An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Charles H. Cho
University of Central Florida

Dennis M Patten
Illinois State University

Abstract: Legitimacy theory suggests companies with poorer environmental performance would be expected to provide more extensive off-setting or positive environmental disclosures in their financial reports. However, recent investigations of the performance/disclosure relation report mixed results. In this study, we use size-matched groups based on industry membership and environmental performance to test for differences in both (1) non-litigation related environmental disclosure, and (2) measures of monetary and non-monetary environmental disclosure. Results indicate that total non-litigation environmental disclosure is higher for poorer environmental performers and for firms from environmentally sensitive industries. Further, results indicate that the use of monetary and non-monetary components of the non-litigation related environmental disclosure varies across groups. In general, the findings provide additional support for the argument that companies use disclosure as a legitimizing tool.

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