Corporate Environmental
Disclosure: Contrasting
Management’s Perceptions
with Reality
ABSTRACT. This paper’s purpose is to assess how
management’s perceptions regarding certain aspects of
environmental reporting relate to the firm’s actual
reporting strategy. Toward that end, we propose a
model where a firm’s environmental disclosure is
conditional upon executive assessments of corporate
concerns. The study relies on a survey that was sent
Denis Cormier, FCGA, is a Professor of Accounting in the
Department of Accountancy at the Université du Quebec
à Montreal [UQAM]. Dr. Cormier has published in
many journals including Accounting, Auditing and
Accountability Journal, Journal of Accounting and
Public Policy, European Accounting Review,
Journal of Accounting, Auditing and Finance,
Journal of Accounting Literature, Accounting,
Business and Financial History, Research in
Accounting Regulation, The Journal of Financial
Statement Analysis, Canadian Journal of
Administrative Sciences, Ecological Economics,
Journal of International Accounting, Auditing and
Taxation, International Journal of Technology
Management. His areas of research include environ-
mental accounting, international accounting, financial
statement analysis and corporate governance.
Irene M. Gordon, FCGA, is an Associate Professor of
Accounting in the Faculty of Business Administration,
Simon Fraser University. Her publications have appeared
in such journals as Contemporary Accounting
Research, Accounting, Auditing and Account-
ability Journal, International Journal of Social
Economics, Land Economics and Issues in
Accounting Education. She is also an associate editor
of Canadian Accounting Perspectives. Dr. Gordon’s
areas of research include accounting for the environment
and sustainable development, corporate social responsi-
bility, the accounting-economics interface, accounting
education, and performance and success issues related to
small business.
Journal of Business Ethics 49: 143–165, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Denis Cormier
Irene M. Gordon
Michel Magnan
to environmental management executives from
European and North American multinational firms
enquiring about the determinants of corporate envi-
ronmental disclosure. Responses from these executives
were then contrasted with their firms’ actual envi-
ronmental reporting practices, which was measured
using a comprehensive multi-criteria grid. Results
show that there is a relationship between environ-
mental managers’ attitudes toward various stakeholder
groups and how those managers respond to the
stakeholders via the decision to disclose and the actual
disclosures made. Our model provides a perspective
as to how a firm responds to the numerous stake-
holders to whom it must be accountable. This
accountability in turn relates to how the company
Michel Magnan is Associate Dean and The Lawrence
Bloomberg Chair in Accountancy at the John Molson
School of Business of Concordia University where he
teaches both financial and managerial accounting. Dr.
Magnan obtained his Ph.D. from the University of
Washington (Seattle) and he is a Fellow Chartered
Accountant (Canada). He is the author or coauthor of
several articles on topics such as executive compensation,
environmental performance and reporting, financial state-
ment analysis, accounting ethics and international
accounting. His articles have appeared in such journals
as Journal of Accounting and Public Policy,
Journal of Accounting, Auditing and Finance,
Strategic Management Journal, Journal of
Management Inquiry, European Accounting
Review, Research in Accounting Ethics, Journal
of Business Ethics, Ecological Economics,
Industrial Relations and Canadian Journal of
Administrative Sciences. He has also extensive
professional publications, both in Canada and in Europe.
He is currently Associate Editor of Contemporary
Accounting Research as well as Education Editor for
CA Magazine.
144 Denis Cormier et al.
communicates its actions to society in order to achieve
or maintain its social legitimacy.
KEY WORDS: environmental disclosure, legitimacy
theory, media exposure, stakeholder theory
Introduction
In this paper we examine how environmental
managers perceive the value of various environ-
mental stakeholders and how those perceptions
relate to firms’ environmental reporting. Our
study is motivated by views that the stakeholder
problem should be investigated from a perspec-
tive that examines the interconnectedness of
actions and reactions:
[A] comprehensive theory of the firm requires not
only an explanation of stakeholder influences but
also how firms respond to these influences.
Furthermore, to describe how organizations
respond to stakeholders, scholars must consider the
multiple and interdependent interactions that
simultaneously exist in stakeholder environments
(Rowley, 1997, p. 887).
There are at least two reasons why manage-
ment’s perceptions of stakeholders warrant inves-
tigation. First, understanding how management’s
perceptions directly influence corporate envi-
ronmental disclosures will assist standard setters
in better comprehending how to effect change
in such disclosures. Second, this type of research
provides insight into the general disclosure
process. By understanding management’s discre-
tionary disclosures as reactions to their environ-
ment and stakeholders’ demands, we gain insight
into why certain types of information are
provided by some firms but not by others. The
basis of our study is provided by the theories of
legitimacy and stakeholders.
Legitimacy and stakeholder theories
A social contract represents an association that
organizations or individuals freely enter into and
that has the ability to increase society’s welfare
(Rousseau, 1762/1975). Such contracts provide
the means for the inclusion of social preferences
into business performance (Shocker and Sethi,
1974; Mathews, 1997). Successfully meeting
its social contracts provides evidence that an
organization’s goals are congruent with society’s
goals, thus providing the organization with
legitimacy. To achieve or maintain legitimacy, the
organization must take action and society must
know what action was taken.
Several authors have categorized the actions an
organization may take to enhance its legitimacy.
For example, Dowling and Pfeffer (1975) and
Luthans (1985) each provide three categories
while Lindblom’s 1992 paper (as cited by Gray
et al., 1995) outlines four categories. Dowling
and Pfeffer’s categories are:
First, the organization can adapt its output, goals
and methods of operation to conform to prevailing
definitions of legitimacy. Second, the organization
can attempt, through communication, to alter the
definition of social legitimacy so that it conforms
to the organization’s present practices, output,
and values. Finally, the organization can attempt,
again through communication, to become identi-
fied with symbols, values, or institutions which
have a strong base of social legitimacy (1975, pp.
126–127).
In two of Dowling and Pfeffer’s three cate-
gories, communication plays an instrumental
role. A primary source of organizational com-
munication takes the form of information
supplied to society via annual and environmental
reports.
Legitimacy provides a general framework in
which to examine how a firm responds to its
environment and society. However, within that
society there are many groupings of individuals.
Commonly, these groups have come to be iden-
tified as “stakeholders.”
A stakeholder as defined by Freeman (1984)
“is any group or individual who can affect or is
affected by the achievement of the organization’s
objectives” (p. 46). Using Boulding’s 1978
argument, Husted (1998, p. 647) notes that to
survive, institutions and organizations must “take
their legitimacy seriously” and that stakeholder
management makes a somewhat vague notion
concrete. It is the coupling of legitimacy theory
 Corporate Environmental Disclosure
(a macro framework) with stakeholder theory (a
micro framework) that helps to explain a firm’s
specific actions. Our model is built on these two
theories.
Background literature
In this section we outline relevant research in
three areas and provide a summary of how this
research relates to our model.
1. Legitimacy
Legitimacy theory forms the basis for several
studies that have examined social responsibility
and environmental disclosures using annual and
environmental reports (Brown and Deegan,
1998). These studies have included examinations
of a single firm over time (e.g., Hogner, 1982;
Guthrie and Parker, 1989; Buhr, 1998), a com-
parison among firms (e.g., Cormier and Gordon,
2001) and how single events have influenced
environmental disclosures (e.g., Patten, 1992).
With respect to legitimacy, the findings from
these studies are mixed as to how well the theory
explains firms’ social and environmental disclo-
sures. In his study of U.S. Steel Corporation,
Hogner (1982) found a link between social dis-
closures and the community’s expectations about
the firm’s social performance. Patten’s (1992)
study found that when the Exxon Valdez oil spill
occurred, this event resulted in oil companies
increasing their environmental disclosures in their
annual reports. However, Gurthrie and Parker
(1989) found in their examination of one
Australian company that except for environ-
mental social reporting, legitimacy theory failed
to explain most social disclosures.
Two studies that examined environmental dis-
closures in a legitimacy context have both found
some support for legitimacy as a reason for
making environmental disclosures. In a Canadian
context, Neu et al. (1998) examined three main
issues: the influence of external groups on envi-
ronmental disclosures as measured by the amount
and types of these in annual reports; the rela-
tionship of environmental disclosures to envi-
145
ronmental performance; and the relationship of
environmental to other social disclosures. Neu et
al. (p. 279) indicate that their findings support
the view that “in situations of conflicting inter-
ests, organizations attempt to communicate legit-
imating characteristics to the most important
