The Relationship between Sustainability Performance and Sustainability Disclosure – Reconciling Voluntary Disclosure Theory and Legitimacy Theory

41 Pages Posted: 17 Apr 2015 Last revised: 2 Dec 2016

Date Written: June 24, 2016

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.

Keywords: disclosure quality, sustainability performance, legitimacy theory, voluntary disclosure theory

JEL Classification: M14, M40

Suggested Citation

Hummel, Katrin and Schlick, Christian, The Relationship between Sustainability Performance and Sustainability Disclosure – Reconciling Voluntary Disclosure Theory and Legitimacy Theory (June 24, 2016). Journal of Accounting and Public Policy, Vol. 35, pp. 455-476. Available at SSRN: https://ssrn.com/abstract=2595045 or http://dx.doi.org/10.2139/ssrn.2595045

Katrin Hummel (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

Christian Schlick

Independent

No Address Available

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