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GAINING ENVIRONMENTAL LEGITIMACY: DOES SYMBOLISM WORK?1

PASCUAL BERRONE

IESE Business School Department of Strategic Management

Camino del Cerro del Águila, 3 28023 Madrid. Spain

(34) 91-2113200 (phone) (34) 91-3572913 (fax) [email protected]

ANDREA FOSFURI

Universidad Carlos III de Madrid Departamento de Economía de la Empresa

Calle Madrid, 126. Getafe (28903) Madrid – Spain (34) 91-6249351 (phone)

(34) 91-6249608 (fax) [email protected]

LILIANA GELABERT

IE Business School Department of Economic Environment

Calle Serrano, 105 28006 Madrid, Spain

(34) 91-7450351 (phone) (34) 91-7454769 (fax) [email protected]

1 Andrea Fosfuri gratefully acknowledges financial support from the Fundación Ramón Areces. The usual

disclaimer applies.

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GAINING ENVIRONMENTAL LEGITIMACY: DOES SYMBOLISM WORK?

We investigate the impact of environmental symbolism, i.e., policies or codes of conduct which

might serve symbolic purposes without necessarily being applied in practice, on environmental

legitimacy, i.e., the external validation of a firm’s alignment with those environmental values

demanded by the broader public. Drawing on institutional theory, we first argue and then

empirically test the proposition that symbolic environmental actions increase a firm’s

environmental legitimacy only when they are coupled with evidence of the implementation of

more substantive policies. Our findings suggest that symbolic environmental endeavors alone

might harm a firm’s environmental legitimacy.

Keywords: environmental management, institutional theory, legitimacy, symbolism

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INTRODUCTION

The mounting public concern about the natural environment has recently spilled over to

companies, which have become increasingly eager to associate themselves with an environment-

friendly image. This is a direct consequence of the multiple pressures firms are subject to in

order to operate in an environmentally responsible fashion, as investors discount share prices of

“polluting” companies, governments introduce policies that place a cost on emissions, and

consumers consider a company’s environmental philosophy when purchasing products and

services (Hart, 1995; King & Lenox, 2002). In response to these pressures, some companies

resort to environmental symbolism, that is, policies or codes of conduct which might serve

symbolic purposes without necessarily being applied in practice (Westphal & Graebner, 2010;

Westphal & Zajac, 1994, 1998, 2001), while others embark upon more substantive

environmental endeavors, which tangibly improve their imprint on the surrounding environment

(Weaver, Treviño, & Cochran, 1999). In this paper we ask, Are these symbolic environmental

policies effective to shape public opinion and to gain environmental legitimacy (i.e., external

validation of a firm’s alignment with those environment values demanded by the broader

public)?

This question is relevant both theoretically and practically. Symbolic management has

been at the center of a growing theoretical literature on strategy. Researchers have studied the

importance of symbolic actions as a means to obtaining organizational legitimacy, including

topics like long-term incentives in executive pay (Westphal & Zajac, 1994), stock repurchase

(Westphal & Zajac, 2001), adoption of ethics codes (Stevens et al., 2005), international

certifiable standards (Christmann & Taylor, 2006), entrepreneurship (Zott & Huy, 2007), and

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corporate social responsibility (David, Bloom, & Hillman, 2007; Weaver et al., 1999). The

common denominator across these studies is that symbolic policies decoupled from actual

implementation allow firms to alter public perception of their legitimacy and enhance social

acceptance. We challenge this established wisdom in the context of environmental matters.

Specifically, drawing on notions of institutional theory, we argue that the presence of well-

identified, hypercritical stakeholders who continuously scrutinize over firms’ behavior and

wrongdoing, and the existence of objective measures of compliance, make symbolic

environmental policies decoupled from evidence of substantive actions unlikely to affect firm

environmental legitimacy. Instead, firm actions are endorsed and supported only when they

tangibly improve a firm’s imprint on the environment; the mere appearance of compliance is not

enough, and it might even impair a firm’s environmental legitimacy. This paper’s main

theoretical contribution is thus to clarify the boundaries of the applicability of institutional theory

to environmental management. This message has obvious practical implications for managers.

Studies that have investigated the use of symbolic actions as a means to obtain legitimacy

have implicitly assumed, but not empirically proved, that such actions do affect legitimacy

(Meyer & Rowan, 1977). Most work has focused instead on their causes: the environmental

conditions and firm characteristics that explain why firms adopt symbolic actions as opposed to

more substantial endeavors (Christmann & Taylor, 2006; Stevens et al., 2005; Weaver et al.,

1999; Westphal & Zajac, 1994). We test our contention using a longitudinal sample of 325 firms

from polluting industries and analyze the impact on environmental legitimacy of their symbolic

actions (participation in voluntary environmental programs sponsored by the government, board

committees dedicated to environmental issues, environmental pay policies, and green

trademarks) as well as their substantive initiatives (pollution prevention and environmental

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innovations).

THEORETICAL FRAMEWORK AND HYPOTHESES

Institutional theory (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Scott, 1995,

2005, 2008) focuses on the role of social stimuli in shaping an organization’s actions. According

to this perspective, when companies adopt strategies in adherence to institutional prescriptions,

they reflect an alignment of corporate and societal values (Meyer & Rowan, 1977) and obtain

external validation or legitimacy (Scott, 1995). Legitimacy thus refers to the degree to which

actions by organizations in a given field are accepted as appropriate and useful by the broader

public (Scott, 1995, 2008; Schuman, 1995). Legitimacy is conferred when stakeholders—those

who affect and are affected by the firm’s actions (Freeman, 1984)—endorse and support

organizational actions. It enables the firm to compete more effectively, as it allows better access

to resources, attracts better employees, and improves the conditions of exchange with partners

(Aldrich & Fiol, 1994; DiMaggio & Powell, 1983; Oliver, 1991; Pfeffer & Salancik, 1978;

Turban & Greening, 1997). Acquiring legitimacy is therefore a strategic concern for

organizations (Deephouse, 1999; Scott, 1995).

Environmental legitimacy is obtained when firms successfully respond to pressures from

various actors that establish norms (Hoffman, 1999; Wade-Benzoni et al., 2002), often pressures

towards avoiding environmental misconduct (Berrone et al., 2010; Berrone & Gomez-Mejia,

2009). Firms that conform to stakeholders’ environmental expectations gain reputational capital

(Bansal & Clelland, 2004; Fombrun, 1996; Godfrey, 2005; Hart, 1995). Conversely, poor

environmental performance seriously lessens corporate prestige (Bansal & Clelland, 2004;

Fombrun, 1996; Hart, 1995). As Wood (1991: 697) argues, when “stakeholders lose confidence

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in the firm’s performance, legitimacy may be withdrawn as the stakeholders refuse to provide

their share of reciprocal benefits. Customers stop buying products, shareholders sell their stock,

employees withhold loyalty and best efforts, government halts subsidies or imposes fines or

regulates, environmental advocates sue. If the firm cannot compensate for lost stakeholder

benefits, it becomes ‘illegitimate’ and dies.”