relevant publics and to defy or ignore less impor-
tant publics.”
In a study of Australian CFOs, Wilmshurst and
Frost (2000) found significant correlations
between their companies’ environmental disclo-
sures and factors these managers rated as impor-
tant. As an explanation of the relationship
between managers’ decision processes and
the companies’ environmental disclosures,
Wilmshurst and Frost concluded that limited
support for legitimacy theory was provided by
their findings.
2. Disclosures in a stakeholder context
Several studies have empirically examined the
determinants of social disclosures in a stakeholder
context. Using Ullman’s 1985 stakeholder frame-
work, Roberts (1992) provided evidence on the
relationship between a firm’s overall strategy and
the level of its social responsibility disclosures.
Roberts’ findings indicate that stakeholder theory
allows the analysis of “the impact of prior
economic performance, strategic posture toward
social responsibility activities, and the intensity
of stakeholder power on levels of corporate social
disclosure” (1992, p. 610).
Ruf et al. (2001) investigated the relationship
between a corporation’s social performance (the
independent variable) and its financial perfor-
mance (the dependent variable). Using a four-
year period (1991 through 1995), the changes in
these two variables were examined using regres-
sion analysis for 488 firms. The findings suggest
that there is a relationship between these two
performance indicators. Ruf et al.’s interpretation
of their results is that shareholders, the primary
stakeholders, benefit when managers meet the
concerns of other stakeholder groups.1
146 Denis Cormier et al.
3. Management’s perception of stakeholders
Stakeholders have the ability to affect a firm’s
activities or plans and managers must respond to
these groups. This response is called “stakeholder
management” (Husted, 1998, p. 647) and results
in a structure where specific managers are made
responsible for ensuring that certain stakeholder
groups’ needs and views are continually brought
to the attention of the organization (Freeman,
1984, p. 233). This structure calls for individual
managers to be assigned responsibility for specific
stakeholders. In this setting it is reasonable to
assume that a manager’s reactions will be
tempered by her/his attitudes toward the stake-
holders.
The stakeholder theory-based research has
provided some examinations of managers’ atti-
tudes toward stakeholders’ perceptions. Lerner
and Fryxell (1994) explored CEOs’ attitudes
toward stakeholders that affect the actions under-
taken by a firm with respect to social activities.
The overall findings were weaker than anticipated
with only corporate philanthropy showing a
positive relationship with CEO’s attitude toward
the community.
Two stakeholder studies have analyzed the
specific relationship between managers and their
environmental commitment. Henriques and
Sadorsky (1999) classified 400 Canadian firms
into four categories (proactive, reactive, accom-
modative and defensive) based on the environ-
mental profile of each firm. These profiles were
then used to determine whether the sample firms
differed with respect to the perceived relative
importance of stakeholders. The major finding
was that more environmentally proactive firms
differed from their less proactive counterparts in
the perception of the relative importance of
stakeholders. In another study, Harvey and
Schaefer (2001) used a comparative case study
approach to examine the relationship of six U.K.
water and electrical utilities with their “green”
stakeholders. Institutional stakeholders (e.g., gov-
ernment and regulators) were found to be the
most influential groups although customers and
the general public were also considered impor-
tant. However, Harvey and Schaefer found that
economic stakeholders were not considered to be
interested in the utilities’ environmental perfor-
mance. Generalizability of both these studies’
findings is limited by their national contexts.
Additionally, neither study provides a model that
may be used in future studies.
4. Summary
For our research, the macro framework is
provided by legitimacy theory through the idea
that contracts exist between firms and society.
This leads to the necessity for firms to commu-
nicate their performance to various societal
groups in order to achieve or maintain their
legitimacy. These points are relevant to our paper
because we are interested in modelling what
affects a firm’s environmental performance and
the reporting of that performance to society.
While previous research studies have explored
some aspects of this relationship, there remains
the task of modelling this relationship in a stake-
holder, multi-national setting.
Stakeholder theory provides the micro frame-
work in which specific, identifiable groups
may be interested in a firm’s environmental activ-
ities. This is pertinent to our study because
depending on what is examined, the relevant
stakeholders differ both in definition and impor-
tance. For example, Agle et al. (1999, p. 520) find
that:
[T]he salience of stakeholders that are part of the
traditional production function view of the firm –
shareholders, employees, and customers . . . – is
higher than that of stakeholders that are part of the
expanded stakeholder view of the firm: govern-
ments and communities.
Other researchers, such as Harvey and Schaefer
(2001), rate government and regulators above
customers in importance.
While relevance of individual stakeholder
groups varies across studies, stakeholder
researchers agree on two fundamental points.
First, organizations must address stakeholder
expectations (Rowley, 1997) and second, “stake-
holder management requires, as its key attribute,
simultaneous attention to . . . all appropriate
stakeholders” (Donaldson and Preston, 1995,
 Corporate Environmental Disclosure
p. 67; see also Freeman, 1984; Lerner and
Fryxell, 1994). The balancing of stakeholder
interests will affect management’s decisions
(Rowley, 1997, p. 889). In our model, several
stakeholders are included as parties likely to be
interested in firms’ environmental activities.
Environmental managers will need to be cog-
nizant of these groups and their interests to
maintain the legitimacy of their firms.
Lerner and Fryxell (1994) have argued and
provided evidence that managers’ attitudes
toward various stakeholder groups provide an
indication of how the managers’ will respond to
these groups. For our model this means that how
managers perceive each stakeholder group’s value
will be an important consideration.
Rowley (1997, p. 889), citing research by
Brenner and Cochran (1991), indicates that a
complete stakeholder theory should describe and
predict firms’ operations under differing condi-
tions. We think our model provides a way to
explore these aspects of management-stakeholder
relationships.
A stakeholder model of environmental
reporting
From the legitimacy and stakeholder theories, we
see that a firm’s managers must communicate to
various groups to achieve, or protect, legitimacy.
According to Rowley (1997, p. 890) “the main
objectives in stakeholder research have been to
identify who a firm’s stakeholders are and to
determine what types of influences they exert.”
In our model we shift the focus with respect to
environmental disclosures to ask: “How is man-
agement’s decision to make environmental dis-
closures related to groups of stakeholders and
management’s perceptions of those groups’
importance?”
Disclosure in our model is defined as the
information communicated to stakeholders via a
firm’s annual and environmental reports. There
are other strategies available to managers to deal
with a firm’s stakeholders so that a firm achieves
legitimacy. However, we have chosen the com-
munication method that is public, widely avail-
able and that provides a permanent record of the
147
activities a firm’s management has chosen to
reveal. In any model, the variables used represent
methodological choices. The type of disclosure
used in our model is one such choice as is the
manager of interest.
Lerner and Fryxell (1994) used CEOs as
the management focal point in their study
of managers’ attitudes towards stakeholders.
However, their findings were weak. We think
that this may have been due to two problems.
First, they focused on “social activity” which
may be too broad to find the manager-stake-
holder relationships they hypothesized. Second,
while CEOs are ultimately responsible for firm
strategy, we think that studying managers who
are assigned direct responsibility for certain activ-
ities of interest to identifiable stakeholder groups
may provide stronger results (Freeman, 1984).
Thus we propose a model to be used to study
executives (i.e., environmental managers) who
have been assigned the responsibility to commu-
nicate their firms’ environmental activities to
external stakeholders. Our corporate environ-
mental reporting model is provided in Figure 1.
Our focus on environmental managers could
be challenged because the responsibility to set a
firm’s disclosure policies resides in the Board of
Directors. However, we think that environmental
managers should be the focus of attention with
respect to environmental disclosures since they
are the managers who implement the broad dis-
closure policies established by the Board and
communicated by the CEO to other managers.
That is, there is a chain of decision-making
beginning with the Board that considers stake-
holders’ interests and then directs the CEO to
address these concerns. Since the CEO’s perfor-
mance is partially a function of her/his success
in addressing the Board’s and stakeholders’
concerns, she/he has an incentive to direct
her/his subordinates to take actions that are con-
sistent with her/his interests and the Board’s
interests. Once an environmental manager has
taken action in matters of reporting, this flows
back to the CEO and the Board (via the audit
committee or the environmental committee)
who approve what is disclosed externally.
Environmental managers then are the individ-
uals who make the day-to-day implementation
148 Denis Cormier et al.

