Sustainability Disclosure and Reputation: A Comparative Study

Abstract

Drawing on legitimacy theory, we discuss that a company's reputation is a determinant of sustainability disclosure. Specifically, we consider the concept of reputation into three dimensions for analysis: stakeholders' commitment, financial performance and media exposure. This paper differs from previous social and environmental reporting studies in that it investigates both internal and external contextual factors that influence disclosure practice. We claim that companies with a good financial performance, that are adopting an active strategic position towards stakeholders and that are exposed to significant public pressure are more likely to use sustainability disclosure in order to communicate their legitimacy to operate to stakeholders. Moreover the paper analyses a wide range of corporate reports for their social and environmental content using an international sample that allows for a comparison of disclosure practices among Continental European, UK and USA companies. Our results show that stakeholder commitment and media exposure are positively associated with sustainability disclosure. Moreover, we find evidence that the drivers of disclosure vary by information type.

Sustainability Reporting by the Top 100 Companies in the S&P 500 Index: Findings from Some Recent Data

“…This group reported either to the Governance Committee of the company"s board of directors or to a high-ranking officer within the company. This was a good sign since past research indicated that companies where social responsibility was on the board of directors" agenda were likely to make more sustainability disclosures (Michelon, 2011). Many committees consisted of senior level managers from different areas of the company, thus demonstrating a company-wide presence of sustainability thinking.…”

“…They are frequently subject to public attention simply because of (a) the volume of their businesses; (b) their reach across the globe in terms of the widely scattered sources of materials and labor that they access; (c) the geographically dispersed markets where they sell their products and services; (d) their potential to make a large impact on their physical and social environment; and (e) the extensively diverse communities that they serve. Over the past few decades, researchers have found that companies that were large in size and were otherwise in the public"s eyes tended to make more voluntary disclosures of sustainability (Belkaoui & Karpik1989;Cowen, Ferreri, & Parker 1987;Patten 1991;Roberts 1992;Hackston & Milne 1996;Cormier & Gordon 2001;Huafang & Jianguo 2007;Michelon 2011;Gamerschlag et al 2011;and Chan, Watson & Woodliff 2014). Globally, Chu, Chatterjee and Brown"s (2013) study showed that larger Chinese companies disclosed more information about their greenhouse gas emissions than their smaller counterparts, and more recently, Herbohn, Walker and Loo (2014) studied the link between sustainability disclosure and sustainability performance in the Australian extractive industries to find that firm size was positively associated with sustainability.…”

Sustainability Reporting as a Tool to Improve Transparency towards Stakeholders. Exploring Reporting Practices in the Imaging Industry

“…Recently, Michelon (2011) has focused attention on the necessity to improve the comprehension about the relationship between Corporate Sustainability Disclosure (CSD) and CR. In particular, Michelon analysed the concept of reputation along three dimensions: Commitment to stakeholders, financial performance and media exposure.…”

“…This practice, on one hand helps to alleviate institutional pressure to increase the effectiveness of market discipline and on the other facilitating the "control" of key stakeholders through an effective management of CR (Barnett et al, 2006). Recent studies based on legitimacy theory have also shown that it is more likely to use social reporting tools for those companies that adopt a proactive strategy for the stakeholder expectations and that have good financial performance and are exposed to a significant media pressure; this allows them to increase the degree of social legitimacy and their reputation at the widest audience of stakeholders (Michelon, 2011). Additional contributions addressing risk management and voluntary disclosure have different results (Xifra and Ordeix, 2009).…”

Influence of Intellectual Capital Investment, Risk, Industry Membership and Corporate Governance Mechanisms on the Voluntary Disclosure of Intellectual Capital by UK Listed Companies

“…In terms of the theoretical approach, the paper refers to Abeysekera (2006) who outlines the development of a theoretical framework underlying IC disclosure. Theories that have been considered include legitimacy and stakeholder (Guthrie, Petty, Yongvanich, & Ricceri, 2004;Abeysekera & Guthrie, 2005;Michelon, 2011), signalling (Bozzolan, Favotto, & Ricceri, 2003;Garcia-Meca & Martinez, 2005;Shi, Kim, & Magnan, 2014), resource based (Barney, 2001;Palmer, 2008), agency (Bozzolan et al, 2003;Garcia & Martinez, 2005) and information asymmetry (Amir & Lev, 1996;Lang & Lundholm, 2000). Although the IC literature illustrates the application of various theoretical approaches, the general disclosure literature has overall indicated a close association with agency and signalling theories.…”