Environmental management research has attempted to identify the sources of

environmental claims and legitimacy (Berry & Rondinelli, 1998; Buysse & Verbeke, 2003;

Henriques & Sadorsky, 1996, 1999; Kassinis & Vafeas, 2006). For instance, Henriques and

Sadorsky (1996) found empirical evidence indicating that a firm’s formulation of an

environmental plan was positively influenced by pressures from customers, shareholders,

community groups, and the government. Along similar lines, Alvarez-Gil et al. (2007) found that

communities, customers, employees, and the government influenced the adoption of recycling

and other reverse logistics programs. Similarly, Kassinis and Vafeas (2006) documented a

positive relationship between community stakeholder pressures and environmental performance

at the plant level. More recently, Murrillo-Luna and her colleagues (2008) studied the influence

of different stakeholders on environmental strategies and found that there is a high correlation of

environmental demands across stakeholder groups, so when a firm responds to one of them it is

responding to them all. Together, these studies suggest that legitimacy is socially constructed and

granted by a broad base of direct and indirect constituencies of the firm (DiMaggio & Powell,

1983; Rowley, 1997).

In response to environmental pressures, firms may adopt symbolic or substantive

environmental practices (Christmann & Taylor, 2006; Stevens et al., 2005; Weaver et al., 1999;

Westphal & Zajac, 1994, 2001). Following the extant literature, we define symbolic

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environmental actions as those policies or codes of conduct which might serve symbolic

purposes without necessarily being applied in practice (Westphal & Zajac, 1994, 2001). These

actions convey an environmental-friendly image even if the company does not modify its

pollution levels. By contrast, substantive environmental actions tangibly improve a firm’s

imprint on the surrounding environment (Weaver et al., 1999).

The two differ in several respects. First, symbolic actions are believed to be easier to

implement, because substantive actions often require organizational and technological changes

that cost money and time and these greater commitments make them more difficult to change

(Christmann & Taylor, 2006; Delmas, 2002; Delmas & Montes-Sancho, in press). Second,

symbolic actions are more visible than substantive endeavors, as they are by design an outward

sign (Meyer & Rowan, 1977). Third, symbolic actions are subject to be decoupled from

substantive actions, that is, symbolic endeavors do not need to be backed up with substantive

structures (Fiss & Zajac, 2006). Because of these differences, we expect a differential impact on

environmental legitimacy.

Substantive Environmental Actions

Substantive environmental actions often require significant changes in core practices and

entail certain risks (Christmann & Taylor, 2006). However, they culminate in real improvements

in the firm’s environmental performance and thus ultimately increase its environmental

legitimacy. This is especially so in those organizational fields characterized by strong

environmental pressures. These organizational fields are populated by well-identified,

hypercritical actors who scrutinize very carefully and critically over firms’ behavior and

wrongdoing (Barnett & King, 2008; Berrone & Gomez-Mejia, 2009). Indeed, given that

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environmental misconduct may result in human health problems (like respiratory problems,

degenerative diseases, etc.), a higher level of scrutiny is likely from both direct and indirect

constituents. Thus, firms are subject to continued scrutiny not only from regulatory agencies but

also from other stakeholders including consumer watchdog organizations, environmentally

conscious suppliers, environmental activists, and the like. Second, firms competing in

organizational fields characterized by strong environmental pressures are benchmarked with

public “objective” measures of environmental performance (like those gathered by the

Environmental Protection Agency), which are often echoed and amplified by watchdog

institutions, for instance, in the form of pollution rankings and merciless reports. Legitimacy is

thus more easily granted when such changes have an observable impact on the firm’s

environmental imprint. Moreover, as they require increased resource allocation and involve

higher degrees of specificity, they are relatively unlikely to be reversed in the future, so the

public is less likely to doubt the firm’s “real” intentions and motivations.

Hypothesis 1. In organizational fields with strong environmental pressures, evidence of

substantive environmental actions has a positive impact on a firm’s environmental

legitimacy.

Symbolic Environmental Actions

Institutional theory suggests that “the appearance rather than the fact of conformity is

often presumed to be sufficient for the attainment of legitimacy” (Oliver, 1991: 155). Since

symbolic actions let firms gain legitimacy but also maintain internal flexibility (Meyer & Rowan,

1977), firms and their managers may favor symbolic rather than substantive practices (Suchman,

1995). Symbolic actions are not uncommon. For instance, there is evidence that managers satisfy

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shareholder demands by adopting but not implementing new governance structures (Westphal &

Graebner, 2010; Westphal & Zajac, 1994; Zajac & Westphal, 1995); Christmann and Taylor

(2006) reported that, under certain circumstances, firms fail to use the practices prescribed by a

certified standard in their daily operations; Weaver et al. (1999) showed the conditions under

which firms are more likely to develop symbolic ethical codes. The implicit although untested

assumption of all these papers is that symbolic actions do influence societal perceptions of the

company and thus increase its legitimacy. It is argued that, given that environmental symbolic

actions “provide cover” for poor emissions performance by appearing to take steps in the right

direction” (Russo & Harrison, 2005: 588), firms may focus on actions that are easiest to observe.

We challenge this view in the context of environmental matters and specifically argue

that in those organizational fields subject to strong environmental pressures, symbolic

environmental actions decoupled from evidence of substantive policies are not effective. In fact,

in these contexts, decoupling between signals and actions may actually harm environmental

legitimacy. There are several reasons for this presumption. First, as stakeholders tend to be

hypercritical and to scrutinize firms very carefully, they will not be satisfied with signals but

need to observe facts and measurable outputs. Along the same line, Christmann and Taylor

(2006) have shown that the frequency and quality of customer monitoring reduce the likelihood

that certification will be decoupled from the implementation of the certified practice. Similarly,

Stevens et al. (2005) argued that strong pressure from market actors makes symbolic actions less

effective. King, Lenox, and Terlaak (2005) argued that if environmental certifications are not

coupled with the actual implementation of the prescribed practices, firms may be unable to

provide credible information to their buyers and sellers about their environmental stance,

increasing information asymmetries and the repercussions of those asymmetries. In short,

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environmental symbolism is unlikely to be effective when environmental pressures are steady

and strong.

