Abstract
Financial analysts’ role as information intermediaries between management teams and investors is vital for the efficient allocation of resources on the stock market. The increased focus on sustainability information in corporate reports has affected financial analysts in their important work of interpreting, assessing and communicating value-added information to their clients, i.e. the investors. The challenges they face relate to the ambiguous nature of sustainability information and its difference from traditional financial information. How do analysts reach through this smokescreen? How do analysts make sense of sustainability information, and how do they give sense to this information when they provide investment advices to their investors? In this chapter, these challenges are addressed from a cognitive-frame perspective. We argue that the first part of 2000s was characterized by cognitive dissonance due to both a low social legitimacy and a low cognitive legitimacy, i.e. sustainability was not yet requested by the investors to be attended to and it was regarded too ambiguous to be relevant for being considered in a valuation context. In the latter part of 2010s, we argue that there is only a partial cognitive dissonance. At this time, sustainability information is beginning to be socially legitimate and requested by investors. However, the complexity of the situation remains. This type of information is still not considered as cognitive legitimate due to the ambiguous nature, which renders difficulties for the sense-making and sense-giving processes. The findings have implications not the least in the ongoing quest of developing frameworks, standards and legislation (e.g. the EU directive (2014/EU/95)), that opt for improving the relevance, credibility and comparability of sustainability information.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Abhayawansa, S., Bowden, M., & Pillay, S. (2017). Students’ conceptions of learning in the context of an accounting degree. Accounting Education, 26(3), 213–241.
Abhayawansa, S., Elijido‐Ten, E., & Dumay, J. (2018). A practice theoretical analysis of the irrelevance of integrated reporting to mainstream sell‐side analysts. Accounting and Finance, 57(4), 38.
Aerts, W., Cormier, D., & Magnan, M. (2008). Corporate environmental disclosure, financial markets and the media: An international perspective. Ecological Economics,64(3), 643–659.
Akerlof, G. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500.
Arvidsson, S. (2003). Demand and supply of information on intangibles: The case of knowledge-intense companies. Ph.D. dissertation, Department of Business Administration, Lund University, Lund University Press.
Arvidsson, S. (2010). Communication of corporate social responsibility: A study of the views of management teams in large companies. Journal of Business Ethics,96, 339–354.
Arvidsson, S. (2011). Disclosure of non-financial information in the annual report: A management-team perspective. Journal of Intellectual Capital,12(2), 277–300.
Arvidsson, S. (2012). The corporate communication process between listed companies and financial analysts: A focus on trends and challenges. Corporate Communication: An International Journal,17(2), 98–112.
Arvidsson, S. (2014). Corporate social responsibility and stock market actors: A comprehensive study. Social Responsibility Journal,10(2), 210–225.
Arvidsson, S. (November 2018, forthcoming). The 1st SUBREA conference report. Media Tryck, Lund, Sweden.
Awamleh, R., & Gardner, W. L. (1999). Perceptions of leader charisma and effectiveness: The effects of vision content, delivery, and organizational performance. The Leadership Quarterly,10(3), 345–373.
Bartunek, J. M. (1984). Changing interpretive schemes and organizational restructuring: The example of a religious order. Administrative Science Quarterly, 29(3), 355–372.
Bean, C. J., & Hamilton, F. E. (2006). Leader framing and follower sensemaking: Response to downsizing in the brave new workplace. Human Relations,59(3), 321–349.
Berger, P. L., & Luckmann, T. (1991). The social construction of reality: A treatise in the sociology of knowledge (No. 10). London: Penguin UK.
Beyer, A., Cohen, D. A., Lys, T. Z., & Walther, B. R. (2010). The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2), 296–343.
Bommer, W. H., Rich, G. A., & Rubin, R. S. (2005). Changing attitudes about change: Longitudinal effects of transformational leader behavior on employee cynicism about organizational change. Journal of Organizational Behavior,26(7), 733–753.
Brown, L. D., Call, A. C., Clement, M. B., & Sharp, N. Y. (2016). The activities of buy-side analysts and the determinants of their stock recommendations. Journal of Accounting and Economics, 62(1), 139–156.
Brown, N., & Deegan, C. (1998). The public disclosure of environmental performance information—a dual test of media agenda setting theory and legitimacy theory. Accounting and Business Research, 29(1), 21–41.
Cahan, S. F., de Villiers, C., Jeter, D. C., Naiker, V., & van Staden, C. J. (2016). Are CSR disclosure value relevant? Cross-country evidence. European Accounting Review,25(3), 579–611.
