To Be or to Seem: The Role of Environmental Practices in Corporate Environmental Reputation

Abstract

Although the literature has shown the benefits of corporate environmental reputation, little is known about how this reputation develops. Based on impression management theory, we examine how a firm’s environmental practices create its environmental reputation. We undertake a fine-grained analysis by distinguishing between high and low environmental external visibility practices and examining the effect of decoupling environmental practices (i.e., using only practices that are highly visible) on environmental reputation. We also propose that corporate environmental disclosure moderates these relationships. The hypotheses are tested on a sample of 241 U.S. firms included in Newsweek’s Green Rankings. Our results suggest that managers should avoid decoupling because such practices heavily jeopardize environmental reputation. In contrast, developing a balanced set of both high and low environmental external visibility practices, enhanced through environmental disclosure, pays for environmental reputation.