Studies that have applied legitimacy theory and stakeholder theory (commonly referred to as social and environmental accounting: for example, in Deegan, 2002; de Villiers & van Staden, 2006; Freedman & Jaggi, 2005; González-Benito & González-Benito, 2010; Roberts, 1992) to CER in the context of China, either could not find support for the theory
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(for example, in Taylor & Shan, 2007; Zhang et al., 2007) in English language literature or limited to the inefficient Chinese capital market in Chinese language literature (for example, in Xiao & Zhang, 2008), although Chinese language studies published in recent years (see, for example, Chen et al., 2010; Shen & Feng, 2012; Yang et al., 2011) have found some support for legitimacy theory. Partly this is because of problems with the two theories (discussed in Chapter 2). The focal point of stakeholder theory and legitimacy theory is the individual organisation’s legitimacy management through the concept of ‘social contract’. Although the two theories recognise external influences on the organisation, they fail to address the processes driving the change in CER at the macro environmental level. Both theories adopt a pluralist assumption: that is, various stakeholders in society are assumed to be equal, to have the right to pursue self-interest, and to interact with each other in status quo institutional arrangements (i.e. the established capitalist economic system and Western democracy political system). However, they fail to recognise that not all stakeholders in a society have equal influence on an organisation (Lehman, 2001).
The pluralistic assumptions of legitimacy theory and stakeholder theory also are conflicting with the high ‘power distance’ dimension of Chinese culture (influenced by Confucianism), that is power is centralised in the authoritative Chinese government through the ruling CPC’s unchallengeable position. Although China’s economic reforms aim to move towards a market-oriented economy, the political regime remains unchanged. The influence of the Chinese government through the CPC pervades Chinese organisations (Opper et al., 2002; Rowe & Guthrie, 2010; Scott, 2002; Walder, 1995; Yang, 2011). Thus, application of the bourgeois political and economy theoretical perspective (the derivation of legitimacy and stakeholder theory) is limited when applied to the political and economic context of China.
3.5.3Institutional theory
Review of English language organisational study literature reveals institutional theory persuasively seeks explanations of Chinese organisational behaviour (for example, Firth, 1996; Hilmy, 1999; Lin, 2001; Peng, 2003; Scott, 2002; Walder, 1986; 1995; Yang, 2011; Yang & Modell, 2013). Scott (2002) has justified the use of institutional theory as an analytical framework in the organisational studies of Chinese enterprises (where
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climate-change reporting is a part of organisational behaviour). For example, Scott (2002) states:
China, for its part, is attempting to introduce basic changes in its economic systems in ways that do not undermine its centrist political regime. This development has both encouraged and challenged scholars working to advance understanding of large-scale
institutional change (p.60).
Scott (2002) applies institutional theory to explain changes in Chinese enterprises at institutional levels: the societal level (institutional differences and connections between the West and the East); the organisational field level change of former Chinese SOEs; and individual organisation level change of the relationship between Chinese managers and employees. Scott (2002) calls for more research using institutional theory as an analytical framework to study Chinese company characteristics in the context of China’s institutional transition.
As discussed in Chapter 2, institutional theory permits different motives to be explored, including moral obligation and cultural cognition in environmental reporting. It has potential applications for CER research in different political and economic institutional contexts. The relevance of institutional theory to corporate environmental management and reporting is well documented in organisational study literature (see Jennings & Zandbergen, 1995; Hoffman 1999, 2001) and accounting literature (see Larrinaga, 2007). Institutional theory has provided important insights to understanding the processes and motivations of corporate environmental responsiveness. As Meyer (2002, p. xv) states, the theory ‘is especially useful in analysing the interrelations of organisations with modern environmentalism’. Already some studies (Branzei & Vertinsky, 2002; Rowe & Guthrie, 2010; Yang, 2011; Zeng et al., 2012), published in the English language, explicitly take an institutional perspective regarding Chinese corporate environmental and sustainability management. Potentially, institutional theory is the most suitable analytical framework for adaption to the Chinese context. However, none of these studies specifically attends to corporate climate-change reporting, nor give specific consideration to China’s radical institutional change to general and environmental information transparency. That change was marked by the promulgation of Open Government Information 2007 (effective on 1 May 2008) and Open
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Environmental Information 2007 (effective on 1 May 2008), with resultant impacts on climate-change related environmental reporting.
In the English language literature, current applications of institutional theory in the environmental accounting literature have not incorporated the advances in institutional theory in the organisational study literature. This is in contrast to the wide applications of institutional theory, and the diverse research methods applied, in the organisational study literature (Dacin et al., 2002). There are several typical limitations.
First, as discussed in Chapter 1, empirical studies informed by institutional theory have been dominated by qualitative studies with relatively small sample sizes. Only a few large sample studies have been conducted (for example, Aerts et al., 2006; Cormier et al., 1999; Zeng et al., 2012). Although qualitative research is important and useful, small sample sizes risk atypical results. Larger and richer data sets have more impact and legitimacy. They complement qualitative studies because they allow analysis of an ‘on average’ influence of multiple factors. Ehrenfeld (2002) highlights a critical need for an alternative research approach (in institutional theory–informed corporate environmental management studies) with larger and richer data to explicate finer structure in the institutional context of company environmental or sustainability behaviours (p.449).
Second, CER studies tend to focus on the effects of institutional environments on the structural conformity and isomorphism of CER, while institutional process changes are under-studied (Ball & Craig, 2010).
Third, CER studies focus on a single institutional aspect, for example, normative institutional pressure (Ball, 2005); the over-socialised focus on the ‘taken-for-granted’ cultural cognitive institutions (Rahamana et al., 2004); or government-driven coercive institutions (Rowe & Guthrie, 2010). Integrated consideration of regulative (coercive), normative and cultural (cognitive) institutions is lacking.
Fourth, the role of an organisation’s influence on its environmental conditions and institutional change processes has been overlooked (Oliver, 1991; Hoffman, 1999). Only recent studies (for example, Collin et al., 2009; Tagesson et al., 2009) in the
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accounting literature have attended to the bottom-up influence of individual organisations on the variation of CER by integrating an agency perspective with institutional theory. This has appeared in organisational studies much earlier (for example, Oliver, 1991).
Development of institutional theory in the organisational study literature has established a tight link between the institutional environment and organisational characteristics in organisational strategic responses to environmental issues (which can extend to climate-change related environmental reporting).