Figure 1. A model for corporate environmental reporting.

decisions that ultimately affect the actions taken
and are reflected in the disclosures to stake-
holders.
In the model, we propose six stakeholder
groups as those most likely to be concerned with
the firm’s environmental record. These groups
are: investors, lenders, suppliers, customers, gov-
ernments and public. All of these groups have
been of interest in one or more previous studies
(e.g., Woodward et al., 1996; Agle et al., 1999)
and have been argued to be important to com-
panies as stakeholders and consumers of company
disclosures (Leighton and Thain, 1997; Lev
1992). Our choice of a broad range of stake-
holders follows from Leighton and Thain (1997,
pp. 42–44). Their argument is that Boards of
Directors are inherently political and their task
is to balance interests of many stakeholders. As
noted, it is important to the performance of the
environmental manager that she/he be seen to
address the Board’s and CEO’s concerns with
respect to stakeholders.
Each of our stakeholder groups is included
for specific reasons. Investors, or shareholders,
 Corporate Environmental Disclosure
represent a primary stakeholder group who may
lose their investment if a firm acts irresponsibly
with respect to the environment. Lenders (cred-
itors) are important stakeholders because they
have the ability to recall loans or prevent the
extension of further credit. Suppliers and cus-
tomers are important stakeholder groups that
form part of the production chain and who
depend on other firms for their survival or con-
sumption. As regulators and overseers of com-
pliance with environmental laws and rules,
governments form an important stakeholder
group. Finally, the public represents a broad
group of stakeholders interested in how firms are
using scarce environmental resources. In our
stakeholder model, we think that the value envi-
ronmental managers perceive for each of these
groups will be reflected in their firms’ environ-
mental disclosures. Thus it will be necessary to
measure the managers’ assessment of these
groups’ importance.
However, it is nonsensical to examine envi-
ronmental managers’ assessments of stakeholders
in a vacuum. Instead we also need to know what
these managers see as their firm’s corporate
concerns. These concerns cover the general
business environment in which the firm operates
and vary from providing stakeholders with a true
and fair representation of a company’s operations
to reporting on the company’s ability to meet its
obligations or compliance with relevant envi-
ronmental regulations (Wilmshurst and Frost,
2000). How a manager assesses the importance
of these corporate concerns will affect a firm’s
environmental disclosures.
Related to a manager’s corporate concerns are
the financial conditions under which the firm
operates. In our model there are four variables
used to capture financial condition. The variables
are a firm’s indebtedness (measured as the ratio
of debt to equity), the return a firm earns on its
assets (measured as rate of return on assets), the
firm’s size (measured as total assets) and the firm’s
systematic risk (measured using beta). These vari-
ables influence environmental disclosure in two
ways. First, as a proxy for potential information
and proprietary costs, a firm’s financial condition
has a direct effect on environmental disclosure.
Second, a firm’s financial condition may affect
149
how its managers assess corporate concerns and,
hence, its environmental disclosure.
In our model, we include two additional
control variables. These variables are media
exposure and the age of fixed assets. When
directed toward firms, media attention has been
found to relate to environmental disclosures
(Cormier and Gordon, 2001) and needs to be
included to avoid a missing variable problem. If
this variable is omitted, then it may seem that
managers’ environmental disclosures are more
related to corporate concerns and the assessed
importance of certain stakeholders than they
actually are. The age of fixed assets is included
because previous work has found a relationship
between this variable and a firm’s environmental
performance (Freedman and Jaggi, 1992). That
is, the older a firm’s fixed assets, the more diffi-
cult it will be for a company to meet environ-
mental regulations or laws. In a way similar to
financial condition, both control variables affect
environmental disclosure directly and indirectly.
The resulting environmental disclosures affect
the firm’s legitimacy within society. If the dis-
closures indicate that the firm has failed to meet
its social contract, then society will react nega-
tively to the firm. This would lead the firm’s
stakeholders to reassess their relationship with the
firm in various ways. For example, consumers
might boycott buying the firm’s products; gov-
ernment might fine or investigate the firm’s
activities; and lenders/investors might withdraw
their support for the firm in the financial markets
driving up the cost of capital and driving down
the price of shares. Such actions would lead
managers to re-evaluate their disclosures in future
periods.
The next section outlines steps taken to
examine the relationships proposed in our model.
Our examination employs descriptive statistics,
factor analysis and regressions.
Questionnaire development, the sample
and descriptive results
To test the relationships outlined in Figure 1, a
questionnaire was designed to ask corporate envi-
ronmental managers their impressions and views
150 Denis Cormier et al.
regarding their firm’s environmental reporting
strategy.2 Eight questions were asked using a
combination of fill-in the blanks, rankings and
five-point Likert scale questions. Seven of these
questions are used in this study and are presented
here.
Two questions addressed background infor-
mation such as identifying the respondent and
who was responsible for the selection of envi-
ronmental disclosures as well as where those
disclosures should appear. The third and fourth
questions were based on a theoretical framework
found in a 1999 discussion paper by the
Fédération des experts comptables européens
(FEE). The third question provided respondents
with seven statements concerning stakeholder
groups and asked respondents to indicate their
level of agreement or disagreement. The fourth
question called for respondents to provide their
level of agreement with five statements regarding
the assumptions (e.g., going concern, timeliness,
understandability) behind environmental dis-
closures.
Following on the work of Wilmshurst and
Frost (2000), the fifth question uses a four-point
scale where respondents were asked to rank ten
elements of disclosure relative to environmental
disclosures.3 The sixth question asked where the
firm reported environmental disclosures while
the last question asked whether any guidelines
were checked in making those disclosures.
Once the questionnaire was pre-tested, it was
sent to a group of 195 multinational firms. The
initial population is comprised of Canadian firms
previously analysed in Cormier and Magnan
(1999) as well as French and German firms listed
in the Datastream database. After two mailings of
the questionnaire, this resulted in a response rate
of 21% (or 41 firms). Only one manager
responded for each firm included in the sample
and there is no double counting of firms.
These 41 North American and European
multinational firms represent seven broadly
defined industries. These industries are: chemi-
cals, mines and metals, oil and gas, food and
consumer goods, pulp and paper, heavy industry,
and technology.
In addition to the environmental managers’
responses, further data were collected for each
sample firm. The additional data collected
included the firms’ reported financial numbers,
firm-specific characteristics, the number of envi-
ronmental disclosures made in each firm’s annual
and environmental reports for the year 2000 by
type of disclosure and the number of articles
published about a firm for the five year period
1996–2000. The results of the additional data
collected are summarized in Table I, Panel A.
The descriptive statistics in Panel A (Table I)
indicate that the sample firms are quite large in
terms of both sales and assets. There are varia-
tions among the sample firms in terms of their
long-term debt, riskiness (as measured by beta),
media exposure, foreign ownership and owner-
ship concentration. In terms of Canadian dollars
the “average” firm had over $11.7 billion in sales
with a net income of $484 million, total assets
of $13.5 billion, and long-term debt of $6.3
billion. The average age of assets was 10 years
(measured by the ratio of accumulated depreci-
ation divided by depreciation expense). In 2000
the average number of articles per firm found in
the media was 9.6 and over a five-year period
was 10.4. The average foreign ownership was
29% with 32% of the ownership concentrated on
average in a single party’s shareholdings.
Panel B supplies information concerned with
the location of the sample companies’ environ-
mental disclosures and whether environmental
guidelines were consulted in making these dis-
closures. The numbers given are listed as per-
centages of responding firms by country. The
annual report is the most common place for
Canadian (85%) and French (83%) companies to
provide their environmental disclosures while
German companies provide their information in
a separate environmental report (100%). The
finding that 50% of French companies provide
their disclosures in the actual financial statements
compared to only 8% of Canadian and 11% of
German companies is consistent with French
laws. In France, firms must make provisions for
risks such as those associated with the environ-
ment under the plan comptable général.
With respect to consultation of environmental
guidelines, German companies in this sample
were the most likely to consult. In particular,
78% of the German companies indicated con-
 Corporate Environmental Disclosure 151

