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Use of Discretionary Environmental Accounting Narratives to Influence Stakeholders: The Case of Jurors’ Award Assessments

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Abstract

This experimental study extends prior capital market and environmental accounting research by utilizing the theoretical underpinnings of legitimation through impression management, source credibility bias, perceived trust, and ideology in assessing the influence of discretionary environmental accounting narratives on jurors’ punitive damage award assessments. We utilize mock jurors as environmental stakeholders and find that: (1) jurors in a court case involving corporate environmental malfeasance assess lower punitive damage awards against a firm that provides discretionary disclosure on its website regarding future abatement and control narratives, (2) environmental sensitivity of the firm’s industry moderates the negative relationship between the discretionary disclosure and jurors’ punitive damage award assessments, and (3) juror’s perceived trust toward firm management mediates the prior moderation effect. Further, juror political ideology is found to affect the punitive damage award assessments, with liberal jurors levying comparatively higher awards than conservative jurors.

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Notes

  1. Even for those states that restrict in-trial internet usage, jurors typically have full access to mass media on all kinds of publicly-available information outside the courtroom (Morrison 2011). Thus, it comes as no surprise that around 80 % of judges, in a recent nationwide survey, responded that they had no way of knowing jurors’ internet use in the course of a trial (Dunn 2011).

  2. In line with definition from prior literature, environmentally sensitive industries are defined as those “whose processes place greater stress on the natural environment” (Cho et al. 2010, p. 438).

  3. Between the two predominant types of litigation awards, a compensatory damage award is determined largely from an objective assessment of the case facts (Bornstein and Rajki 1994; Diamond and Casper 1992), while a punitive damage award primarily involves jurors inferring the defendant’s intent by considering the historical relationship between the corporate defendant and the environment, as well as the defendant’s disclosure actions (Anderson and MacCoun 1999).

  4. Prior literature has established individual jurors’ verdicts as proxy for final jury verdicts (Kadous and Mercer 2012).

  5. We consider college students who meet the legal qualifications for jury duty as reasonable surrogates for actual jurors, since prior research has found no systemic difference in mock juror decisions when comparing college students to samples from the general population in both audit malpractice (Kadous 2000) and product liability (Zickafoose and Bornstein 1999) trials. Studies by Green et al. (2002) further found a statistically meaningful evidence of stable, long-term partisan attachment across the varied age strata in general.

  6. In order to minimize any possibility of social desirability issues in responses, these participants’ identities were kept anonymous throughout the experiment. Identities of the participating organizations were also withheld upon their requests for confidentiality.

  7. These requirements included holding United States citizenship and attaining at least the age of 18 (U.S. Courts 2010).

  8. A prior pilot study conducted with a group of students affirmed suitability in the areas of duration, wordings and testing appropriateness, with minor modifications made in the actual study.

  9. Actual examples of corporate environmental infraction can be found on the Morgan Stanley Capital International—Environmental, Social and Governance (MSCI-ESG) database (http://www.msci.com/products/esg/about_msci_esg_research.html).

  10. The firm’s identity was kept fictitious and its financial figures were different from the annual reports of any actual public-listed company to prevent juror responses from being driven by his/her preconceived notion of any particular company or industry that could in turn lead to possible floor/ceiling effect in punitive damage award assessment. The non-student, community participants were also asked (on a yes–no scale) at the end of the experiment, and all of them answered in the affirmative, the following question, “Having read the case, do you think the compensatory and punitive damage amounts were realistic in relation to the financial figures provided?”

  11. This disclosure, presented as an abridged format, mimics that adopted by public companies in reality (e.g., http://www.jnj.com/responsibility/our-commitment/successes-and-challenges; http://www.bp.com/sectionbodycopy.do?categoryId=3316&contentId=7073644).

  12. A prior established court ruling (see Nixon Peabody LLP 2005) was used as the benchmark for an appropriate compensatory damage range.

  13. As robustness checks, separate EFA and CFA were conducted across different demographic compositions (e.g., student class levels as well as student-versus-community sample groups), with all results remaining qualitatively unchanged (p > 0.100).

  14. Parametric testing of homogeneity of variance using Levene’s test of equality of error variances affirmed a sufficiently normal data [F(3,244) = 1.534, p = 0.206]. Even performing nonparametric (Wilcoxon) tests on H1 and H2 did not qualitatively vary the parametric results reported. Effect size calculations also ascertained a sufficiently high power for all factors (all d > 0.6), confirming sufficiency of sample size used.

  15. Robustness checks of H1 and H2 findings were also conducted using different demographic compositions, with H1 and H2 results remaining qualitatively unchanged (all p > 0.100).

  16. Similar to that of H1 and H2, robustness check of H3 finding was conducted using different demographic compositions, with H3 findings remaining qualitatively unchanged (p > 0.100).

  17. Path analyses of Fig. 2 also affirmed mediated-moderation test in H3, showing that moderation of industry effect on disclosure is mediated by jurors’ trust toward management in affecting judgments for punitive award.

  18. In Figure 3, we divided the eleven-point Likert-scaled political ideology responses into three strata (0–3 as liberal, 4–6 as moderate, 7–10 as conservative). Post hoc, multiple comparison tests affirmed significant mean judgment differences among the strata (p < 0.010).

  19. Conducting a factor analysis with varimax rotation on the three covariates of political ideology, business and environmental sustainability yielded KMO = 0.655, with Bartlett’s test of sphericity χ2 (df = 3) = 519.605, p < 0.000. This indicates a sufficiently large correlation among the items. Also, one unified component that had eigenvalue over Kaiser’s criterion of 1 and that explained 79.524 % of the variance in combination was obtained.

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  1. Department of Accounting, College of Business Administration, University of Northern Iowa, Cedar Falls, IA, 50614, USA

    W. Eric Lee

  2. Department of Accounting and Information Systems, School of Business, University of Kansas, Lawrence, KS, 66045, USA

    John T. Sweeney

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Lee, W.E., Sweeney, J.T. Use of Discretionary Environmental Accounting Narratives to Influence Stakeholders: The Case of Jurors’ Award Assessments. J Bus Ethics 129, 673–688 (2015). https://doi.org/10.1007/s10551-014-2191-y

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  • DOI: https://doi.org/10.1007/s10551-014-2191-y

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