The Psychological Influences Driving Management’s Disclosure of Overstated Environmental Projections

• In Event: Corporate Social Responsibility

Abstract

Prior research indicates managers often significantly overstate their company’s annual projected environmental capital expenditures (ECE) as disclosed in 10K reports relative to the actual spending in the subsequent years. The managers of these companies must believe there is some benefit in overstating environment projections, but the benefit and underlying motivation are still unclear. The objective of this study is to examine whether maintaining the status quo is one of the factors behind managers’ decisions to overstate environmental projections. Leveraging system justification theory (SJT) and an experimental design, I find that managers are more likely to overstate ECE projections when the industry they are operating within exhibits a propensity for overstated ECE projections. They thus appear to make projections in line with the status quo condition. I further find that, within the status quo condition, managers are more likely to “dig in their heels” and overstate ECE projections when faced with a stakeholder threat. This study extends the findings of prior literature on environmental capital projections by examining the impact of status quo maintenance and the level of threat to the social system (i.e. environmental reporting) on managers’ environmental projections.

Author

• Wioleta Celina Olczak, Marquette University