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The Relationship between sustainability performance and sustainability disclosure – Reconciling voluntary disclosure theory and legitimacy theory


Hummel, Katrin; Schlick, Christian (2016). The Relationship between sustainability performance and sustainability disclosure – Reconciling voluntary disclosure theory and legitimacy theory. Journal of Accounting and Public Policy, 35(5):455-476.

Abstract

The relationship between sustainability performance and sustainability disclosure remains ambiguous, both theoretically and empirically. Voluntary disclosure theory would suggest that the relationship should be positive, whereas legitimacy theory points toward a negative relationship. However, the empirical evidence regarding this relationship is mixed, which indicates that the two theories are not necessarily contradictory but that they are instead two sides of the same coin. This paper refines the theoretical reasoning associated with the two theories and provides empirical evidence for their reconciliation by moving the focus of inquiry from the quantity of sustainability disclosure toward its quality. Our results reveal that – consistent with voluntary disclosure theory – superior sustainability performers choose high-quality sustainability disclosure to signal their superior performance to the market. In addition, based on legitimacy theory, poor sustainability performers prefer low-quality sustainability disclosure to disguise their true performance and to simultaneously protect their legitimacy. The results remain robust to various additional analyses. Thus, the paper indicates that the two theories dovetail with one another by redirecting the focus toward the quality of sustainability disclosure.

Abstract

The relationship between sustainability performance and sustainability disclosure remains ambiguous, both theoretically and empirically. Voluntary disclosure theory would suggest that the relationship should be positive, whereas legitimacy theory points toward a negative relationship. However, the empirical evidence regarding this relationship is mixed, which indicates that the two theories are not necessarily contradictory but that they are instead two sides of the same coin. This paper refines the theoretical reasoning associated with the two theories and provides empirical evidence for their reconciliation by moving the focus of inquiry from the quantity of sustainability disclosure toward its quality. Our results reveal that – consistent with voluntary disclosure theory – superior sustainability performers choose high-quality sustainability disclosure to signal their superior performance to the market. In addition, based on legitimacy theory, poor sustainability performers prefer low-quality sustainability disclosure to disguise their true performance and to simultaneously protect their legitimacy. The results remain robust to various additional analyses. Thus, the paper indicates that the two theories dovetail with one another by redirecting the focus toward the quality of sustainability disclosure.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:10 January 2016
Deposited On:23 Aug 2019 09:04
Last Modified:25 Sep 2019 00:42
Publisher:Elsevier
OA Status:Green
Publisher DOI:https://doi.org/10.1016/j.jaccpubpol.2016.06.001
Other Identification Number:merlin-id:14024

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