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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,”
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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
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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.
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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
--------------------------------
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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.
--------------------------------
Insert Table 2 about here
--------------------------------
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.”
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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.
--------------------------------
Insert Table 3 about here
--------------------------------
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
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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 Table 4 about here
--------------------------------
--------------------------------
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.
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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.
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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
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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
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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.
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30
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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
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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.
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38
TABLE 3
Determinants of Environmental Legitimacy Dependent Variable: Environmental legitimacyt Tobit
(Random effects) (1)
OLS (Random effects)
(2)
OLS (Fixed effects)
(3) Substantive Indext 0.11***
(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)
Firm sizet 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)
Emissions per salest -0.02*** (0.01)
-0.02*** (0.00)
-0.03*** (0.01)
Observations Left censored Right censored
1279 78
121
1478 1478
Chi2 (df) 260.24(37)*** 272.34(37)***
R2 17.64% 15.38%
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.
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39
TABLE 4
Determinants of Environmental Legitimacy (5 Most Polluting Sectors) Dependent Variable: Environmental legitimacyt Tobit
(Random effects) (1)
OLS (Random effects)
(2)
OLS (Fixed effects)
(3) Substantive Indext 0.10***
(0.02) 0.09*** (0.02)
0.09*** (0.02)
Symbolic Indext -0.04 (0.02)
-0.03 (0.02)
-0.08** (0.03)
Substantive Indext X Symbolic Indext
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)
Firm sizet 0.02 (0.02)
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)
Observations Left censored Right censored
785 37 86
785 785
Chi2 (df) 143.27(15) 148.83(15)
R2 16.65% 17.17%
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.
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40
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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).
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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.
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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.
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44
APPENDIX D
TABLE D1
Determinants of Environmental Legitimacy Dependent Variable: Environmental legitimacyt (alternative measure) Tobit
(Random effects) (1)
OLS (Random effects)
(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)
Substantive Indext X Symbolic Indext
-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)
Emissions per salest -0.10*** (0.01)
-0.06*** (0.01)
-0.05*** (0.02)
Observations Left censored Right censored
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.
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45
TABLE D2
Determinants of Environmental Legitimacy (5 Most Polluting Sectors) Dependent Variable: Environmental legitimacyt (alternative measure) Tobit
(Random effects) (1)
OLS (Random effects)
(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)
Substantive Indext X Symbolic Indext
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)
Emissions per salest -0.07*** (0.02)
-0.04*** (0.01)
-0.05 (0.25)
Observations Left censored Right censored
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.