TABLE I
Sample
Descriptive statistics

Panel A

Minimum Maximum Mean Std.

deviation

Sales (billions Canadian $) –0,014 191,116 11,776 36,674

Net Income (millions Canadian $) –1,148 003,296 00,484 00,862
Assets (millions Canadian $) –0,074 170,652 13,532 30,639
Long term debt (millions Canadian $) –0,007 058,835 06,359 14,055
Age of fixed assets (years) 01.21 73.34 10.03 12.84
Beta 00.11 01.78 00.55 00.34
Media exposure (number of articles)
Year 2000 00.00 102 09.63 23.04
Average 1996–2000 (5 years) 00.00 137 10.42 25.29
Foreign ownership 00.00 01.00 00.29 00.46
Concentrated ownership 00.00 01.00 00.32 00.47

Panel B

Responses in percentages by country Canada Germany France Total

and sample for reporting media sample
and guidelines consulted:

Annual report 85 044 83 76

Financial statements 08 011 50 15
Environmental report 35 100 50 51
Internet 61 067 83 66
United Nations Environmental Program 31 044 17 32
Global Environmental Management
Initiative, Int’l Chamber of Commerce 15 022 00 15
World Business Council for
Sustainable Development 38 044 17 37
Coalition for Environmentally
Responsible Economics 15 022 00 15
Public Environmental Reporting Initiative 23 000 00 15
European Union Eco-Management and
Audit Scheme 12 078 33 29
Global Reporting Initiative 15 044 17 22
152 Denis Cormier et al.
sulting the European Union Eco-Management
and Audit Scheme (EMAS) with 44% consulting
each of the United Nations Environmental
Program (UNEP), World Business Council for
Sustainable Development (WBSCD) and GRI
(Global Reporting Initiatives) guidelines. This is
compared with only 33% of French firms con-
sulting the EMAS and 17% consulting the
WBSCD. The guidelines consulted by the largest
percentage of Canadian firms were the WBSCD
at 38% and the UNEP at 31%.
Table II provides descriptive information about
the range and means of the environmental
reporting scores for the sample taken from the
firms’ annual and environmental reports. In these
scores both quality and quantity of disclosures are
measured. Where information is deemed redun-
dant, it is excluded from the score. (See envi-
ronmental reporting grid in Appendix 1.) For the
total sample, the average score was approximately
86 with a range from 4 to 205. The total score
is composed of six categories of reporting. These
categories are expenditures and risk, laws and
regulation, pollution abatement, sustainable
development, remediation, and environmental
management. The average disclosure by category
ranges from a low of slightly less than four for
laws and regulation disclosure to a high of 19.80
for environmental management.
The results from Questions 3 and 5 of the
questionnaire are supplied in Table III. The
means of the executives’ assessment of stake-
holders’ interests provide a ranking of the exec-
utives’ preoccupation with the groups. The
TABLE II
Environmental reporting score
Minimum
Total score 4.00
Components:
• Expenditures and risk 0.00
• Laws and regulation 0.00
• Pollution abatement 0.00
• Sustainable development 0.00
• Remediation 0.00
• Environmental management 0.00
highest means are calculated for Lenders [4.34]
and the Public [4.34], followed by Investors
[4.02] and Customers [4.02]. Governments’
interests [3.58] only ranked slightly higher than
the interests of Suppliers [3.44]. To test whether
managers’ agreement with the statements indicate
these stakeholders’ interests are significantly
important, Bonferonni t-tests were run com-
paring the means to 3 (a neutral response). All
of the mean responses are significantly different
from the scale mid-point at the 0.01 level.
Table III also provides a summary of the exec-
utives’ assessment of corporate concerns. Using
the mean responses (scale 0 = unimportant to 3
= highly important), five of the ten concerns
were rated as important to highly important.
These concerns were providing a true and fair
view of operations [2.56], community concern
with operations [2.24], shareholder/investor
rights to information [2.24], financial institution
concerns [2.07] and fulfilling legal obligations
[2.07]. Three means were close to important
[= 2]: satisfying due diligence requirements
[1.95], customer concerns [1.80] and environ-
mental lobby group concerns [1.70]. Pre-
empting legally imposed regulations [1.34] and
supplier concerns [1.10] were considered to be
of only slight importance. Using Bonferonni t-
tests, all the means are significantly different from
1 (slightly important) at the 0.05 level or higher
with the exception of supplier concerns. These
results indicate that managers thought these items
were important corporate concerns.
Maximum Mean Std. deviation
205.00 86.37 57.06
040.00 13.12 11.35
020.00 03.71 05.13
069.00 17.83 17.00
039.00 09.88 10.27
036.00 08.44 08.21
088.00 19.80 20.90
 Corporate Environmental Disclosure 153

TABLE III
Survey responses
Descriptive statistics

Executive assessment of stakeholders’ interests and preoccupation

(5: Strongly agree; 4: Agree; 3: Neutral; 2: Disagree; 1: Strongly disagree)

Mean1 Std. dev.