Second, symbolic actions tend to be more effective when performance is difficult to

measure (Christmann & Taylor, 2006). As discussed above, there is a wealth of information

about firms’ environmental performance, which is typically made public. Therefore, firms that

attempt to use symbolic environmental actions as a signal without truly complying with

environmental demands may put their legitimacy at risk. When facts (i.e. substantive

environmental actions) do not match environmental symbolism, firms might be accused of

misrepresenting their environmental reality and thus are recipient of less legitimacy and not

more.

Third, and related, precisely because symbolic actions may be more visible than

substantive actions, they may be considered as “cosmetic” or opportunistic (King & Lenox,

2000). Thus, companies relying exclusively on symbolic environmental actions may be seen as

untruthful, unreliable, calculating, and manipulative. In organizational fields with strong

environmental pressures, the broader public must perceive the firm’s actions as genuine

manifestations of its environmental stance (Gordon, 1996). If the firm’s for-profit motives are

too apparent, any firm action might produce mixed effects or even hostility.

However, when symbolic environmental actions are coupled with evidence of more

substantive policies, the greater visibility of the former reinforces the value of the latter.

Symbolic environmental actions are not perceived as merely opportunistic if the broader public

can observe a tangible impact on a firm’s imprint on the natural environment. When symbolism

and facts go hand-in-hand the suspicious that some policies or codes of conduct are followed

only for symbolic purposes without being applied in practice disappears.

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These arguments lead to the following two hypotheses:

Hypothesis 2a. In organizational fields with strong environmental pressures, symbolic

environmental actions decoupled from evidence of substantive policies have no (or a

negative) impact on a firm’s environmental legitimacy.

Hypothesis 2b. In organizational fields with strong environmental pressures, symbolic

environmental actions coupled with evidence of substantive policies have a positive impact

on a firm’s environmental legitimacy.

METHODS

Sample and Data Collection

Data on an organizational field should represent firms facing similar pressures,

constraints and regulation (Hoffman, 2001). In accord with previous research (Berrone &

Gomez-Mejia, 2009; Russo & Harrison, 2005), we chose to focus on firms from industries

subject to reporting under the “Toxic Release Inventory” (TRI) program of the Environmental

Protection Agency (EPA), which requires facilities exceeding a threshold level to report their

emissions. These firms are all subject to the same regulatory framework and arguably face

similar media attention, scrutiny from activists, community concerns, and changes in consumer

preferences (Berrone & Gomez-Mejia, 2009).

We collected information from various sources to construct the database. We started by

identifying firms belonging to the 20 most polluting sectors according to the EPA’s TRI

program.2 We identified those sectors by ranking industries, defined at the two-digit SIC code

level, according to the total amount of toxic emissions for the period under analysis. These

2 The 20 most polluting U.S. sectors for the period analyzed at the two-digit SIC code are 10, 50, 33, 49, 28, 36, 12, 13, 20, 32, 30, 51, 26, 34, 29, 31, 35, 37, 24, 27.

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sectors are likely to draw close public scrutiny of firms’ actions and behavior as they account for

a large share of overall emissions and pollution. They are thus a good approximation to an

organizational field characterized by strong environmental pressures. A second reason why we

chose to focus on these industries is that it makes little sense to investigate environmental

legitimacy in contexts in which environmental issues are not a concern. Nonetheless, there is still

sufficient heterogeneity in the pollution levels across industries that we can later explore the

sensibility of our findings to different degrees of environmental pressures. This selection

produced an initial set of 876 firms. Then we cross referenced this initial sample with the

Compustat database and searched for data from other data sources (for instance, the US Patents

and Trademarks Office, CHI’s Patent Citation Indicators database, proxy statements) to get

information on all the remaining independent variables as described in the next section. Finally,

we aggregated data by parent companies using multiple sources, including Mergent Manuals,

which compile data regarding subsidiaries; the COMPUSTAT database; and companies’

websites. The final sample after we dropped firms with missing values was an unbalanced panel

of 325 firms between 1997 and 2002. There is no evidence that firms that have been dropped

from the sample are statistically different from those included, at least across the variables

available for all companies.

Measures

Dependent variable: environmental legitimacy

Following previous empirical literature (Bansal & Clelland, 2004; Hamilton, 1995; Konar

& Cohen, 1997), we drew on media accounts to assess environmental legitimacy. Public media

are suitable means to assess the legitimacy of firms for several reasons. First, by their nature

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public media have superior access to information and better expertise in evaluating organizations

(Rao, 1998). Second, media evaluations of firms are often distributed to a broader audience than

opinions of alternative evaluators. As a result, public media have a high degree of influence on

the attention that stakeholders grant to organizations and issues of interest. Thus, there is a close

alignment between media content and public opinion about which firms are prominent and which

are not (Deephouse, 2000; Pollock & Rindova, 2003). Third, in the specific case of

environmental issues, the general public may have limited contact with the environmental

actions of firms and rely on media as the primary source of information (Ader, 1995).

We used the Wall Street Journal as the media source, given its national coverage and its

large circulation (the largest in the US in 2009). We relied on this journal as the single source in

order to avoid duplication of news because our measure of environmental legitimacy is sensitive

to the number of articles. We followed a number of steps to compute the measure of

environmental legitimacy. First, we extracted the full text electronic articles published between

1996 and 2002 by searching for the company name (for each of our 325 firms) and at least one of

the keywords from an environmental words list. The keywords included are those used by Bansal

and Clelland (2004) (“sustainable development,” “environment,” “pollution,” and “toxic”) and

others added from papers cited in that article (“hazardous,” “waste,” “disposal,” “alternative

energy,” “ecology,” and “contamination”). We obtained over 1500 articles for the period under

analysis. Second, we read each of the articles and coded them as “-1”, “0,” or “1” depending on

whether they reflected a “negative”, “neutral,” or “positive” contribution to the firm’s

environmental legitimacy. The coding was performed by two of the authors. We performed an

intercoder reliability check for 100 randomly selected articles, and the two raters agreed on 91%

of the cases (Weber, 1991). Since the disagreements had mostly to do with the use of the neutral

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category, we dropped those articles classified as neutral to reduce unreliable coding. Finally,

following Deephouse (1996) and Bansal and Clelland (2004), we used the Janis-Fadner

coefficient (see Appendix A) to construct our measure of environmental legitimacy. The measure

ranges from 1 (when there are only favorable articles) to -1 (when there are only unfavorable

articles). As a robustness check, we constructed an alternative measure of environmental

legitimacy by computing the Janis Fadner index using data on environmental strengths and

environmental concerns from Kinder, Lydenberg Dominioni & Co (KLD). Results using this

alternative measure (reported in Appendix D: Tables D1 and D2) are qualitatively similar to

those obtained by employing our main measure of environmental legitimacy, but we believe our

measure using media counts is significantly stronger, for several reasons. First, strengths and

concerns from the KLD database are assessed by “experts,” and thus this alternative measure is

less likely to reflect the opinion of the general public. Second, while news media have been

validated in the past as a suitable source of information for environmental legitimacy, this

alternative measure has not received such validation (Bansal & Clelland, 2004; Barnett & King,

2008; Hamilton, 1995). Finally, for our period of analysis, the KLD database provides

information only about firms included in the Domini 400 Social Index or the S&P 500; as a

result, the number of observations drops significantly, and the estimated coefficients are much

less precise.