Chang, C. H., & Chen, Y. S. (2012). The determinants of green intellectual capital. Management Decision, 50(1), 74–94.
Chauvey, J. N., Giordano-Spring, S., Cho, C. H., & Patten, D. M. (2015). The normativity and legitimacy of CSR disclosure: Evidence from France. Journal of Business Ethics, 130(4), 789–803.
Cho, C. H., Michelon, G., Patten, D. M., & Roberts, R. W. (2015). CSR disclosure: The more things change…? Accounting, Auditing & Accountability Journal, 28(1), 14–35.
Clatworthy, M., & Lee, E. (2018). Financial analysts’ role in valuation and stewardship.
Cornett, M. M., Erhemjamts, O., & Tehranian, H. (2016). Greed or good deeds: An examination of the relation between corporate social responsibility and the financial performance of US commercial AMCs around the financial crisis. Journal of Banking & Finance,70, 137–159.
Currie, G., & Brown, A. (2003). A narratological approach to understanding processes of organizing in a UK hospital. Human Relations,56, 563–586.
Dameri, R. P., & Ricciardi, F. (2015). Smart city intellectual capital: An emerging view of territorial systems innovation management. Journal of Intellectual Capital, 16(4), 860–887.
DeCelles, K. A., Tesluk, P. E., & Taxman, F. S. (2013). A field investigation of multilevel cynicism toward change. Organization Science,24(1), 154–171.
Deegan, C. (2002). Introduction: The legitimising effect of social and environmental disclosures—A theoretical foundation. Accounting, Auditing and Accountability Journal,15(3), 282–311.
Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. Accounting Review,86(1), 59–100.
Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy,33(4), 328–355.
Dhaliwal, D. S., Radhakrishnan, S., Tsang, A. H., & Yang, Y. G. (2012). Nonfinancial disclosure and analyst forecast accuracy: International evidence on corporate social responsibility disclosure. The Accounting Review,87(3), 723–759.
Dienes, D., Sassen, R., & Fischer, J. (2016). What are the drivers of sustainability reporting? A systematic review. Sustainability Accounting, Management and Policy Journal,7(2), 154–189.
Dowling, J., & Pfeffer, J. (1975). Organizational legitimacy: Social values and organizational behaviour. The Pacific Sociological Review,18(1), 122–136.
Dutot, V., Lacalle Galvez, E., & Versailles, D. W. (2016). CSR communications strategies through social media and influence on e-reputation: An exploratory study. Management Decision, 54(2), 363–389.
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science,60(11), 2835–2857.
Emerson, J. (2003). The blended value proposition: Integrating social and financial returns. California Management Review,45(4), 35–51.
Emeseh, E., & Songi, O. (2014). CSR, human rights abuse and sustainability report accountability. International Journal of Law and Management, 56(2), 136–151.
Essland, C., & Olausson, A. (2018). Barriers for responsible investments: Facilitating a greener economy—A multiple case study of asset management companies. Master Thesis, Luleå University of Technology.
European Commission. (2014). Directive on disclosure of non-financial and diversity information by certain large companies (2014/95/EU). Brussels.
Festinger, L. (1962).A theory of cognitive dissonance (Vol. 2). Stanford, CA: Stanford University Press.
Foote, J., Gaffney, N., & Evans, J. R. (2010). Corporate social responsibility: Implications for performance excellence. Total Quality Management, 21(8), 799–812.
Frankental, P. (2001). Corporate social responsibility—A PR invention? Corporate Communications: An International Journal,6(1), 18–23.
Gephart, R. P., Topal, C., & Zhang, Z. (2010). Future-oriented sensemaking: Temporalities and institutional legitimation. In Process, Sensemaking, and Organizing (pp. 275–312). Oxford: Oxford University Press.
Gioia, D. A., & Chittipeddi, K. (1991). Sensemaking and sensegiving in strategic change initiation. Strategic Management Journal,12(6), 433–448.
Gioia, D. A., & Thomas, J. B. (1996). Identity, image, and issue interpretation: Sensemaking during strategic change in academia. Administrative Science Quarterly, 41(3), 370–403.
Gioia, D. A., Thomas, J. B., Clark, S. M., & Chittipeddi, K. (1994). Symbolism and strategic change in academia: The dynamics of sensemaking and influence. Organization Science, 5(3), 363–383.
