Legitimacy is a comprehensive perception or else supposition that the actions of a particular business entity are essentially desirable, appropriate within certain socially constructed system of standards, beliefs as well as definitions. Legitimacy theory can be considered as one of the most important theories within the social as well as environmental accounting area. In essence, the novel economic, social as well as environmental challenges direct corporations and the government to abide by the regulations, values, standards and norms and to willingly divulge social as well as environmental information in a bid to investigate their conformity. The present study explains legitimacy theory that can play an important role of a justifiable facet for the disclosure of specific environmental information.
Nowadays corporations are the primary source of emissions of carbon and carbon footprints are day by day rising. Reports reveal that the CO2 emissions in Australia per capita are registered to be 16.35 metric tons recorded during the year 2013. Australia’s National Greenhouse Accounts keep track of regional emissions during the period 1990 and onwards meet the reporting commitments specified under the United Nations Framework Convention on change of climate, track advancements as against commitment of emissions reduction of Australia and inform makers of policy as well as the public(Abs.gov.au 2017). Analysis of environmental reports reflect the fact that the emissions are mainly due to the electricity, direct combustion, transport, fugitives, industrial procedures, agriculture, waste, land use change as well as forestry (Fernando and Lawrence 2014).
However, emission during the year 2030 is projected to roughly around 592 Mt CO2 -e, which is essentially 0.5% below the ones recorded during the year 2005. This is primarily due to rising awareness and higher social concerns for the environment. Lanis and Richardson (2016) asserts that societal concerns for the environment has also escalated and government regulations as regards emissions of carbon. Corporations are also under growing pressure to display their level of commitment to lessening their contribution to alterations in climate to avert further increase in directive (Mousa and Hassan 2015). The International panel on climate change introduced during the year 1988 by the World Meteorological Organisation as well as the United Nations Environment also declared that the overall warming of the climate system is essentially unequivocal and it is hereby very likely that the emissions of the green house gases from diverse human actions have led to increase in the global temperature witnessed since the period of 1990s. Thus, it can be hereby said that the greenhouse gas emissions of Australia have steadily amplified between the period 1991 and the year 2008.
Australia has certain emission control procedures and policies in place to lessen the overall greenhouse gas emissions by no less than 5%. Analysis of policy trends show that the current trend in Commonwealth Emission Control Policy laid emphasis on the mandated expansion of the overall amount of electricity generated by diverse renewable resources, development of emission offsets, energy efficiency measures (Noronha et al. 2014). Furthermore, this includes imposition of fuel emissions, provision of financial incentive, continued financing of research and development exercises and continued participation in worldwide change in climate.
As rightly indicated by Rogowski (2015) worldwide financial crisis along with instability of the overall financial markets create pressure on the corporation to re-assess the value system present. This also helps to emphasize the significance of legitimacy. Prior academic theories reflect that legitimacy theory is for a moment observed as a plausible illustration of managerial motivations without any genuine effort to determine the way a disclosure might or might possibly not promote transparency as well as accountability towards diverse non-capital provider stakeholders. Menassa and Brodhäcker (2017) assert that it is not like an instrument that can be used for the purpose of arriving at feasible predictions. Therefore, organizations need to voluntarily divulge social as well as environmental information in a bid to legitimate their specific legitimacy. The disclosure of specific information need to be accompanied by concrete activities that are necessarily realised in conformation to specific social as well as environmental standards and values. The theoretical nature of legitimacy also makes it intricate to discover the mechanism by which corporations are motivated to willingly reveal social as well as environmental information.
As correctly mentioned by Glozer et al. (2014), the legitimacy theory has a rich disciplinary background founded on the theory of management, institutional theory as well as stakeholder theory. Paradoxically, the main role of legitimacy of corporations, institutions as well as social survival is necessarily motivated by diverse negative social along with environmental phenomena generated by inadequacy of legitimacy. Ehrenberg and Smith (2016) opine that legitimate literature proposes that the survival of a particular corporation relies on process of legitimation procedures and on the way unremitting pressures as well as challenges can be handled. However, the primary purpose of the procedure of legitimation is to acquire and maintain the approval of the shareholder. In addition to this, legitimacy theory provides researchers as well as wider public a proper way to analytically unpack corporate disclosures. Nevertheless, the comprehension with the study of the specific theory can become more refined, drawing on expansion within the prior literature.
