Achieving legitimacy through co-operative governance and social and environmental disclosure by credit unions in a developing country

Abstract

PurposeThe purpose of this paper is to utilize legitimacy theory to test the association between the governance of credit unions and their social and environmental disclosure in a developing country, Kenya. A further examination of institutional pressures due to regulatory forces on the association between co-operative governance and credit union social and environmental disclosure (CSED) is performed.Design/methodology/approachUsing a sample comprising of 1,272 credit union observations over the period 2008-2013, panel OLS regressions are performed to establish the association between co-operative governance and CSED. A comparison of the pre- and post-regulatory influences on co-operative governance and CSED is also performed.FindingsThe findings, which are in support of both legitimacy and institutional theories, depict a positive and significant association between co-operative governance and CSED. The significance of the co-operative governance score improves from the pre-regulation period to the post-regulation period. Other significant variables influencing the volume of CSED by credit unions in Kenya include credit union size and financial performance as measured by the return on assets.Research limitations/implicationsThe study examines CSED practices in a developing country and in organizations in a single sector. Further, CSED is measured using a self-constructed index with data being obtained from audited annual reports only.Practical implicationsThe study highlights the need to develop CSED guidelines tailored for credit unions, and a focus on co-operative governance as a way of improving disclosure practices.Originality/valueThe study utilizes a sector-specific governance variable and a CSED index to examine the association between the two variables by credit unions in a developing country. The study also attempts to investigate the role of regulation on the association between co-operative governance and the volume of CSED.