Hypocrisy and legitimacy in the aftermath of a scandal: an experimental study of stakeholder perceptions of nonfinancial disclosure

Purpose: This study aims to investigate how stakeholders perceive the company’s nonfinancial disclosure after a scandal has occurred. More specifically, we examine whether and how sustainability reporting practices in the aftermath of a scandal can influence the perceptions of stakeholders in terms of hypocrisy and legitimacy.

Design/methodology/approach: The present research represents a companion paper to another study in this issue that investigates the adaptation of companies’ reporting behaviors after a scandal. The results of the initial qualitative study informed the subsequent quantitative study developed in this article. We build on the evidence of the main paper and perform a 2x2 between-subjects experiment to examine how stakeholders perceive the actions of companies that aim to restore their eroded legitimacy through social, environmental, and sustainability reporting.

Findings: The results suggest that companies that take responsibility and develop remedial, socially responsible corporate activities are perceived as less hypocritical and more legitimate. Moreover, we show an interaction effect between taking responsibility and developing remedial socially responsible actions on hypocrisy and legitimacy perception.

Originality/value: The present research takes advantage of an experimental design to investigate the effects of the adaptation of social, environmental, and sustainability reporting from the perspective of stakeholders. The study provides insightful theoretical and practical implications for managers regarding how to handle a reputational loss and avoid perceptions of hypocrisy