This paper serves as an introduction to this special issue of Accounting, Auditing & Accountability Journal; an issue which embraces themes associated with social and environmental reporting (SAR) and its role in maintaining or creating organisational legitimacy. In an effort to place this research in context the paper begins by making reference to contemporary trends occurring in social and environmental accounting research generally, and this is then followed by an overview of some of the many research questions which are currently being addressed in the area. Understanding motivations for disclosure is shown to be one of the issues attracting considerable research attention, and the desire to legitimise an organisation’s operations is in turn shown to be one of the many possible motivations. The role of legitimacy theory in explaining managers’ decisions is then discussed and it is emphasised that legitimacy theory, as it is currently used, must still be considered to be a relatively under‐developed theory of managerial behaviour. Nevertheless, it is argued that the theory provides useful insights. Finally, the paper indicates how the other papers in this issue of AAAJ contribute to the ongoing development of legitimacy theory in SAR research.

Introduction: The legitimising effect of social and environmental disclosures – a theoretical foundation

The impact of culture and governance on corporate social reporting

This study provides an integrated analysis of the interrelations among (1) environmental disclosure, (2) environmental performance, and (3) economic performance. Based on the argument that management's (unobservable) overall strategy affects each of these corporate responsibilities, we conjecture that prior literature's mixed results describing their interrelations may be attributable to the fact that researchers have not considered these functions to be jointly determined. After endogenizing these corporate functions in simultaneous equations models, we obtain results that suggest “good” environmental performance is significantly associated with “good” economic performance, and also with more extensive quantifiable environmental disclosures of specific pollution measures and occurrences.

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The relations among environmental disclosure, environmental performance, and economic performance: a simultaneous equations approach

Much of the extant research into why companies disclose environmental information in the annual report indicates that legitimacy theory is one of the more probable explanations for the increase in environmental disclosures since the early 1980s. Legitimacy theory is based on the idea that in order to continue operating successfully, corporations must act within the bounds of what society identifies as socially acceptable behaviour. The purpose of the practical research undertaken and reported in this paper is to extend the applicability and predictive power of legitimacy theory by investigating to what extent annual report disclosures are interrelated to: attempts to gain, maintain and repair legitimacy; and the choice of specific legitimation tactics. The quasi‐experimental method adopted utilised semi‐structured interviews with senior personnel from three large Australian public companies. The findings indicated support for legitimacy theory as an explanatory factor for environmental disclosures. Moreover, findings about the likelihood of specific micro‐legitimation tactics being used in response to legitimacy threatening environmental issues/events, and dependent on whether the purpose of the response is designed to gain, maintain or repair legitimacy, are reported.

Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory

This paper reports the results of an exploratory study of inter‐coder reliability of annual report social and environmental disclosures content analysis. Using the sentence‐based coding instruments and decision rules from Hackston and Milne (1996), this study reports the co‐agreement levels reached by three coders over five rounds of testing 49 annual reports. The study also provides a commentary on the implications of formal reliability analysis for past and future social and environmental disclosures content analyses, and the complexities of formal reliability measurement. The overall findings suggest that the coded output from inexperienced coders using the Hackston and Milne approach with little or no prior training can be relied on for aggregate total disclosures analysis. For more detailed sub‐category analysis, however, the findings suggest a period of training for the less experienced coders with at least 20 reports appears necessary before their coded output could be relied on.

Exploring the reliability of social and environmental disclosures content analysis

This paper analyses the environmental disclosure practices of Australian corporate entities. The paper documents three separate but related investigations. First, in a review of a sample of annual reports for the 1991 financial year, it is apparent that environmental disclosure practices adopted by the sample are self-laudatory, with companies promoting positive aspects of their environmental performance, but failing to disclose negative aspects. Second, in a review of corporate disclosure practices in the period 1980 to 1991, environmental disclosure made by the sample significantly increases across time. This change is linked to an apparent increase in societal concern relating to environmental issues. Finally, using a questionnaire administered to environmental lobby groups, it appears that the extent of corporate environmental disclosure is positively associated with the environmental lobby groups' concern about the environmental performance of companies within particular industries.

Ben Gordon

Papers

A Study of the Environmental Disclosure Practices of Australian Corporations