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  • Title : Stock Markets Reaction to Disclosure of Environmental Violations: Evidence from China
  • Changes in value of the Chinese market are much lower than changes in the markets values of other countries

Legitimacy Theory

  • Legitimacy theory is the theoretical basis in this article; it seeks to explain the relationship between environmental and social events in regards to the stock market

Four Phases of Legitimacy Theory

  • establishing legitimacy
  • maintaining legitimacy
  • extending legitimacy
  • defending legitimacy

Disclosure Strategies

  • Samkin & Schneider, (2010) Identified four disclosure strategies necessary, in order for an organisation to achieve and maintain legitimisation

Other Disclosure Theories

  • There are two other main theories that seek to explain organisational disclosure behaviors
  • They are:
  • stakeholder theory, and
  • institutional theory
  • Another possible theory is media agenda setting theory

Conclusion

The main theoretical basis for the article was legitimacy theory but other theories such as stakeholder theory also provide insights into the findings in the article.

Main criticisms of using positive accounting theory were found to be the causal linkage effect and the use of scientific methods.

Theories overall can be very useful in explaining why things happen the way they do and therefore provide a foundation for formulating predictions

Questions?

Institutional Theory

Media Agenda setting Theory

Legitimacy Theory

By: Elsabé Kotzé

Lana Maughan

Jamie Mariu

Main Findings of Article

Stated limitation

The Article

unable to establish the impact of managerial behaviors

Stakeholder Theory

Purpose

Methods

Main purpose of the article:

  • to examine the extent to which the Chinese stock market responds to the disclosure of environmental violation events (EVE)

  • findings were used to compare the results of EVE’s in other markets

Scientific methods used includes:

  • event study (a widely used scientific method in the finance domain)

  • multivariate method

  • Data was collected from China Accounting and Finance Research Center

The social contract

PAT

  • Reactive approach- organisations agree to comply with society’s expectations in order to receive approval for its activities
  • terms are mostly implied - will adapt to changes in expectations
  • Compliance = continued existence
  • four phases
  • This is a positive accounting theory (PAT)
  • make use of scientific methods for testing
  • relies on the social contract

Defending Legitimacy

1. Strategy

Establishing Legitimacy

3. Strategy

2. Strategy

Extending Legitimacy

Maintaining Legitimacy

4. Strategy

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