Independent variables and controls

A key empirical challenge is to disentangle environmental actions that are symbolic from

those that are substantive. One needs to know which environmental policies a company simply

adopts and which ones it really implements, and how far they are implemented (Christmann &

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Taylor, 2006). Lacking this precise information, we have taken a first degree approximation. We

identified as substantive environmental actions those that have a tangible (observable) impact on

the environment. In contrast, we empirically define as symbolic environmental actions those that

only signal that a company has adopted some environmental stance, but do not necessarily

produce an impact on the environment. This empirical definition matches quite closely the

theoretical distinction between symbolic and substantive environmental actions we presented in

the previous section. In order to create our symbolic environmental actions indicator, we relied

on extant research that showed practices that can easily decoupled from implementation. It

should be noted that some of these actions might indeed be followed by implementation.

However, since we argue that symbolic environmental actions have a weaker (null or negative)

effect on environmental legitimacy when they are not associated with substantive environmental

actions, this potential confounding effect makes our empirical test more powerful and not less.

Substantive environmental actions

The environmental management literature has identified at least two substantive

environmental practices: pollution prevention strategies and environmental innovations.

Pollution prevention strategies are intended to minimize or eliminate the creation of toxic

chemical agents during the various stages of production (Christmann, 2000; Hart, 1995; Klassen

& Whybark, 1999; Russo & Fouts, 1997; Sarkis & Cordeiro, 2001). Pollution prevention

strategies are costly because they require structural investments in cleaner technologies (Klassen

& Whybark, 1999; Russo & Fouts, 1997). Pollution prevention strategies are also complex:

technologically complex because they require changes in systems, processes, and products

(Aragon-Correa & Sharma, 2003), socially complex because they involve diverse stakeholders at

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different levels (Russo & Fouts, 1997), and structurally complex because they require managerial

commitment and cross-functional coordination (Aragon-Correa, 1998).

Environmental innovation, that is, the introduction of new methods for treating air or

water emissions, recycling or reusing waste, finding cleaner energy sources, and so on

(Brunnermeier & Cohen, 2003), is, by definition, inherently risky as it displays high variability

of outcomes and greater probability of failure (Baysinger, Kosnik, & Turk, 1991). Also,

innovative endeavors require long-term investments (Hoskisson, Hitt, & Hill, 1993).

Consequently, innovation requires substantive commitment of resources and time.

Following previous environmental literature (King & Lenox, 2000, 2002), we measured

pollution prevention strategies as the difference between a predicted value and some actual

pollution level; more precisely, we used the measure computed by Berrone & Gomez-Mejia

(2009). Given that facilities must report their production ratios for the current reporting year as

compared to the previous reporting year (i.e., the ratio of the production volume in t+1 to the

production volume in t), we used these values to estimate total waste generation and then

compared them with real values. 3 In order to estimate waste generation we followed these steps:

First, we weighted each chemical by its Human Toxicity Potential Factor (HTP), developed by

Hertwich et al. (2001), which measures toxicity in terms of benzene equivalence (for

carcinogens) or toluene equivalence (for noncarcinogens); second, we aggregated the results

across chemicals at facility level; third, we multiplied these results by their corresponding

production ratio values; fourth, we aggregated results by parent company; and finally, we

compared these results against real values (see Appendix B for an analytical description of this

procedure). Since the HTP method offers cancer and noncancer values, we calculated the

3 Production ratio values often vary around 1. For instance, a ratio of 1.1 would indicate a 10% increase in production.

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formulas in Appendix B using these values separately and obtained two different measures of

pollution prevention. Given the high skewness of these variables, we log-transformed them to

approach normality. Later, we calculated their reliability and, given their high Cronbach alpha

score (α = 0.96), standardized and averaged both measures to create our final pollution

prevention measure. Finally, we assigned the value 1 if the firm had a pollution prevention level

higher than the median and 0 otherwise, as legitimacy is granted or denied depending on the

behavior of other organizations belonging to the same organizational field.

To measure environmental innovation, we used patent data from the CHI’s Patent

Citation Indicators database, which tracks information about environment-related patents of

firms with more than 40 patents in the last 5 years. This database represents more than 60% of all

US patents granted since 1992 and more than 70% of those patents that are not held by private

individuals. We gathered information provided by Nameroff et al. (2004) about company-

assignees of over 3,200 environment-related patents during 1983-2001 and the number of

forward citations for each of these patents. 4 A well-known problem with the use of patent counts

as a measure of innovation output is that it does not take into account that while some patents are

very valuable, others are worth almost nothing. Recognizing this problem, Lanjouw and

Shankerman (1999) and Hall, Jaffe, and Trajtenberg (2005), among others, have suggested

adjusted measures that use patent citations as a proxy of quality. Along this line, we measured

environmental innovation by computing an index where patents are weighted by their

corresponding citations (see Appendix C). Finally, as we did for our measure of pollution

prevention strategies, we assigned the value 1 if the firm had values higher than the median and 0

otherwise. 4 See Nameroff et al. (2004) for a more comprehensive description of the CHI Research Inc database. A full description of the patent search filter used to identify environmental patents is available at http://www.chemistry.org/greenchemistryinstitute.

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To build a single measure of substantive environmental actions, Substantive Index, we

computed the sum of the two dummy measures described above. This index can take the value 0

(the firm is below its peers in both pollution prevention and environmental innovation), 1 (the

firm is above its peers in either pollution prevention or environmental innovation), or 2 (the firm

is above its peers in both pollution prevention and environmental innovation).5

Symbolic environmental actions

There is a large spectrum of different symbolic environmental actions that organizations

can undertake to gain environmental legitimacy. Our main objective is to test whether these

actions, whatever their nature is, are effective in securing legitimacy when decoupled from more

substantive endeavors. We need therefore an aggregate measure of the extent to which an

organization resorts to environmental actions that are likely to be classified as symbolic. We

follow the extant literature and consider four different types of symbolic environmental actions:

(1) voluntary government programs, (2) board committees dedicated to environmental issues, (3)

environmental pay policies, (4) environmental trademarks.

Voluntary government programs. One way firms may signal their commitment to the

environment is by participating in environmental programs sponsored by agencies like the U.S.

