Retreat in order to advance: Environmental performance below legality aspiration and corporate disclosure strategy

Abstract

Environmental legality threats can drive corporate environmental disclosure. Based on performance feedback theory, this paper proposes that environmental legality is an aspiration of corporate environmental performance. Firms are more likely to change environmental disclosure strategies when environmental performance falls below legality aspiration. By analyzing the impression management of the environmental section in the corporate social responsibility (CSR) reports, we find that firms decrease pictures and tables in environmental disclosure after they receive environmental administration penalties. This change is stimulated by firms' reputation-saving motivation. The finding is different from prior studies stressing positive strategies to respond to environmental legality challenges. We also find that firms adopt positive respondent behavior, such as green innovation, when they show environmental performance in a poor presentation.