Groysberg, B., Healy, P. M., & Maber, D. A. (2011). What drives sell‐side analyst compensation at high‐status investment banks? Journal of Accounting Research, 49(4), 969–1000.
Hahn, R., & Kühnen, M. (2013). Determinants of sustainability reporting: A review of results, trends, theory, and opportunities in an expanding field of research. Journal of Cleaner Production,59, 5–21.
Hallvarsson, M. (2009). Rimliga Ambitioner Med CSR? [Reasonable Ambitions with CSR?]. In T. Borglund, H. De Geer, & M. Hallvarsson (Eds.), Värdeskapande CSR – Hur företag tar socialt ansvar (pp. 145–156). Stockholm, Sweden: Norstedts Aka- demiska Förlag.
Hooghiemstra, R. (2000). Corporate communication and impression management—New perspectives why companies engage in corporate social reporting. Journal of Business Ethics,27(1–2), 55–68.
Ifvarsson, C. (2000). Sensemaking and management: A theoretical discussion with research implications. Doctoral dissertation, Luleå tekniska universitet.
Imam, S., Barker, R., & Clubb, C. (2008). The use of valuation models by UK investment analysts. European Accounting Review, 17(3), 503–535.
Ivković, Z., & Jegadeesh, N. (2004). The timing and value of forecast and recommendation revisions. Journal of Financial Economics, 73(3), 433–463.
Johansson, J. (1998). Direct contacts between financial analysts and traded companies. Licentiate dissertation, Luleå. Retrieved from http://urn.kb.se/resolve?urn=urn:nbn:se:ltu:diva-18509.
Johansson, J. (2004). Recommendation changes in walls of glass: Perceived roles and relative importance of direct contacts. Doctoral dissertation, Luleå tekniska universitet.
Johansson, J. (2007). Sell-side analysts’ creation of value—Key roles and relational capital. Journal of Human Resource Costing and Accounting,11(1), 30–52.
Johansson, J., & Malmström, M. (2013). The business model transparency paradox in innovative growth ventures: Trade-offs between competitive advantages and agency costs. Journal of Entrepreneurship Research, 3(2), 238–263.
Larrinaga, C., Carrasco, F., Correa, C., Llena, F., & Moneva, J. (2002). Accountability and accounting regulation: The case of the Spanish environmental disclosure standard. European Accounting Review, 11(4), 723–740.
Malmström, M., Johansson, J., & Wincent, J. (2015). Cognitive constructions of low-profit and high-profit business models: A repertory grid study of serial entrepreneurs. Entrepreneurship Theory and Practice,39(5), 1083–1109.
Malmström, M., Johansson, J., & Wincent, J. (2017). Gender stereotypes and venture support decisions: How governmental venture capitalists socially construct entrepreneurs’ potential. Entrepreneurship,41(5), 833–860. https://doi.org/10.1111/etap.12275.
Massaro, M., Dumay, J., Garlatti, A., & Dal Mas, F. (2018). Practitioners’ views on intellectual capital and sustainability: From a performance-based to a worth-based perspective. Journal of Intellectual Capital (just-accepted), 19(2), 367–386. https://doi.org/10.1108/JIC-02-2017-0033.
Morsing, M., & Schultz, M. (2006). Corporate social responsibility communication: Stakeholder information, response and involvement strategies. Business Ethics: A European Review,15(4), 323–338.
Nasim, S., & Sushil. (2011). Revisiting organizational change: Exploring the paradox of managing continuity and change. Journal of Change Management, 11(2), 185–206.
Newell, P., & Paterson, M. (2009). The politics of the carbon economy. The Politics of Climate Cchange: A Survey, 80–99.
Nilsson, J., Jansson, J., Isberg, S., & Nordvall, A. C. (2014). Customer satisfaction with socially responsible investing initiatives: The influence of perceived financial and nonfinancial quality. Journal of Financial Services Marketing,19(4), 265–276.
Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review,16(1), 145–179.
Parker, L. D. (2005). Social and environmental accountability research: A view from the commentary box. Accounting, Auditing and Accountability Journal,18(6), 842–860.
Patten, D. M. (2013). Lessons from the third wave: A reflection on the rediscovery of corporate social responsibility by the mainstream accounting research community. Financial Reporting,2(2), 9–26.
Pedrini, M. (2007). Human capital convergences in intellectual capital and sustainability reports. Journal of Intellectual Capital, 8(2), 346–366.
Perez, F., & Sanchez, L. E. (2009). Assessing the evolution of sustainability reporting in the mining sector. Environmental Management, 43(6), 949–961.