Environmental Protection Agency (EPA) (see Darnall & Sides, 2008 for a recent meta-analysis

on the issue). While these programs are intended to provide specialized information and

technical assistance, and ultimately to reduce pollution, they can be largely symbolic. Costs of

5 Although we believe that our Substantive Index has a quite straightforward interpretation and that environmental legitimacy depends more on the relative position of a firm vis-à-vis its peers than on the absolute values of some indicators, we are aware that the transformation we made reduces the complexity and variability of our substantive environmental actions indicators. We have thus performed some robustness checks. Specifically, we have used the continuous measures of pollution prevention and environmental innovation separately, each as a proxy of substantive environmental actions. Results, available from the authors upon request, are qualitatively similar to those reported in the paper.

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membership are in many cases negligible (Delmas & Keller, 2005). In addition, there are no

penalties for firms that do not report environmental achievements, and participants can publicize

their membership, regardless of their environmental record. In the US alone there are over 200

such programs (Darnall & Carmin, 2005). These programs vary substantially, with some of them

oriented exclusively to specific sectors or topics, or limited in time or restricted in terms of

participation. For our purpose, we needed voluntary participation in a broad program. Following

Delmas and Keller (2005), we used the case of the U.S. Environmental Protection Agency’s

(EPA’s) WasteWise program.6 This program was originally established by the EPA to reduce

municipal solid waste, covers the period under analysis, is open to a broad set of industries, and

sets few requirements for participation. The variable takes the value of “1” if the firm

participates in the WasteWise program and “0” otherwise.7

Environmental board committees. Companies sometimes explicitly and formally delegate

environmental oversight responsibilities to a subgroup of the board (that is, an environmental

committee). Presumably, an environmental committee may provide resources to firms by

drawing on the expertise of directors, and the board is then in a better position to assess the

firm’s environmental performance. Yet some scholars have expressed reservations about the

actual effectiveness of such committees (Berrone & Gomez-Mejia, 2009), indicating that a board

with environmental oversight signals only that the firm intends to address environmental issues

(Walls, Phan, & Berrone, 2007) and that a negative impact of an environmental mishap is

unlikely, messages that may be enough to make investors assume that the firm is on the right

path (Berrone, Surroca, & Tribo, 2007). To identify those firms that had a environmental

6 See Delmas and Keller (2005) for a complete description of the program.

7 This information was generously provided by a representative of the EPA’s WasteWise Program.

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committee on the board, we used a measure constructed by Berrone and Gomez-Mejia (2009).

They analyzed annual proxy statements searching for dyadic relationships between the items in

an environmental wordlist (the same wordlist we used to compute our measure of environmental

legitimacy) and the word “committee.” The paragraphs extracted were individually inspected to

determine whether or not the company had a committee responsible for environmental issues.

The variable takes the value of “1” if the firm had a board committee responsible for

environmental issues and “0” otherwise.

Environmental pay policies. One way companies signal that they are committed to

environmental issues is by formulating policies that include environmental criteria as a measure

of employees’ efforts, recognize the value of good environmental performance, and assume a

commitment to steadily reward it (Berrone & Gomez-Mejia, 2009; Russo & Harrison, 2005). A

formal tie between environmental performance and employees’ pay may help focus employees’

efforts on environment-related activities (Lothe, Myrtveit, & Trapani, 1999). Still, recent

research (Berrone & Gomez-Mejia, 2009; Russo & Harrison, 2005) has showed that

environmental performance is not necessarily enhanced when there is a formal link between pay

and environmental criteria. In many cases, these pay policies are announced but never

implemented. In other cases, the share of the total incentive package that is tied to environmental

criteria is tiny and unlikely to really affect employees’ decision on where to allocate effort. To

identify those firms with an explicit environmental pay policy we again used a measure

constructed by Berrone and Gomez-Mejia. We analyzed annual proxy statements searching for

paragraphs that contained any word(s) from the environmental wordlist (the same wordlist we

used to compute our measure of environmental legitimacy) plus any word(s) from a pay wordlist.

The pay wordlist included the terms “pay,” “compensation,” “salary,” “wage,” “reward,”

20

“remuneration,” “incentives,” “bonus,” “stock,” and “income.” Finally, we visually inspected the

texts and created a dummy variable that takes the value of “1” if there was at least one explicit

relationship between executive pay and environmental performance in the firm’s annual proxy

statement, and “0” otherwise.

Environmental trademarks. As consumers can be particularly vocal about the

environmental footprint of the products they consume (Polonsky, 1995; Vandermerwe & Oliff,

1990), firms may respond to these pressures with ingratiation actions such as the adoption of

green brands and trademarks, which profess an environmental stance every time consumers look

at the product. This is often expressed by changing the name or label of a product and including

the word “green” in the product’s name. While there is little research on the extent to which

green brands and labels are actually authentic, consumer ombudsmen and related associations

like TerraChoice and EnviroMedia Social Marketing suggest that green brands may not

necessarily mean green companies. To operationalize this cosmetic behavior of firms, we have

resorted to environmental trademarks. We obtained total environmental trademarks registered at

the US Patents and Trademarks Office for each of the firms in the sample for the period under

analysis. We then extracted all the registered trademarks including in their description at least

one of the following keywords: “alternative energy,” “clean,” “Earth,” “eco,” “ecology,”

“environment,” “friendly,” “green,” “natural,” “organic,” “planet,” and “sustainable.” In order to

refine the search, we included words with suffixes and prefixes (e.g., ecology, ecologic,

ecological). The variable was defined as the total number of environmental trademarks registered

in a particular year. For our timeframe there were no firms with more than one environmental

trademark in a given year, so the variable takes the value “0” or “1.”

As we aim at measuring the extent to which an organization resorts to symbolic

21

environmental actions, but we have no prior information about the importance and/or relative

effectiveness of our four indicators, we have built an index that puts equal weight on each of

them. Thus, Symbolic Index, our key measure for symbolic environmental actions, is equal to

their sum. This index has a quite simple interpretation: a value of four characterizes a firm that

uses all four types of symbolic environmental actions, while zero means that the firm does not

resort to any of them.

Controls

Following Deephouse (1996), we further controlled for other potential determinants of

environmental legitimacy such as size, age, and financial performance. Larger firms may have

more contractual and social ties than smaller ones, and also endorsements from actors from their

environments (Pfeffer & Salancik, 1978; Singh, 1986). Older organizations are more likely than

younger ones to develop strong exchange relationships and be endorsed by powerful social

actors (Hannan & Freeman, 1984; Singh, 1986). Additionally, firms with better financial

performance are more efficient than poorer performers at producing goods and services, and

society values such efficiency (Dowling & Pfeffer, 1975; Meyer & Rowan, 1977). We measured

size by the logarithm of the total number of employees, we obtained the foundation year to

compute the firm age, and we proxied financial performance using the annual return on assets

(ROA). All three measures were obtained from the Compustat database. We also included the

firm level of emissions (over sales) as an additional control variable. Ceteris paribus, firms with

higher emissions are expected to have lower environmental legitimacy. Finally, all the

specifications include sector dummies at the two-digit SIC code and annual dummies.

