Intra-industry imitation in corporate environmental reporting: An international perspective

Journal of Accounting and Public Policy 25 (2006) 299–331

www.elsevier.com/locate/jaccpubpol

Intra-industry imitation incorporate environmental reporting:

An international perspective

Walter Aerts a,*, Denis Cormier b, Michel Magnan c

a Faculty of Applied Economics, University of Antwerp, Prinsstraat 13,

B-2000 Antwerpen, Belgiumb Ecole des sciences de la gestion, Universite du Quebec a Montreal, C.P. 8888,

succ. Centre-ville, Montreal, Que., Canada H3C 1P8c John Molson School of Business, Concordia University, 1455, de Maisonneuve Blvd.

West Montreal, Que., Canada H3G 1M8

Abstract

Relying on an institutional theory framework, we assert that the cognitive uncer-tainty surrounding the means and ends of corporate environmental reporting (CER)implies that its appropriateness is likely to be derived through social comparison pro-cesses. Since for CER purposes, a firm’s own industry is likely to constitute an organi-zational field from which emanate strong conformity pressures, we expect firms toengage in mimetic behavior that is driven by their industry counterparts’ own imitationpatterns. We explore such intra-industry imitation in CER over a six-year period in asample of large firms from three different countries: Canada, France and Germany.

Results suggest that, in a given year, a firm’s imitation of other firms’ CER within itsindustry is determined by the tendency of other firms within the industry to imitate oneanother. This mimetic process is enhanced in highly concentrated industries and is weak-ened when a firm is subject to public media exposure. Some economic variables that mayrepresent coercive forces and a firm’s dependence upon financial resources providers also

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300 W. Aerts et al. / Journal of Accounting and Public Policy 25 (2006) 299–331

contribute to a firm’s imitation profile. Moreover, it appears that high quality reportingis more likely to generate these mimetic behaviors than low quality reporting. In addi-tion, through routine, a firm’s own practice in a prior year determines its tendency to imi-tate its reference group in the current year. Forces that underlie imitation differ to someextent between countries. Overall, results are consistent with an institutional mimetisminterpretation of intra-industry imitation.� 2006 Elsevier Inc. All rights reserved.

Keywords: Environmental reporting; Institutional theory; Legitimacy theory; Mimetism

1. Introduction

Environmental reporting typically occupies a prominent place within a firm’sdisclosure strategy since environmental issues are a key concern to investors andto other stakeholders of North American firms such as regulators, debtholdersor employees (Berthelot et al., 2003, pp. 1–2). Stakeholders’ interest in environ-mental matters is also widespread in Europe (Bebbington et al., 2000, p. 3). Theproliferation of environmental reporting surveys (e.g., CICA, 2000; KPMG,1999) or awards (e.g., ACCA, European Sustainability Reporting Awards2003) is but one illustration of that trend toward greater transparency in environ-mental reporting. Prior research documents that the scale, or extent, of corporateenvironmental reporting (or CER) is closely associated with firm-specific factorssuch as firm size, industry membership, ownership, legal context and mediaexposure (Berthelot et al., 2003, p. 18). However, beyond these factors, ourunderstanding of the process that underlies the development of a firm’s CERstrategy is still limited as its quality does vary extensively, either across industrieswithin a country or across countries (KPMG, 1999, pp. 11–18). For instance,many studies are context-specific, which imply that their findings are not gener-alizable (e.g., Walden and Schwartz, 1997, pp. 131–132; Cormier and Gordon,2001, pp. 594–595). Moreover, prior studies rely on different theoretical frame-works such as information costs (e.g., Cormier and Magnan, 1999) or legitimacy(Neu et al., 1998), thus impeding the emergence of unified and integrated set offindings. Finally, most prior research focuses on a single country, thus preclud-ing any evidence with respect to the impact of national institutions on environ-mental reporting (Adams et al., 1998, being a notable exception).

In contrast to prior research that attempts to identify firm-specific determi-nants of CER scale or extent, this study focuses on the process that underliesthe development of CER strategy. More specifically, we investigate how intra-industry and within-country norms, values, and assumptions influence CER.The potential importance of institutions in organizational disclosure decisionsprovides a unique opportunity to extend institutional theory into a newdomain, especially as firms within an industry and a country constitute organi-

W. Aerts et al. / Journal of Accounting and Public Policy 25 (2006) 299–331 301

zational fields that facilitate the institutionalization of CER (Hoffman, 1999,p. 352). Hence, by creating uncertainty into stakeholders’ minds, deviationsfrom intra-industry or within-country references may potentially underminethe firm’s societal legitimacy (Chalmers and Godfrey, 2004, p. 96).