Ramiah, V., Gregoriou, G., von Müller, C., & Brieger, S. (2016). Handbook of environmental and sustainable finance (pp. 131–145). Amsterdam: Elsevier, Academic Press.
Rerup, C., & Feldman, M. S. (2011). Routines as a source of change in organizational schemata: The role of trial-and-error learning. Academy of Management Journal,54(3), 577–610.
Rosen, H., & Kuehlwein, K. T. (1996). Constructing realities: Meaning-making perspectives for psychotherapists. San Francisco, CA: Jossey-Bass.
Salzedo, C., Young, S., & El-Haj, M. (2018). Does equity analyst research lack rigour and objectivity? Evidence from conference call questions and research notes. Accounting and Business Research, 48(1), 5–36.
Schipper, K. (1991). Analysts’ forecasts. Accounting Horizons, 5(4), 105.
Scott, W. R. (1994). Institutions and organizations: Toward a theoretical synthesis. In W. R. Scott & J. W. Meyer (Eds.), Institutional environments and organizations: Structural complexity and individualism (pp. 55–80). Thousand Oaks, CA: Sage.
Scott, W. R. (1995). Institutions and organizations. Thousand Oaks, CA: Sage.
Scott, W. R. (2014). Institutions and organizations: Ideas, interests and identity.
Schön, D. A., & Rein, M. (1994). Frame reflection: Toward the resolution of intractable policy disputes.
Senge, P. M. (1990). The art and practice of the learning organization.
Share Action. (2017, February). ShareAction, the UK-based campaign group, and Boston Common Asset Management, the US SRI specialist, are working together on a shareholder engagement programme with banks in Europe and the US on climate change. https://shareaction.org/.
Sievänen, R., Rita, H., & Scholtens, B. (2013). The drivers of responsible investment: The case of European pension funds. Journal of Business Ethics,117(1), 137–151.
Smith, W. K., & Lewis, M. W. (2011). Toward a theory of paradox: A dynamic equilibrium model of organizing. Academy of Management Review,36(2), 381–403.
Sonenshein, S. (2010). We’re changing—Or are we? Untangling the role of progressive, regressive, and stability narratives during strategic change implementation. Academy of Management Journal,53(3), 477–512.
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review,20(3), 571–610.
Suddaby, R., & Greenwood, R. (2005). Rhetorical strategies of legitimacy. Administrative Science Quarterly, 50(1), 35–67.
Swedish Pension Agency. (2016, September 23). Statistik över hållbara fonder inom premiepensionssystemet.
UN Sustainable-development-goals. (2018). https://www.un.org/sustainabledevelopment/sustainable-development-goals/.
UNWCED (United Nation World Commission on Environment and Development). (1987). Report of the United Nation World Commission on environment and development ‘our common future’ (the Brundtland report). (Item 83, 42nd Session of the United Nations General Assembly).
Walsh, J. P. (1995). Managerial and organizational cognition: Notes from a trip down memory lane. Organization Science,6(3), 280–321.
Wasiluk, K. L. (2013). Beyond eco-efficiency: Understanding CS through the IC practice lens. Journal of Intellectual Capital, 14(1), 102–126.
Weick, K. (1979). The social psychology of organizing. New York: McGraw-Hill.
Weick, K. E. (1993). The collapse of sensemaking in organizations: The Mann Gulch disaster. Administrative Science Quarterly, 628–652.
Weick, K. E. (1995). Sensemaking in organizations (Vol. 3). Sage.
Weick, K., Sutcliffe, K. M., & Obstfeld, D. (2005). Organizing and the process of sensemaking. Organization Science,16(4), 409–421.
Zimmerman, M. A., & Zeitz, G. J. (2002). Beyond survival: Achieving new venture growth by building legitimacy. Academy of Management Review,27(3), 414–431.
Zhou, S., Simnett, R., & Green, W. (2017). Does integrated reporting matter to the capital market? Abacus,53(1), 94–132.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Arvidsson, S., Johansson, J. (2019). Sense-Making and Sense-Giving: Reaching Through the Smokescreen of Sustainability Disclosure in the Stock Market. In: Arvidsson, S. (eds) Challenges in Managing Sustainable Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-93266-8_4
Download citation
DOI: https://doi.org/10.1007/978-3-319-93266-8_4
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-93265-1
Online ISBN: 978-3-319-93266-8
eBook Packages: Business and ManagementBusiness and Management (R0)