Base of Legitimacy Theory
The prior academic themes on legitimacy theory and social agreements states that disclosures might be used by different corporations in order to demonstrate to the entire society that they are necessarily fulfilling their obligations to all the stakeholders of the firm. Miller and Power (2013) asserts that the legitimacy theory proposes that the corporations persistently seek to institute congruence between social values associated with or else implied by organizational activities along with the community and bounds instituted by the community of which they are a fraction. However, the need to show that a corporation is functioning in a socially acceptable way is considered to be at the base of this specific legitimacy theory.
It is anticipated corporations engaged in social as well as environmental events might probably affect apparent legitimacy. This can direct firms to undertake disclosure stratagem to illustrate and at the same time excuse any negative facets of corporate performance. The firms also need to undertake actions in order to redirect the overall attention of the corporation in a bid to maintain community’s level of acceptance of their actions. Tucker and Hoque (2017) opine that legitimacy can be considered to be a status or else condition that are necessarily an outcome of community’s collective perception regarding the operation of the corporation. However, it is a social evaluation or else process of assessment of the overall corporate conduct that is regarded to be acceptably, apt and the same time desirable.
Research question that can be posted for the study is as presented below:
-Does industry profile influence the voluntary environmental disclosure?
Environmental disclosures also increased at the time when various environmental events along with penalties became the main focus of the media attention. However, major corporate incidents such as poisonous gas emissions, spilling of oil or else chemical leakages can take place in the society. Essentially, this leads to high environmental, financial as well as social consequences to both the corporation along with the wider community. In this case, from the corporation’s standpoint community response might possibly include legal limit, enhanced difficulty accessing both financial and non-financial resources and diminished demand. In particular, in such cases whereby community perceives that a corporation’s cost is higher than its own benefit to community, a corporation might risk sanctions forced upon by the community to continue to own and make use of resources and finally its very existence might get threatened (Henderson et al. 2015). On the contrary, the corporations that manage to properly communicate
Legitimacy theory essentially offers an effective mechanism for comprehending voluntary social as well as environmental disclosures specifically and as a notion in general. The legitimacy theory can become one of the most significant theories within both the social as well as environmental area. This is essentially not an issue for the entire theory and the entire observation can be equally implemented to a wide range of different theories in a range of diverse disciplines. Corporations intend to manage the legitimacy as it assists in ensuring the persistent capital flow, labour as well as customers necessary for viability. In addition to this, this also forestalls regulatory actions by the state that probably might occur in the nonexistence of legitimacy. As rightly indicated by Mouritsen (2014), legitimacy might be threatened by a specific event and thus call for the need for defence. Legitimation actions have the tendency to be both intense and at the same time reactive since management attempts to defend the threat. Even excluding a major event, it is probable in the Western Capitalist System that more or less every company might need to defend the legitimacy, by the plain fact that the companies need to satisfy both competences with community requirement in a bid to realize legitimacy.
Australia is anticipated to surpass the overall emissions reductions in order to meet the target by 2020 by around 97 Mt CO2. This is also on addition to the carryover of approximately 128 Mt of CO2 –e (Abs.gov.au 2017). There are different facets that contribute towards the changes in environmental score. This essentially includes the inclusion of abatement during the period 2021 to the year 2030 from present contracts under the Australia’s Emissions Reduction Fund. The other important factor includes commitment of the government to a huge scale renewable energy target of nearly 33000 GWh (Abs.gov.au 2017). Again, the declarations of the forthcoming closure of Hazelwood power station situated in Victoria also contributed towards the environmental change of score. Again, flatter demand for electricity than formerly projected owing to enhancement in energy efficiency and revised anticipations for growth in specifically renewable generations also lead to change in climate score.