The study extends prior work that relies on institutional theory into a newarea of corporate decision-making. Dacin et al. (2002, p. 45) write that ‘‘insti-tutional theory has risen to prominence as a popular and powerful explanationfor both individual and organizational action.’’ The applicability of institu-tional theory in explaining reporting decisions has been recognized by Carpen-ter and Feroz (2001, p. 565). Toward that end, we integrate institutional andresource dependency theories to position the determination of CER within abroader reference framework in which firms attempt to achieve societal legiti-macy. On the one hand, consistent with the neo-institutional perspectives putforward by Oliver (1991), we suggest that firms adopt CER structures andpractices that are perceived to be appropriate by their target audiences. Suchconformity to institutional pressures is deemed to enhance a firm’s legitimacy,resources, and survival capabilities (Scott, 1987, p. 498). Institutional pressuresfor conformity create mimetic isomorphism pressures where organizations imi-tate each other’s practices in an attempt to gain legitimacy. Mimetic behavior isessentially a cognitively induced process and is particularly activated in situa-tions of uncertainty (Broadbent et al., 2001, pp. 566–567). On the other hand,‘‘. . .organizations do not invariably conform to rules, myths or expectations oftheir institutional environments’’ (Oliver, 1991, p. 175). A firm’s ultimate sur-vival and success are also dependent upon its ability to draw upon financial oreconomic resources from capital markets (Meyer and Scott, 1982, p. 208). Suchresource dependence is analogous to coercive isomorphism, i.e., pressures fromexternal resource providers that force or constrain firms to adopt certainbehaviors (Mizruchi and Fein, 1999, p. 657). Hence, we suggest that any imi-tation or mimetic trends in CER are balanced by resource dependence consid-erations that are driven by a firm’s key financial stakeholders.

We explore the determinants of imitation tendencies in CER over a six-year period using a sample of large firms from three different countries: Can-ada, France and Germany. For that purpose, CER reflects the quality of afirm’s environmental reporting rather than its quantity. CER is derived froma comprehensive coding instrument that is similar to the one used by Cormierand Magnan (2003, p. 49).1 Then, on the basis of its CER, for each firm in

1 Our measure of quality takes into account the perceived precision, relevance and usefulness fordecision-making of disclosed information. While not widely used in environmental reportingresearch, our emphasis on information quality is consistent with prior work in financial/non-financial disclosure (e.g., Botosan, 1997; Healy and Palepu, 2001). It is our view that environmentaldisclosure quality, more than its level, ultimately affects a firm’s immediate stakeholders and societyat large.


each year, we measure a CER similarity index through a three-step process.First, for each one of the six components that comprise CER, we computethe difference between firm-specific CER and industry-specific average CER,normalized by industry-specific standard deviation in CER. For that purpose,a firm’s industry is assumed to be its reference group of peer firms. Second,these component measures are summed up, thus providing a summary indica-tor as to how dissimilar CER is between a firm and its industry (or dissimi-larity score). Third, we subtract a firm’s dissimilarity score from the highestdissimilarity score in the sample, thus providing us with a similarity index:the higher a firm’s similarity index, the more its CER is similar to that ofits industry leader.

We find that mimetic and coercive institutional pressures significantlyaffect intra-industry imitation tendencies in CER. First, firms exhibit greaterpropensity to engage in imitation behavior within industries with tighter imi-tation patterns in CER than within industries where conformity patterns areloose (Hypothesis 1). Second, intense public media exposure weakens a firm’spropensity to imitate its industry’s CER (Hypothesis 2). Third, industry con-centration enhances a firm’s tendency to engage in imitation behavior withinits industry (Hypothesis 3). Fourth, there are routine aspects to CER imita-tion, imitation behavior within a given year being pursued in the followingyear (Hypothesis 4). Finally, coercive forces exerted by capital provid-ers coerce firms to diverge from imitation tendencies in their CER (Hypo-thesis 5).