22

Empirical analysis

Given that the dependent variable (Environmental legitimacy) is bounded between -1 and

1, and may have many observations at the boundaries (about 15%), a Tobit model is appropriate.

Also, it is reasonable to think that firm fixed effects may explain part of the variation in our

dependent variable, so we want to include them as controls. Firm fixed effects help to prevent

generating statistically significant coefficients that are simply the result of spurious correlations,

and attenuate possible concerns that endogeneity may affect the explanatory variables. For

instance, one may suspect that the Wall Street Journal could have a certain bias in the type of

firms it covers (perhaps towards bigger firms), and so the fact that for some firms there is no

positive or negative news may reflect not the nonexistence of environmental events but the fact

that some types of firms are not of interest for the journal. Including firm fixed effects in the

estimated models controls for this unobservable factor, especially if we are not analyzing a long

time series. However, when the number of periods of the panel is small, including firm fixed

effects in nonlinear models may produce inconsistent estimates, the so-called incidental

parameters (as discussed in Neyman & Scott, 1948; Wooldridge, 2002). To address this issue we

proceed by reporting first the estimations of the Tobit model with random effects and then those

of a linear model with random and fixed effects.

RESULTS

Table 1 reports some descriptive statistics and correlations of the variables used in the

analysis. The total number of firm/year observations is 1478.

--------------------------------

Insert Table 1 about here

--------------------------------

23

Tables 2, 3, and 4 show the results of modeling environmental legitimacy as a function of

contemporaneous (same year) substantive and symbolic actions and some time-varying controls.

Column 1 reports the results of the Tobit model with random effects, while columns 2 and 3

show the results of the linear model with random and fixed effects respectively.

Results of the Tobit and linear models with random effects are quite similar with regard

to both the signs and the significance of the coefficients (model 1 compared to model 2),

suggesting that the estimation bias resulting from a positive mass in the upper and lower limits of

the distribution of the dependent variable is not too severe. As a result our preferred specification

is always the linear model with fixed effects (column 3) because it controls for unobserved

heterogeneity and, in addition, the Hausman test rejects the use of random effects in favor of

fixed effects.

--------------------------------


--------------------------------

We turn now to the basic findings. Results in Table 2 show that substantive

environmental actions have a positive and significant effect on a firm’s level of environmental

legitimacy, providing support for hypothesis H1.8 The effect of symbolic environmental actions

on environmental legitimacy is positive and significant in the estimations with random effects

but loses significance when we incorporate fixed effects. As we noted above, we believe that the

significance of the coefficient of the Symbolic Index in the specifications with random effects is

8 This result holds when we use other methods to compute the citation-weighted patent index that we employ to construct our Substantive Index. However, when we simply use patent counts (instead of a “value weighted” measure), the coefficient of the Substantive Index loses significance. This is an interesting finding, since it indicates that not every environmental patent is considered an environmental contribution by society; only the most influential ones “count.”

24

likely to reflect correlation rather than a causal relationship between undertaking those actions

and obtaining environmental legitimacy. We have more confidence in the specification with

fixed effects, where the direct effect of symbolic environmental actions is not significant. We

have also estimated Models 1 to 3 in Table 2 including each individual environmental action as

an explanatory variable (that is, without aggregating them into the two indexes and thus

artificially reducing the variability and complexity of some indicators). Results, available from

the authors upon request, confirm that substantive environmental actions have a strong positive

effect on a firm’s environmental legitimacy, while the impact of symbolic environmental actions

is mixed.

Table 3 shows results from a re-estimation of the previous models including the

interaction term between the Substantive Index and the Symbolic Index in order to test

hypotheses H2a and H2b. The estimated effects support our contention that symbolic

environmental actions have a positive significant effect on environmental legitimacy only when

they are coupled with substantive environmental actions. In fact, when the Substantive Index

takes the value zero, the effect of a marginal increase in the Symbolic Index is not significant in

our preferred specification (Model 3), which suggests that firms that do not tangibly improve

their environmental imprint do not benefit from engaging in environmental symbolism.

--------------------------------


--------------------------------

The theoretical arguments developed in the previous section suggest that symbolic

environmental actions should be less effective to gain environmental legitimacy the stronger the

environmental pressures are. In order to further explore this issue we re-estimated models in

25

Tables 2 and 3 restricting the sample to firms in the 5 most polluting sectors.9 This further

sample restriction not only constitutes a valuable robustness check, but also is a key piece of

evidence to support this paper’s theoretical contribution, i.e., clarifying the boundaries of the

applicability of institutional theory to environmental management. Results are reported in Table

4. Interestingly, the coefficient of the Symbolic Index that was negative but not significant with

the whole sample now becomes significant in our preferred model specification (i.e., the one

with fixed effects), indicating that a marginal increase in the number of symbolic environmental

actions when no substantive environmental actions have been observed decreases a firm’s

environmental legitimacy. Figure 1 illustrates the effect of symbolic environmental actions for

the three different levels of the Symbolic Index. This result reinforces the previous evidence,

providing further support to the arguments developed in the theoretical section, and suggests that

in organizational fields with strong environmental pressures the mere appearance of

environmental compliance is a double-edged sword.

--------------------------------


--------------------------------

--------------------------------

Insert Figure 1 about here

--------------------------------

Size, performance, and age are in general not significant in most of the estimated models.

As one would expect, a marginal increase in the level of firm emissions with respect to total sales

(in dollars) reduces the firm’s level of environmental legitimacy. 9 The 5 most polluting U.S. sectors for the analyzed period at the two-digit SIC code are 10, 50, 33, 49, and 28.

26

DISCUSSION AND CONCLUSIONS

Society’s increasing concern regarding the natural ecosystem is placing environmental

management at the top of the corporate agenda. Companies make all sorts of efforts in terms of

greener practices to “save face” and gain the approval of their stakeholders. However, our results

suggest that not all environmental actions are effective in achieving social acceptance, and some

of them might even be deleterious. As a consequence, our work has important implications for

both research and practice.

