and communication tactics that are used by the management in issuing the environmental disclosure information (Hoque 2006). The reports will identify whether the reports have statements that aim at justifying or defending the actions of the company such as investments in emerging technologies that lead to low emissions or defending actions in oil spills. In order to confirm the public opinion, a semi-structured interview of the reporting committee and general perceptions of the actions of the firm will be conducted. However, the approach poses several weaknesses especially in reconciling the fundamental differences between the accounting researchers and actors and furthermore the perspective has no evaluative dimensions. 3.0 Evidence from two research journal articles Accounting researchers deal with intangible phenomena and most costs derived from the financial statements are subjective costs and are merely conditional truths rather than absolute truths (Freedman & Jaggi 2010). Other accounting articles using a different methodology and research methods have confirmed that environmental disclosures are used as a tool for legitimacy in annual reports since the firms must attain a social order and deal with the social expectations (Reckers 2003). 3.1 Eugenio, T.P., Lourenco, I.C & Morais, A.I. (2013). ‘Sustainability strategies of the company TimorL: extending the applicability of legitimacy theory, Management of environmental quality: An international journal, Volume 24, Issue 5, pp. 570-582. Eugenio et al (2013) aim to identify the legitimacy strategies used by the largest Portuguese cement companies to downplay their sustainability performance. The article uses a case study methodology for empirical research and analysis of the sustainability reports in order to identify the disclosure practices. Eugenio et al (2013) agree with previous qualitative studies based on case studies such as Adams (2002) and Larrinaga & Bebbington (2001) that a company’s performance is legitimate when it is socially accepted and judged to be fair thus legitimacy gaps occur when the social expectations differ from societal perceptions of the behaviour. Eugenio et al (2013) identify legitimacy strategies such as ‘don’t panic, create monitors and ‘explain’ as some of those taken by TimorL to deal with the controversies regarding the company’s crisis (Eugenio et al p 576). The authors collected the words and concepts from annual reports and media, and identified phrases that related to legitimacy gaps. The interviews focused on the sustainability disclosure practices and key players involved in TimorL’s legitimisation (Eugenio, et al 2013). The findings indicated the companies facing legitimacy issues reestablish legitimacy through assuring the employees not to panic when the organisation is faced with legitimacy challenges (Eugenio et al (2013). The firms try to explain their actions through environmental disclosures or establish environmental monitoring committees that are expected to issue information on the steps undertaken by firm in dealing with the crisis. Eugenio et al (2013) research study confirms that companies engage in environmental disclosures as a tool of legitimacy when faced with legitimacy gaps. In this case, one would argue that accounting information legitimises activities since it is neutral and firms’ structure aims at organising economic production. Thus accounting research methodology is not a fixed field, but changes depending on the rational demands of information. Eugenio et al (2013) assert that environmental disclosures is a win-win situation that will allow the firms and society to enjoy higher economic growth, environmental protection and social advancements that with no radical changes in the social order. 3.2 O’Donovan, G. (1999). ‘Managing legitimacy through increased corporate environmental reporting: an exploratory study’, Interdisciplinary environmental review, 1999, vol 1, No 1, pp 63-99. O’Donovan claims that corporations have increased the amount of information regarding their social and environmental performance over the past years. The article asserts that environmental disclosures are a tool of legitimacy since firms must act within the bounds of what is considered as socially acceptable practice. O’Donovan (1999) claims that the companies that operate outside social bounds perceive threats and thus issue environmental disclosures in order to regain their legitimacy in the society. The research uses case study approach to investigate the nature of environmental disclosures that are attributable to legitimacy theory. The research method departures from experimental research since the author investigated the topic using case study and semi-structured interviews. The research focused on three large public corporations that operate in environmentally sensitive industries (O’Donovan 1999). The research found out that companies would increase their environmental disclosures when there is a need to justify or defend the negative environmental activities that have raised public concern. The incentive for engaging in more disclosures is brought by the changes in public perceptions regarding the company on the main media and firms perceive the inclusion of environmental disclosure information in their annual statements will shape the public perceptions (O’Donovan1999). Therefore, the findings confirm that environmental disclosures are a tool of legitimacy. Conclusion Environmental disclosures by firms act as a tool of legitimacy since organisations seek to establish and maintain congruence between the norms of socially acceptable behaviour and social values associated with their operations. In case of legitimacy gap, the companies will disclose more environmentally related information in their reporting and will respond to crisis through numerous strategies such as claiming there is no need to worry about the situation or disassociation with the particular activity that concerns the public. The management acts as a agents of the shareholders and naturally promote the interests of the stakeholders thus will issue less monetary-related information when there is no legitimacy gap. Reference list: Cho, C.H & Pattern, D.M. (2007). ‘The role of environmental disclosures as tools of legitimacy: A research note’, Journal of accounting, organizations and society, 32 (2007), pp 639- 647. Eugenio, T.P., Lourenco, I.C & Morais, A.I. (2013). ‘Sustainability strategies of the company TimorL: extending the applicability of legitimacy theory, Management of environmental quality: An international journal, Volume 24, Issue 5, pp. 570-582. Freedman, M & Jaggi, B. (2010). Sustainability, environmental performance and disclosures. Bingley: Emerald. Hibbitt, C.J. (2004). External environmental disclosure and reporting by large European companies. Amsterdam: Limperg Institute. Hoque, Z. 2006. Methodological issues in accounting research: theories, methods and issues. Melbourne: Spiramus Press Ltd. Mallin, C.A. (2009). Corporate social responsibility: a case study approach. Sydney: Edward Elgar. O’Donovan, G. (1999). ‘Managing legitimacy through increased corporate environmental reporting: an exploratory study’, Interdisciplinary environmental review, 1999, vol 1, No 1, pp 63-99. Reckers, P. 2003. Advances in accounting, vol 20. Burlington: Elsevier. Riahi-Belkaoui, A. 1996. Accounting: a multiparadigmatic science. Westport, CT: Quorum Books. Richardson, B.J. (2002). Environmental regulation through financial organisations: comparative perspectives on the industrial nations. New York: Kluwer Law International. Smith, M. 2011. Research methods in accounting. Sydney: Sage Publishers. Zwick, R & Rapoport, A. 2001. Experimental business research. Sydney: Kluwer Academic. Read More