Investors 4.02** 0.791

Lenders 4.34** 0.689
Suppliers 3.44** 0.838
Customers 4.02** 0.724
Governments 3.58** 1.094
Public 4.34** 0.617

Executive assessment of corporate concerns**

(3: highly important; 2: important; 1: slightly important; 0: unimportant)

Mean2 Std. dev.

True and fair view of operations 2.56** 0.634

Pre-empt legally imposed requirements 1.34** 1.039
Satisfy due diligence requirements 1.95** 1.047
Community concern with operations 2.24** 0.830
Financial institution concerns 2.07** 0.848
Legal obligations fulfilment 2.07** 1.104
Supplier concerns 1.10** 0.860
Customer concerns 1.80** 1.122
Environmental lobby group concerns 1.70** 1.031
Shareholder/investor rights to information 2.24** 0.734
1
**p < 0.01. P-value from a one-sample t-test to assess if the mean sample response is different from 3 (i.e.
neutral). Test value = 3.
2
**p < 0.01; *p < 0.05. P-value from a one-sample t-test to assess if the mean sample response is different
from 1 (i.e. slightly important). Test value = 1.

Factor analysis and correlations
To infer general trends, responses are analysed
using several different statistical methods. We
initially use principal components factor analysis
to examine the relationship among the
executives’ assessment of corporate concerns.
Spearman correlations are then used to examine
the relationships between the principal compo-
nent factors and the executive’s assessment of
stakeholders’ interests as well as between the
factors and firm-specific financial variables. Using
the coded environmental reporting strategies
(Cormier and Magnan, 2003), the responding
firms’ actual reporting strategy is mapped with
the managers’ responses as proxied by factor
scores. Finally, to get a better understanding of
this mapping, corporate environmental reporting
is split into its various components and TOBIT
regressions run for each component. The results
from these procedures are discussed in detail.
Table IV presents the results of the principal
components factor analysis applied to the exec-
utives’ assessments of corporate concerns. Using
0.50 as the cut-off for component matrix coef-
ficients, three factors emerge. The first compo-
nent, external concerns, has five variables loading
on it. These variables are true and fair view of
154 Denis Cormier et al.

TABLE IV
Firm-specific factors
Principal components factor analysis
Varimax rotated component matrix
(correlations > 0.50)

Variable Component 1 Component 2 Component 3

External concerns Legal concerns Product markets

True and fair view of operations 00.78

Pre-empt legally imposed requirements 00.63
Satisfy due diligence requirements 00.82
Community concern with operations 00.74
Financial institution concerns 00.73
Legal obligations fulfilment 00.84
Supplier concerns 00.84
Customer concerns 00.83
Environmental lobby group concerns 00.69 00.52
Shareholder/investor rights to information 00.74

Eigenvalue 02.81 02.19 01.86

Variance explained 28.06 21.86 18.63
Cumulative variance explained 28.06 49.92 68.55

operations, community concern with operations,
financial institution concerns, environmental
lobby group concerns and shareholder/investor
rights to information. The factor labelled legal
concerns is the second component with three
variables loading on it. These variables are
pre-empt legally imposed regulations, satisfy
due diligence requirements and legal obligations
fulfilment. The third component, product
markets, has three variables loading on it, one
of which also loaded onto the first factor. The
variables loading on product markets are supplier,
customer and environmental lobby concerns.
The three factors in Table IV explain 68 percent
of the cumulative variance and all have eigen-
values of 1.86 or higher.
To see whether these three factors are related
to managers’ assessment of stakeholders’ interests,
Spearman correlations are then used (Table V).
An examination of the significant correlations
makes intuitive sense. External concerns are sig-
nificantly correlated with lenders (0.05), the
public (0.05) and investors (0.10). Governments
(0.05), the public (0.05) and suppliers (0.10) are
highly correlated with legal concerns. The
product markets factor is correlated at a 0.05 level
with suppliers, customers and lenders.
Regression analyses
Tables VI and VII present the results from
two different types of regression, OLS and
TOBIT. These regressions allow analysis of the
relationships between the three factors and the
disclosure of environmental information. The
purpose of these regressions is to get a better
understanding of how responding firms’ actual
reporting strategy mapped with managers’
responses as proxied by the factor scores
(Table VI). A more precise understanding of this
mapping is provided in Table VII where corpo-
rate environmental reporting is split into its
various components and TOBIT regressions are
run for each component.4
Table VI provides the results of four OLS
regressions where the dependent variable is the
actual disclosures as coded from the firms’ annual
and environmental reports (see Table II). Three
sets of independent variables are considered sep-
 Corporate Environmental Disclosure 155

TABLE V
Spearman’s correlation matrix
Executive assessment of stakeholders’ interests and preoccupation and executive assessment of corporate concerns

Factor 1 Factor 2 Factor 3

External concerns Legal concerns Product markets

Investors 0.260** 0.200** –0.055**

Lenders 0.298** 0.143** –0.450**
Suppliers 0.196** 0.258** –0.314**
Customers 0.162** 0.042** –0.348**
Governments 0.110** 0.426** –0.223**
Public 0.406** 0.371** –0.140**

** Correlation is significant at the 0.05 level (two-tailed).

* Correlation is significant at the 0.10 level (two-tailed).

arately and then together through hierarchical
regressions: (1) three firm-specific factors
that capture executive assessments of corporate
concerns (external concerns, legal concerns and
product markets), (2) control variables, i.e., the
age of the fixed assets (depreciation expense/
accumulated depreciation) and media exposure
(average number of articles between 1996 to
2000), and (3) a firm’s financial condition (return
on assets, indebtedness, logAssets and beta).5
The predicted coefficient signs for the inde-
pendent variables are interpreted as follows. The
more concerned a company is about the external
concerns factor, the more environmental disclo-
sures it will make [+]. The legal concerns factor
is predicted to have a negative sign because if a
company is facing potential lawsuits or regula-
tory hearings, then it would not want to harm
its case which would result in fewer disclosures
[–]. If a company is concerned with the product
markets factor, this means that it will want to
protect proprietary information to prevent com-
petitors from knowing about its environmental
performance and thus will make fewer environ-
mental disclosures [–].
Freedman and Jaggi (1992, pp. 327–330)
provide evidence that there is a relationship
between the age of a firm’s plant assets and its
environmental performance. If a firm fails to
provide further information, investors may proxy
its pollution performance by the relative age of
its property, plant and equipment. The investors’
assumption is that the older these assets are, the
more they will pollute compared to newer assets.
Firms with older plant, property and equipment
assets will need to provide more extensive envi-
ronmental disclosures to ensure investors have a
clear understanding of the firms’ performance.
The prediction is that age of fixed assets will be
positively related to environmental reporting [+].
Media exposure is an average number of
articles for the period 1996 through 2000. The
reason we use an average for this variable is
because disclosures made in one year (e.g., 2000)
may be affected by the amount and types of
articles that have been published in the recent
past about a firm. We expect that as media
exposure increases, the company will increase its
environmental disclosures [+]. This increase in
disclosures may be due to the fact that the infor-
mation is already in the market and therefore dis-
closure in the annual/environmental reports does
not represent new information. Additionally, the
firm may increase its environmental disclosures
to counteract bad press or to emphasize good
press.
Finally, for the four variables that proxy for a
firm’s financial condition, we do not explicitly
predict the sign of the relationship between the
variable and environmental disclosure. These
variables capture potential information and pro-
prietary costs faced by a firm and its stakeholders
when making a disclosure decision (Cormier and
Magnan, 1999).
156 Denis Cormier et al.