Implications for Research

One important assumption in institutional theory is that minimum compliance with

stakeholders’ requirements is the optimal behavior to obtain legitimacy, since this allows firms to

respond to external pressures while maintaining internal flexibility and control. However, our

results debunk this assumption: only substantive environmental actions seem to have a clear-cut

positive effect on environmental legitimacy, while environmental symbolism has, if any, a

negative effect. King et al. (2005) found that firms with higher emissions were more likely to

obtain an environmental certification and speculated that this was perhaps because firms use

certification (a symbolic action) to increase legitimacy. On the contrary, we provide empirical

evidence that, in organization fields characterized by strong environmental pressures, it is

extremely difficult to achieve legitimacy only through symbolic environmental actions. Our

results are consistent with environmental management literature suggesting that true value lies in

environmental actions that minimize or eliminate the creation of toxic chemical agents, rather

than in minimal compliance (Christmann, 2000; Hart, 1995; Klassen & Whybark, 1999; Russo &

Fouts, 1997; Sarkis & Cordeiro, 2001).

Our work also has implications for symbolism and impression management research.

27

While our results suggest that symbolic actions may not be sufficient to achieve legitimacy, they

do not indicate that symbolic actions are not important. We showed that symbolic and

substantive actions are actually complementary instead of alternative, and that when combined,

they have a greater impact on legitimacy. Therefore, we question approaches that suggest

decoupling as an effective strategy. Theorists should refine their predictions involving ways to

achieve and maintain legitimacy to recognize that there may be cases and contexts where

symbolic actions in isolation are inadequate. This, we suggest, happens in those organizational

fields populated by hypercritical stakeholders who continuously scrutinize over firms’ behavior

and wrongdoing, and where objective measures of compliance are made public. Under these

circumstances, symbolic actions may actually decrease social acceptance.

We also enrich the legitimacy literature. While legitimacy is a central concept

underpinning many studies (Schuman, 1995), operationalization and empirical analysis of this

construct is rather limited, with a few notable exceptions (Bansal & Clelland, 2004; Deephouse,

1996; Higgins & Gulati, 2003). Like these researchers, we use a measure of legitimacy based on

media accounts in our estimations. However, our work is, to the best of our knowledge, the first

study to systematically examine both symbolic and substantive environmental actions as

determinants of environmental legitimacy. In this way, we contribute to filling the gap in the

literature regarding what firms must do to acquire legitimacy (Zimmerman & Zeitz, 2002)—or,

in our case, what does not work.

Implications for Practice

More and more organizations are jumping on the Green Management bandwagon, but

there is a wide variety in the way they do it. Perhaps the most important message for

practitioners is that only genuinely green credentials are effective in acquiring social legitimacy.

An environmental stance is difficult to fake, especially if your company is within an

28

environmentally sensitive sector. Previous research indicates that managers may opt for symbolic

rather than substantive responses to stakeholders. Our study indicates that this might be a

dangerous strategy. This may be so because symbolic environmental actions are easily copied by

rivals. According to a Sustainable Investment Research Analyst Network study (2008), the

number of large publicly traded U.S. corporations that report on their sustainability efforts has

increased significantly over the past three years; 86 percent of the S&P 100 companies now have

corporate sustainability websites, compared with 58% in mid-2005. Such symbolic actions have

become the norm, and therefore have little potential to differentiate the firm from rivals.

Substantive environmental actions, on the other hand, are more effective in gaining legitimacy

sustainably and therefore constitute a base for a competitive advantage (Hart, 1995; Porter & van

der Linde, 1995).

Our results suggest that a company that merely adopts environmental behaviors in a

symbolic manner decoupled from substantive actions may be perceived as deceitful. Yet our

findings do not suggest that symbolic environmental actions are entirely worthless. When

properly balanced with more definitive environmental responses, symbolic actions are the perfect

complement for substantive endeavors to boost legitimacy. Thus, effective management of

environmental legitimacy implies a balance between symbolic and substantive actions. True,

some authors have suggested that it is more effective to enact a wide variety of symbolic actions

than only a limited set (Zott & Huy, 2007). But this does not seem to be the case for

environmental legitimacy. The message here is clear: more symbolic environmental actions do

not necessarily mean a greener company.

Caveats and Future Research

An important limitation of this work is that we focus exclusively on publicly traded

firms, which are more exposed to public scrutiny; private companies may get away with

29

symbolic actions. New studies could explore the extent to which our conclusions apply to private

companies or family firms. More research in a non–U.S. context could also expand this line of

inquiry. Moreover, given that legitimacy is socially constructed, it has several dimensions, but

the results of this study are confined to environmental legitimacy. Future research could explore

the effect of both symbolic and substantive actions on political or moral legitimacy. Another

limitation is that we tested a reduced number of symbolic and substantive environmental actions.

Others actions like ISO 14001 certification or environmental program training may also

influence environmental legitimacy. Finally, a promising avenue for research is the impact of

symbolic and substantive actions on different time horizons (Delmas & Montes-Sancho, in

press). We conjecture that symbolic environmental actions may have only a short-lived impact

on environmental legitimacy while more definitive responses like environmental innovation or

pollution prevention strategies may have a more enduring effect.

30

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36

TABLE 1

Descriptive Statistics and Correlations

Mean S.D. Min Max 1 2 3 4 5 6 7 8 9 10 11

1. Environmental legitimacy 0.04 0.39 -1 1 1 2. Environmental innovation 0.24 1.38 0 21.98 0.28 1 3. Pollution prevention -0.07 1.05 -2.35 1 0.13 -0.03 1 4. Government programs 0.15 0.35 0 1 0.01 0.09 -0.18 1 5. Environmental committee 0.08 0.27 0 1 0.07 0.09 -0.13 0.07 1 6. Environmental trademarks 0.01 0.08 0 1 0.19 0.37 0.03 0.16 0.07 1 7. Environmental pay policies 0.03 0.17 0 1 0.05 0.10 -0.11 0.08 0.23 0.19 1 8. ROA 2.72 11.77 -49.50 42.63 -0.01 0.04 -0.14 0.13 0.05 0.03 0.07 1 9. Firm size 2.51 1.51 0.05 6.47 0.02 0.12 -0.16 0.24 0.15 0.07 0.11 0.28 1 10. Firm age 43.59 25.19 12 89 -0.01 -0.01 0.03 0.02 0.04 -0.01 -0.03 0.02 0.04 1 11. Emissions over sales 2.11 2.59 0 9.80 0.04 0.10 -0.39 0.17 0.28 0.03 0.20 0.22 0.20 0.02 1

37

TABLE 2

Determinants of Environmental Legitimacy Dependent Variable: Environmental legitimacyt Tobit

(Random effects) (1)

OLS (Random effects)

(2)

OLS (Fixed effects)

(3) Substantive Indext 0.17***

(0.01) 0.14***

(0.01) 0.17*** (0.02)

Symbolic Indext 0.38*** (0.01)

0.03** (0.01)

0.01 (0.02)

ROAt -0.01 (0.01)

-0.01 (0.01)

-0.01 (0.01)

Firm sizet 0.01 (0.01)

0.01 (0.01)

-0.01 (0.05)

Firm aget -0.01 (0.01)

-0.01 (0.01)

0.02*** (0.01)

Emissions per salest -0.03*** (0.01)

-0.02*** (0.01)

-0.03*** (0.01)

Observations Left censored Right censored

1279 78 121

1478 1478

Chi2 (df) 235.89 (36) *** 232.62 (36)***

R2 15.38% 14.18%

All models include sector (at the two digit SIC code) and annual dummies. Standard errors in parentheses. Models 1 and 2 include a constant term.