The current study helps in understanding the legitimacy theory with special orientation to environmental factors (change in climate) based on the review of the available literature. The first part of the current study refers to the practical as well as theoretical motivation that helps in understanding climate change, potential sources of carbon emissions and environmental degradation, societal concern for environmental concerns, government regulations increasing pressure to demonstrate the commitment to minimize the contribution
(Plumlee et al. 2015). Moving further, the study presents a detailed review of literature and presents a hypothesis for the study. This essentially provides theoretical constructs along with operational proxies (Raida Chakroun et al. 2017).
Corporations with record of good performance when encounters legitimacy problems set challenging targets. However, corporations with records of bad performance when face legitimacy problems seek to alter attitudes regarding what are acceptable.
References
Abs.gov.au. 2017. Australian Bureau of Statistics, Australian Government. [online] Available at: https://www.abs.gov.au [Accessed 4 Sep. 2017].
Ehrenberg, R.G. and Smith, R.S., 2016. Modern labor economics: Theory and public policy. Routledge.
Fernando, S. and Lawrence, S., 2014. A THEORETICAL FRAMEWORK FOR CSR PRACTICES: INTEGRATING LEGITIMACY THEORY, STAKEHOLDER THEORY AND INSTITUTIONAL THEORY. Journal of Theoretical Accounting Research, 10(1).
Glozer, S., Caruana, R. and Hibbert, S.A., 2014, January. Constructing Legitimacy in Online Corporate Social Responsibility Communication. In Academy of Management Proceedings (Vol. 2014, No. 1, p. 15051). Academy of Management.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Lanis, R. and Richardson, G., 2016. A Reply to Corporate Social Responsibility and Tax Aggressiveness: A Test of Legitimacy Theory. Social and Environmental Accountability Journal, 36(1), pp.90-92.
Menassa, E. and Brodhäcker, M., 2017. Grounded in legitimacy theory and deductive in nature, this paper uses content analysis of annual report social disclosures of 169 German ‘universal’banks belonging to three different categories (credit, saving, and cooperative) to report on the type and quantity of social disclosure by these banks, and to test seven hypotheses related to the nature of their social disclosures and their association… Journal of Management & Governance, 21(1), pp.119-143.
Miller, P. and Power, M., 2013. Accounting, organizing, and economizing: Connecting accounting research and organization theory. Academy of Management Annals, 7(1), pp.557-605.
Mouritsen, J., 2014. Discussion of “Accounting and Sweatshops: Enabling Coordination and Control in Low?Price Apparel Production Chains”. Contemporary Accounting Research, 31(2), pp.347-353.
Mousa, G.A. and Hassan, N.T., 2015. Legitimacy Theory and Environmental Practices: Short Notes. International Journal of Business and Statistical Analysis, 2(1), pp.41-53.
Noronha, C., Guan, J.J. and Leung, T.C.H., 2014. Further challenges to the legitimacy theory: Corporate social disclosure of the Chinese and Japanese tobacco industries. Working Paper.
Raida Chakroun, Hamadi Matoussi, Sarra Mbirki, 2017. “Determinants of CSR disclosure of Tunisian listed banks: a multi-support analysis”, Social Responsibility Journal, Vol. 13 Issue: 3, pp.552-584, https://doi.org/10.1108/SRJ-04-2016-0055
Rogowski, R., 2015. Rational legitimacy: A theory of political support. Princeton University Press.
Tucker, B. and Hoque, Z., 2017. Mixed methods for understanding accounting issues. The Routledge Companion to Qualitative Accounting Research Methods, p.301.
Plumlee, M., Brown, D., Hayes, R.M. and Marshall, R.S., 2015. Voluntary environmental disclosure quality and firm value: Further evidence. Journal of Accounting and Public Policy, 34(4), pp.336-361.
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