TABLE VI
OLS estimate of firm’s specific factors in decision to disclose environmental information

Dependent variable: Environmental reporting

Variable Predicted sign

Intercept –86.37* 66.54 –167.78 –96.88

(0.000) (0.000) 0(0.150) (0.532)

Firm-specific factors
Factor 1: External concerns + –25.11 –20.43
(0.004) (0.036)
Factor 2: Legal concerns – –12.76 –10.66
(0.062) (0.118)
Factor 3: Product markets – –04.90 –00.74
(0.275) (0.473)

Control variables
Age of fixed assets + 00.86 –00.61
(0.007) (0.209)
Media exposure (5 year avg.) + 01.09 –00.63
(0.053) (0.063)

Financial condition variables

Return on assets ? –114.18 ––4.96
0(0.210) (0.964)
Indebtedness ? –116.56 –06.34
0(0.166) (0.616)
LogAssets ? –111.50 ––1.09
0(0.034) (0.879)
Beta ? 0–32.41 –27.40
0(0.289) (0.379)

Adjusted R-square –19.0% 13.7% –110.2% –16.2%

F statistic –04.14 04.18 –102.14 –01.86
P-value (0.013) (0.023) 0(0.096) (0.097)

Incremental F statistic:
• Control variables –02.09
(0.138)
• Financial condition
–00.23
(0.920)

* Coefficient (One-tailed p-value if predicted sign).

 Corporate Environmental Disclosure 157

TABLE VII
TOBIT coefficient estimates of firm’s specific factors in decision to disclose environmental information

Dependent variable: Individual environmental reporting components

Variable Expected Expenditure Laws and Pollution Sustainable Remediation Environmental

sign and risk regulation abatement development management

Intercept 0 009.94*, 1
01.08 14.49 05.41 07.19 12.56
(0.001)2 (0.488) (0.001) (0.011) (0.001) (0.003)
Factor 1: + 05.66 03.71 06.76 03.79 03.10 07.25
External concerns (0.012) (0.001) (0.017) (0.013) (0.026) (0.016)
Factor 2: – 00.38 00.87 –4.61 –2.20 00.14 –9.98
Legal concerns (0.858) (0.438) (0.055) (0.080) (0.924) (0.001)
Factor 3: – –1.19 –1.53 00.27 03.27 –3.37 02.91
Product markets (0.285) (0.093) (0.925) (0.021) (0.001) (0.355)
Age of fixed assets + –0.05 00.06 00.03 00.16 00.06 00.08
(0.376) (0.252) (0.445) (0.094) (0.302) (0.378)
Media exposure + 00.08 –0.01 00.12 00.14 –0.04 00.35
(5 year average) (0.162) (0.954) (0.150) (0.016) (0.509) (0.003)
Adjusted R-Square –02.0% 007.1% 001.9% 027.9% 000 9.8% 0 033.9%0
Left censored at zero 90 1500 60 0800 80 80
Uncensored 3200 2600 3500 3300 3300 3300
Log likelihood –134.1900 –94.960 –153.9600 –125.8100 –124.3900 –147.9600

* One-tailed p-value if predicted sign and in the right direction, two tailed otherwise.
1
Coefficient.
2
P-value.

