The role of environmental disclosures as tools of legitimacy: A research note

Legitimacy theory suggests companies with poorer environmental performance would be expected to provide more extensive off-setting or positive environmental disclosures in their financial reports. However, recent investigations of the performance/disclosure relation [Al-Tuwaijri, S. A., Christensen, T. E., & Hughes II, K. E. (2004). The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach. Accounting, Organizations and Society, 29, 447–471; Hughes, S. B., Anderson, A., & Golden, S. (2001). Corporate environmental disclosures: are they useful in determining environmental performance? Journal of Accounting and Public Policy, 20, 217–240; Hughes, S. B., Sander, J. F., & Reier, J. C. (2000). Do environmental disclosures in US annual reports differ by environmental performance? Advances in Environmental Accounting and Management, 141–161; Patten, D. M. (2002). The relation between environmental performance and environmental disclosure: a research note. Accounting, Organizations and Society, 27, 763–773] report mixed results. In this study, we use size-matched groups based on industry membership (environmentally sensitive versus non-environmentally sensitive) and environmental performance (worse performers versus better performers, based on data from KLD Research and Analytics, Inc.) to test for differences in the use of monetary and non-monetary non-litigation related environmental disclosure. Results indicate that the use of monetary and non-monetary components of the non-litigation related environmental disclosure varies across groups. In general, the findings provide additional support for the argument that companies use disclosure as a legitimizing tool.