Strategic posture, financial performance and environmental disclosure: An empirical test of legitimacy theory

Purpose – The objective of this paper is to test Ullmann’s hypothesis that strategy posture, modified by financial performance, must be considered in light of stakeholder power in order to understand a company’s social responsibility disclosure policy. Design/methodology/approach – This study in this paper uses regression analysis to examine annual report disclosure of environmental information after a major accident in the mining industry. A multiple-item disclosure score is tailored to the Canadian accounting environment, and used as a dependent variable. Findings – This paper finds that companies that maintain themselves in the public eye through press release activity disclose more information than other companies. However there is no evidence to suggest that disclosure content is moderated by financial performance. Companies that obtained external financing one year after the accident made more disclosure than other companies. The significance of the external financing variable is evident when disclosure is restricted to discretionary or non-financial items, but disappears if the dependent variable represents mandatory financial items. Research limitations/implications – The paper shoes that while Ullmann addressed the matter of actual social responsibility performance, in addition to disclosure, this paper does not examine performance. Furthermore, press release activity is only one type of strategic posture. Future work that employs some other measure may yield additional insight into the decision-making process. Originality/value – Prior study of Ullmann’s work has not considered the interactive impact of profit and strategic posture. Furthermore, the actual nature of the disclosure, voluntary versus mandatory, has not been specifically examined. This paper addresses both of these issues.