For the OLS regression with only firm-specific
factors, the coefficients for both external
concerns (25.11; p < 0.004) and legal concerns
(–12.76; p < 0.062) are as expected. The coef-
ficient for product markets is not statistically dif-
ferent from zero. Overall, the adjusted R-square
is 19.0% (p < 0.013) suggesting that executive
assessments of corporate concerns are most likely
a key determinant of a firm’s environmental dis-
closure strategy.
The second OLS regression assesses the rela-
tionship between control variables and environ-
mental disclosure. The coefficients for both age
of fixed assets (0.86; p < 0.007) and for media
exposure (1.09; p < 0.053) have the expected
sign. Overall, these two control variables explain
13.7% of sample variance in environmental dis-
closure (p < 0.023).
The third OLS regression shows the relation-
ship between a firm’s financial condition variables
and its environmental disclosure. Only the coef-
ficient for firm size, as measured by logAssets, is
statistically significant with larger firms providing
more environmental disclosure (11.50; p <
0.034). Overall, these financial condition vari-
ables explain 10.2% of total sample variance in
environmental disclosure (p < 0.096).
The fourth OLS regression pools all variables
together. The full regression model explains
16.2% of overall sample variance in environ-
mental disclosure. This suggests that there is
overlap between explanatory variables. In
addition, incremental F-tests reveal that the
control (2.09; p < 0.138) and financial condi-
tion (0.23; p < 0.920) variables do not improve
on our ability to understand environmental dis-
158 Denis Cormier et al.
closure when contrasted with firm-specific
factors.
Individual TOBIT regression results are given
in Table VII for the six components of the envi-
ronmental reporting score and the same inde-
pendent variables used in the OLS regressions
(see Table VI). The signs of the coefficients
remain as predicted in Table VI. Since the depen-
dent variable (environmental disclosure) is
censored with many observations at zero (espe-
cially for different components), an analysis using
TOBIT may provide a powerful specification
check. The TOBIT specification assumes that an
unobserved latent variable index determines the
level of the dependent variable so that observed
values of environmental disclosure scores are
censored at zero whenever the latent variable
index plus the disturbance term is negative (see
Yermack, 1995, for an illustration).
All six TOBIT regressions are significant at the
0.01 level. The highest R-squares are found for
regressions with the dependent variables of
sustainable development and environmental
management.
Sustainable development disclosures are signif-
icantly related to all the independent variables
although the sign on product markets is opposite
to the predicted direction. External concerns,
legal concerns and media exposure are significant
in classifying firms with respect to environmental
management disclosures and all have the pre-
dicted signs.
Pollution abatement disclosures are related
significantly only to external concerns and legal
concerns. The decision to report on remediation
is significantly related to external concerns
and product markets. Laws and regulation are
significantly explained by external concerns and
product markets. The decision to provide dis-
closures concerning expenditures and risk are
related significantly only to external concerns.
Discussion
An overview of the statistical results from our
sample provides preliminary evidence in support
of our model outlined in Figure 1. Table II indi-
cates that the sample companies communicate
with society about environmental issues affecting
them. While this result was anticipated, it
supports the idea that companies take actions to
maintain or enhance their social legitimacy
(Dowling and Pfeffer 1975; Brown and Deegan,
1998).
As proposed in our model, the suggested
stakeholder groups are important to environ-
mental managers (Table III). Additionally, our
findings indicate that environmental managers do
perceive different values for various stakeholder
groups and are able to assess the importance of
diverse corporate concerns (Table III). This
evidence supports our model and the idea of
stakeholder management where those managers
who have direct responsibility to a given stake-
holder group will perceive that group’s value as
more important compared to other groups
(Husted, 1998). The managers’ stakeholder group
rankings do vary somewhat from previous studies
(e.g., Agle et al., 1999; Harvey and Schaefer,
2001). However, we think this is to be expected
due to the different focus of our model.
Tables IV and V illustrate how individual
firm-specific factors are related to each other.
Factor analysis provides a basis for examining the
individual firm-specific items grouped into
broader classifications (Table IV). Using the three
components outlined in Table IV, the results
provided in Table V indicate how the environ-
mental managers’ assessment of various stake-
holders’ interests are related to the firms’
concerns. Taken together, the correlations among
groups and factors found in Tables IV and V tell
us that the concerns of specific stakeholder
groups overlap (Rowley, 1997) for some, but not
for all, issues.
With respect to a firm’s environmental disclo-
sures, external concerns, legal concerns and
media exposure were found to be important in
the decision to disclose environmental informa-
tion (Table VI). Hence, the decision to disclose
environmental information relates directly to
the need to supply information to the market
(external concerns) and to a lesser extent to
regulatory and legal authorities (legal concerns).
Also as indicated in our model, media exposure
was included as a variable that would influence
the decision to disclose and our statistical results
 Corporate Environmental Disclosure
support this relationship. In addition, Table VI
provides some support for our model’s linkages
between financial condition and corporate
concerns. For instance, when considered sepa-
rately, both financial condition and corporate
concerns are shown to influence environmental
disclosure. However, when both sets of variables
are considered jointly, it appears that financial
condition does not have any incremental contri-
bution over and above corporate concerns in
explaining environmental disclosure. An addi-
tional analysis (not reported) reveals that two
general concerns, those related to the external
setting and product markets, are significantly
correlated with financial condition. That is,
managers see a direct link between selling their
products and providing information about their
companies’ performance to the market and their
companies’ financial outcomes. This finding is
consistent with Ruf et al.’s (2001) finding of a
relationship between a firm’s financial perfor-
mance and its social performance.
Further support of our model (Figure 1) is
found in the regressions provided in Table VII.
Our model indicates that the decision to disclose
specific types of environmental information is
related to corporate concerns reflective of the
stakeholder groups that environmental managers
associate with those concerns. For example in
our model, the variable external concerns is
found to be significantly related to the decision
to disclose all six types of environmental infor-
mation. Given that lenders, investors and the
public are the stakeholders that environmental
managers associate with a firm’s external
concerns, this finding reflects the broad based
interest these groups have in the disclosures
studied. This finding differs somewhat from
Harvey and Schaefer’s (2001). However, they
employed a case study approach limited to only
one industry while our study employs a sample
from seven industries.
For legal concerns the stakeholders of
interest (e.g., governments, the public and to a
lesser extent suppliers) to the managers varied
somewhat from the stakeholders associated with
external concerns. The “legal concerns” stake-
holders would be interested primarily in disclo-
sures that reflect on a company’s environmental
159
performance within its legal and regulatory
setting. Thus, our findings that legal concerns
is significantly related to pollution abatement,
sustainable development and environmental man-
agement disclosures underscores the importance
of these stakeholders. Presumably, if environ-
mental disclosures are inadequate or false,
then this opens the company up to actions by
government (e.g., fines), the public (e.g., through
the market via public opinion or possible
lawsuits) or suppliers (e.g., finding a different
purchaser for their goods or services).
One variable we included in our model, age
of fixed assets, was not found to be significant
in either the pooled OLS or TOBIT regressions
except with respect to sustainable development.
This finding of insignificance is contrary to
Freedman and Jaggi’s (1992) result. One expla-
nation for this finding is that our sample firms
were providing sufficient information to stake-
holders to overcome any problems that might
have been associated with owning and use of
older fixed assets.
Whereas some previous research (Lerner and
Fryxell, 1994) has found weak support for a rela-
tionship between managers (CEOs) and stake-
holders, our research on environmental managers,
environmental disclosures and the accountability
to specific groups of stakeholders finds stronger
support for the manager-stakeholder relationship.
Thus as outlined in our model, a relationship
seems to exist between environmental managers’
perceptions of the value of various stakeholder
groups and how those managers respond to the
stakeholders via the decision to disclose and the
actual disclosures made.
Our model provides one further step in
explaining a company’s overall response to the
numerous stakeholders to whom it must be
accountable. This accountability in turn relates
to how the company communicates its actions to
society in order to achieve or maintain its social
legitimacy.
Conclusion
In this section we provide a brief summary of our
paper, its contributions and implications, the
160 Denis Cormier et al.
ethical aspects of our findings and the paper’s
limitations and suggestions for future research.
1. Summary
As we attempt to understand the actions taken
by corporate managers to make their activities
legitimate to society, we know that managers
react to stakeholder demands. Over time such
reactions lead to an evolutionary process that
results from managers adapting and changing as
they try to understand what stakeholders think
is important as well as deciding which stake-
holders are most important in a given setting.
This evolution may indeed explain why studies’
findings have been contradictory and confusing
at times. We suggest that understanding which
stakeholder groups are valued and how managers
address (or fail to address) these groups takes us
forward in our understanding of corporate legit-
imacy and stakeholder relations.
The purpose of our paper has been to address
several aspects of the manager-stakeholder rela-
tionship within a legitimacy framework. In par-
ticular we modelled the relationship between
environmental managers and their stakeholders.
Our model presents the interactions of three
important dimensions concerned with the dis-
closure of environmental information. These
dimensions are the evaluation of stakeholder
groups by the manager, the corporate concerns
faced by the manager and the influence of the
firm’s financial performance measures on disclo-
sure. Additionally, in our model, media exposure
and the age of the firm’s assets (a proxy for a
firm’s ability to meet environmental regulations)
are included as controls on the manager’s disclo-
sure decisions. The resulting disclosures represent
a component of the necessary communications
that provide the firm legitimacy within society.
2. Contributions and implications
The major contribution of this paper to the
literature is our model. The model’s importance
is derived from capturing Freeman’s description