38

TABLE 3

Determinants of Environmental Legitimacy Dependent Variable: Environmental legitimacyt Tobit



(2)

OLS (Fixed effects)


(0.02) 0.10*** (0.01)

0.13*** (0.02)

Symbolic Indext -0.04*** (0.02)

-0.03* (0.01)

-0.04 (0.03)

Substantive Indext X Symbolic Indext

0.14*** (0.02)

0.08*** (0.01)

0.08*** (0.02)

ROAt -0.01 (0.01)

-0.01 (0.01)

-0.01 (0.01)


0.02 (0.09)

-0.01 (0.01)

Firm aget -0.01 (0.01)

-0.01 (0.01)

0.02*** (0.01)


-0.02*** (0.00)

-0.03*** (0.01)


1279 78

121

1478 1478

Chi2 (df) 260.24(37)*** 272.34(37)***

R2 17.64% 15.38%


39

TABLE 4

Determinants of Environmental Legitimacy (5 Most Polluting Sectors) Dependent Variable: Environmental legitimacyt Tobit



(2)

OLS (Fixed effects)


(0.02) 0.09*** (0.02)

0.09*** (0.02)

Symbolic Indext -0.04 (0.02)

-0.03 (0.02)

-0.08** (0.03)


0.12*** (0.02)

0.08*** (0.02)

0.11*** (0.02)

ROAt -0.01 (0.01)

-0.01 (0.01)

-0.01 (0.01)


0.01 (0.01)

-0.08 (0.07)

Firm aget -0.01 (0.01)

-0.01 (0.01)

0.02* (0.01)

Emissions per salest -0.15 (0.08)

-0.15 (0.07)

-0.02* (0.01)


785 37 86

785 785

Chi2 (df) 143.27(15) 148.83(15)

R2 16.65% 17.17%


41

APPENDIX A

Environmental legitimacy measure

Environmental legitimacyit = 2

2 )(

it

ititit

T

npp − if pit > nit

= 2

2 )(

it

ttt

T

nnp − if pit < nit

= 0 if pit = nit

where pit is the number of positive environmental articles for firm i in year t , nit is the

number of negative environmental articles for firm i in year t, and Tit is the total number of

positive and negative environmental articles for firm i in year t (Tt= pt + nt).

42

APPENDIX B

Pollution prevention measure

First, we obtained a weighted waste score for each facility as follows,

kl

k l

kltjt fEww *∑∑= ,

where kltE is the emissions of chemical l to medium k in year t by facility j; and klf is the

weighting factor corresponding to chemical l emitted to medium k.

Next, we made a prediction of waste generation using the reported Production

Ratios as in the next equation,

11 *_Pr ++ ∑= jtj

jtit PRwwwasteedicted

Finally, we computed the difference between actual waste and predicted waste and

aggregate at the parent firm level to obtain a firm measure of pollution prevention as we

show next,

Pollution preventionit+1 ,* 11 ∑∑ ++ −=j

jtjt

j

jt wwPRww

where j are the facilities that belong to firm i.

If actual waste level is lower than the predicted level, formula 2 would yield positive values,

evidencing reduction of waste generation. Thus, bigger values are associated with better PP

performance.

43

APPENDIX C

Environmental innovation measure

Environmental innovationit = itit Patentsw *

with wit =

t

Ni

i

it

it

N

PatentsCitations

PatentsCitations

∑=

=

÷

÷

1

)(

)(

and where itPatents denotes total environmental patents of firm i granted during year t,

itCitations denotes all the citations received by the patents granted to firm i during year t,

and Nt denotes the total number of firms in the sample for year t.

44

APPENDIX D

TABLE D1

Determinants of Environmental Legitimacy Dependent Variable: Environmental legitimacyt (alternative measure) Tobit



(2)

OLS (Fixed effects)

(3) Substantive Indext 0.09**

(0.04) 0.08

(0.20) 0.01

(0.02)

Symbolic Indext -0.12** (0.05)

-0.01 (0.02)

-0.02 (0.02)


-0.03 (0.03)

0.01 (0.01)

0.01 (0.01)

ROAt 0.01* (0.01)

0.02* (0.01)

0.02* 0.01

Firm sizet 0.10*** (0.01)

0.03 (0.03)

0.08 (0.06)

Firm aget 0.01* (0.00)

0.01 (0.01)

0.02* (0.01)


-0.06*** (0.01)

-0.05*** (0.02)


608 123 61

608 608

Chi2 (df) 252.50(11) 86.18(29)

R2 28.05% 5.60%

All models include sector (at the two digit SIC code) and annual dummies. Standard errors in parentheses. Models 1 and 2 include a constant term. Environmental legitimacy was obtained by computing the Janis Fadner index of imbalance using environmental strengths and environmental concerns from the KLD database. A detailed description of each of the environmental strengths and concerns can be obtained at www.kld.com.

45

TABLE D2

Determinants of Environmental Legitimacy (5 Most Polluting Sectors) Dependent Variable: Environmental legitimacyt (alternative measure) Tobit



(2)

OLS (Fixed effects)

(3) Substantive Indext

0.18*** (0.05)

0.05* (0.03)

0.07* (0.037)

Symbolic Indext -0.19*** (0.05)

-0.06* (0.03)

-0.04 (0.02)


0.11*** (0.04)

-0.01 (0.02)

0.03 (0.03)

ROAt 0.06** (0.02)

0.03** (0.01)

0.03** (0.01)

Firm sizet 0.19* (0.06)

0.04* (0.02)

0.06 (0.11)

Firm aget -0.02 (0.02)

0.01 (0.01)

-0.01 (0.01)


-0.04*** (0.01)

-0.05 (0.25)


284 38 43

284 284

Chi2 (df) 161.53(11) 41.75(14)

R2 23.12 8.37%

All models include sector (at the two digit SIC code) and annual dummies. Standard errors in parentheses. Models 1 and 2 include a constant term. Environmental legitimacy was obtained by computing the Janis Fadner index of imbalance using environmental strengths and environmental concerns from the KLD database. A detailed description of each of the environmental strengths and concerns can be obtained at www.kld.com.

gaining environmental legitimacy does symbolism …€¦ · legitimacy, i.e., the external...

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