The Walls Have Ears: The Impact of Selective Disclosure on Employee Evaluations

Abstract

Firms face increasing pressures from external stakeholders to be transparent regarding their environmental performance. To avoid backlash, firms oftentimes choose to disclose only positive performance while downplaying their negative environmental impacts. Engagement in this kind of selective disclosure may have negative consequences for firms unknown hitherto. Although, prior literature has looked at the consequences of selective disclosure from the perspective of external stakeholders, little is known about how internal stakeholders, e.g. employees, evaluate the same. This study aims to explore the conditions under which employees evaluate their firm’s selective disclosure behaviour negatively. We find that firm-level selective disclosure in material dimensions is associated with positive employee evaluations. However, these positive evaluations are thwarted when this material selective disclosure occurs alongside harmful environmental damage caused by the firms. Based on the literature on organizational identification and cognitive dissonance, we theorize that employees interpret materiality of selective disclosure as a signal of firm intention to be more transparent which is contaminated by a firm’s damaging environmental behaviour eliciting negative employee evaluations.