of a firm’s structure where specific managers are
assigned responsibilities for certain stakeholders
(Freeman, 1984, p. 233) while incorporating
Rowley’s (1997, p. 887) perspective that there are
“multiple and interdependent interactions” in the
stakeholder setting.
As a secondary contribution, we used a ques-
tionnaire to gather data from three countries
regarding environmental managers’ valuations
of various stakeholders as well as their firms’
corporate concerns. We supplemented this
manager-derived data with information gathered
from public sources about the sample firms’
environmental disclosures, media exposure and
financial performance.
There are several implications that may be
derived from our model and sample results. First,
to examine the stakeholder-manager relationship
for specific issues, researchers need to go beyond
an examination of CEOs to study the managers
directly responsible for assigned activities.
Second, managers will have different perceptions
of various stakeholder groups’ value depending
on the manager’s responsibility and the issues
facing her/him. Finally, depending on the cor-
porate concerns and the type of disclosure to be
made, media exposure is a significant variable in
explaining whether environmental disclosures are
made and the amount and quality of disclosures
made.
3. Ethical aspects
Our investigation of management’s role in the
determination of corporate environmental dis-
closure raises several ethical issues. For instance,
our findings indicate that managers’ perceptions
about stakeholders’ concerns help to shape a
firm’s environmental disclosure. Two contrasting
views of stakeholder relations may provide
possible explanations of our findings (Berman et
al., 1999). On the one hand, managerial interest
in stakeholders’ concerns may reflect a strategic
intent where managers pay attention to stake-
holders when doing so improves the company’s
financial performance. On the other hand,
managers’ willingness to take stakeholders’
concerns into account when determining envi-
ronmental disclosure may reflect an intrinsic
 Corporate Environmental Disclosure
commitment toward stakeholders, such commit-
ment being based upon moral grounds as to how
the firm does business.
Berman et al.’s (1999) findings are more con-
sistent with the strategic management view of
stakeholder relations while our results point in
two different directions. Hence, the relevance of
stakeholders’ concerns as well as the lack of a
strong relation between sample firms’ financial
condition and their environmental disclosure
support the view that sample firms’ managers
adopt an intrinsic commitment approach to their
stakeholder relations. In contrast, the importance
of media exposure in determining environmental
disclosure indicates that firms’ need to achieve
social legitimacy in their environmental man-
agement, i.e., their ultimate intent is strategic.
More work remains to be done on the under-
lying motivation for managerial disclosure deci-
sions.
Another key ethical issue is the mapping
between a firm’s actual environmental perfor-
mance and its environmental disclosure. In other
words, is there deception in the environmental
information being disclosed? Such deception
could take many forms. For example, manage-
ment could choose to emphasize positive news
while downplaying negative news. A more
extreme form of deception would be to frame
disclosures in such a way that negative news
becomes good news. While the measurement of
environmental performance is a risky endeavour,
there is some prior evidence that environmental
disclosure does not necessarily accurately or
unbiasedly reflect a firm’s underlying measures
of environmental performance (Hughes et al.,
2001).
Our study does not attempt to directly match
environmental disclosure and environmental per-
formance. More specifically, our findings (see
Table VI, second regression and Table VII, sus-
tainable development regression) provide some
weak evidence that the age of fixed assets is asso-
ciated with the level of environmental disclosure,
thus suggesting that firms with old fixed plant
assets, which are presumably more polluting,
provide more disclosure than other firms. There
is no assurance regarding the reliability or com-
pleteness of the disclosure.
161
A closer examination of actual disclosures
reveals that management emphasizes positive
news or pro-environment decisions, with the dis-
closure of negative items being limited to manda-
tory requirements. In that regard, the emergence
of formal environmental disclosure frameworks
such as the Global Reporting Initiative is an
encouraging sign as they constrain management’s
ability to downplay the disclosure of unfavourable
information. Matching disclosure with external
information sources such as government reports
or court litigations would provide a way to
validate the information being disclosed by
organizations.
A more fundamental ethical issue remains.
This is the measurement of environmental per-
formance itself. In contrast to financial perfor-
mance, for which there are well-accepted
summary and standardized indicators such as net
earnings, the concept of corporate environmental
performance is still tentative. This is because
it encompasses many dimensions including
air pollution, water pollution, soil pollution,
health and safety and sustainable development.
Moreover, there is significant managerial discre-
tion in the measurement of most environmental
performance indicators, with external auditing
and validation still haphazard in many countries.
Such lack of uniformity impedes comparisons
across firms as well as formal assessments of
overall environmental performance.
Griffin and Mahon (1997) and Johnson and
Greening (1999) explicitly discuss the multidi-
mensional nature of corporate social perfor-
mance, of which environmental performance is
a key part. More specifically, they highlight the
inappropriateness of collapsing several dimensions
into a single unidimensional construct that may
hide important and relevant information items.
The alternate approach, which is to focus on a
single well-defined measure that is objective, is
also deficient since it may not fairly reflect a
firm’s overall performance (e.g., see Cormier and
Magnan, 1997). An example of this is a firm
that has some air pollution problems but is a
superior environmental performer in all other
dimensions.
While ISO 14000 criteria are a step toward the
standardized measurement of corporate environ-
162 Denis Cormier et al.
mental performance, the road ahead may contain
several pitfalls. By decomposing environmental
disclosure into six dimensions, our study partially
addresses the multidimensional nature of envi-
ronmental performance. However, it does not
provide confidence regarding the measurement
of disclosed items.
4. Limitations and future research
The primary limitation of our analysis is
the sample size used to examine our model.
However, as an exploratory beginning, the
sample provides preliminary evidence on which
to build.
Future research may follow two related paths.
One path leads to an expansion of the empirical
work undertaken for this paper. Such research
could collect and analyze data on environmental
managers and their stakeholder relationships for
larger samples and for different geographical
areas. This research path would either provide
further evidence in support of our model or
alternatively could refute it. The second research
path could examine other managers who are
assigned specific responsibilities within the orga-
nization and model those managers’ relationships
with the concerned stakeholder groups. Either of
these research paths could further our under-
standing of manager-stakeholder relationships and
the disclosure a firm makes to legitimize itself
to society.
Acknowledgements
The authors acknowledge the financial support
of the Social Sciences and Humanities Research
Council of Canada and of Fonds FCAR
(Quebec). We also appreciate the helpful
comments made on an earlier version of this
paper by Alan J. Richardson, Linda Thorne and
two anonymous referees.
Appendix 1
Environmental Reporting grid
Expenditures and risks:
– Past and current expenditures for pollution control
equipment and facilities
– Past and current operating costs of pollution
control equipment and facilities
– Future estimates of expenditures for pollution
control equipment and facilities
– Future estimates of operating costs for pollution
control equipment and facilities
– Financing for pollution control equipment or
facilities
– Environmental debt
– Risk provision
– Provision for charge
Laws and regulation:
– Litigation (present and potential)
– Fines
– Orders to conform
– Corrective actions
– Incidents
– Future legislation or regulation requirements
Pollution abatement:
– Air emission information
– Water discharge information
– Solid waste disposal information
– Control, installations, facilities or processes
described
– Compliance status of facilities
– Noise and odours
Sustainable development reporting:
– Conservation of natural resources
– Recycling
– Life cycle information
Land remediation and contamination:
– Sites
– Efforts of remediation (present and future)
– Cost/potential liability (Provisions for site reme-
diation)
– Spills: (number, nature, efforts to reduce)
– Liabilities (actual and potential)
 Corporate Environmental Disclosure
Environmental management:
– Environmental policies or company concern for
the environment
– Environmental management system
– Environmental auditing
– Goals and targets
– Awards
– Department or office for pollution control
– ISO 14000
– Participation in elaboration of environmental stan-
dards
– Joint projects with other firms on environmental
management
Rating scale:
3: Item described in monetary or quantitative terms
2: Item described specifically
1: Item discussed in general
Notes
1
The results of Ruf et al. (2001) are contrary to
those found by Richardson and Welker (2001).
Richardson and Welker examine the relationship
between cost of equity capital and financial disclo-
sures and the cost of equity capital and social disclo-
sures. Using cross-sectional, longitudinal regressions
and a sample of Canadian firms for 1990, 1991 and
1992, the authors find that there is a significant
negative relationship between the level of financial
disclosure and cost of equity capital. However, they
do not find a similar relationship between social dis-
closures and cost of equity capital. Instead, they find
a “statistically significant, positive relation between the
level of social disclosure and the cost of capital” [i.e.,
as social disclosures increase so does the cost of capital]
(p. 613). This result, however, is moderated for more
successful firms that are less penalized by the market.
The Richardson and Welker paper is included in the
notes rather than the body of our paper because while
it is an interesting paper, it is not grounded in the
stakeholder theory tradition.
2
Our questionnaire is available on request.
3
While we used most of the Wilmshurst and Frost
(2000) variables for executive assessment of corpo-
rate concern in our question five, there was one
difference. We did not use “Competitor response to
environmental issues”. This variable was deleted
because it was not found to be correlated with
the environmental disclosure score formulated by
163
Wilmshurst and Frost. However, we control for this
change by including industry dummy variables.
Additionally, we control for media exposure that is
employed in our model to help explain the firm’s
response to environmental issues.
4
The OLS regression was run using dummy vari-
ables to control for industry classification and country
effects. The use of industry dummy variables did not
substantially alter the regression results and no effects
by country were found.
5
Multicollinearity between variables was checked
using the VIF statistic. The highest VIF was for return
on assets and logAssets (both 2.18). A VIF of less than
10.0 is normally interpreted to mean that a multi-
collinearity problem does not exist.
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