The multi-country sample allows for the introduction of country-specificeffects as a significant institutional dimension. The different legal, socio-polit-ical, cultural, and even financial contexts faced by German, French and Cana-dian firms constitute a primary source of differences in institutional contextwith potentially important ramifications on mimetic tendencies in CER. Ger-many and France are code law countries, where economic agents’ rights andobligations are carefully delineated. Historically, both countries’ stock mar-kets were not very sensitive to external influences, with firm ownership beinghighly concentrated among key blockholders such as banks and financialgroups, governments and closely-knit families. In contrast, Canadian firmsessentially operate in a common law environment, with dynamic and openstock markets. Established voluntary reporting patterns (including levels andcomposition of CER) are affected by these institutional factors, with high lev-els of voluntary disclosure being more preeminent in Canada than in Franceand Germany.

The remainder of the paper is organized as follows. A theoretical frameworkfor CER imitation is developed in Section 2. The study’s model and method-ology are described in Section 3. Section 4 shows empirical results. Finally, adiscussion of the results as well as their potential implications is provided inSection 5.


2. Institutional pressures for conformity in CER

2.1. CER as an outcome from an organizational field

Over the past decade, North American and European firms have raised thelevel and the scope of environment-based information they disclose (KPMG,1999, p. 4). Hence, information about capital expenditures for anti-pollutionequipment, recycling and conservation policies, environmental managementand audit practices, and conformity to governmental emission standards arenow routinely disclosed by many firms.2 Until recently, most CER has beenvoluntary and not subject to any standard, with its quality varying widelyacross firms.

The emergence of a comprehensive theoretical framework to explain theprocess underlying CER is still elusive (Gray et al., 1995, p. 47). So far, thedetermination of CER has been considered essentially from three conceptualperspectives. For instance, within the information costs perspective, there isextensive evidence that firms weigh the economic benefits and costs to stock-holders when setting their CER level (e.g., Cormier and Magnan, 1999, p.448). CER can also be looked at as input to the contractual process betweenthe firm and other economic agents (e.g., Barth et al., 1997, p. 45). Finally,social-political theories such as legitimacy or stakeholder theories consider thatCER determination takes place within political, social and institutional frame-works (e.g., Roberts, 1992; Cormier and Gordon, 2001; Neu et al., 1998).3 Rec-onciling empirical findings from these three perspectives is a challenge in manyrespects. For instance, CER appears to be related with firm size, absent a con-trol for other factors, with industry- and country-specific effects (Gray et al.,1995, pp. 49–50). However, the influence of firm size on CER may either bethe outcome of information costing, contractual or legitimization processesas large firms are (1) severely monitored by capital markets participants, (2)facing high potential political costs, and (3) highly visible targets. In addition,while Neu et al. (1998, p. 277) and Cormier and Magnan (1999, p. 444; 2003,p. 54) show that profitability is associated with CER, these findings are consis-tent with both legitimacy theory (more profitable firms needing to be seen asenvironmentally responsive) or information costs arguments (profitable firmscan afford to be more transparent regarding their internal activities). In the

2 In light of its economic and social relevance, there is a trend toward greater regulation of CER.In 2001, the European Commission has published detailed recommendations on the recognition,measurement and disclosure of environmental issues (Official Journal of the European Commu-nities, June 13, 2001, L 156/33–42).

3 However, in absence of a specific event such as a disaster, Buhr (2001, p. 406) shows thatmanagers do not see themselves as accountable to report about their environmental performance inconnection with NAFTA (North American Free Trade Agreement) although this treaty has adirect impact on environment (e.g., Mexican factories along the US border).


latter case, any fallout from disclosing potentially damaging information ismore than likely to be compensated by a transparency-induced higher stockmarket valuation (e.g., Blacconiere and Patten, 1994, pp. 374–375).

The focus on CER scales or levels and the lack of concern on the processunderlying its determination may contribute to the current lack of understand-ing. In our view, the process underlying the determination of CER is character-ized by four unique features that differentiate it from other corporate reportingactivities. First, in contrast to financial reporting, which is generic, CER isindustry-specific: most awards, pollution standards, pollutants, and environ-mental concerns that are inputs to CER are typically industry-specific. Second,in contrast to financial reporting, most CER is voluntary and discretionary:there are few mandatory requirements with respect to CER. Third, firms withinan industry and a country share many stakeholders who are interested in theirCER (e.g., regulators, governments, community groups) and to whom theymust legitimize their environmental activities. Finally, there seems to be noinherently efficient or effective way to structure CER. There are only somevague socially constructed definitions of how a firm should organize thatprocess (Gray, 2002, pp. 692–693).

These features suggest that firms within an industry and a country evolve inan institutional context of cognitive uncertainty in which they benchmark theirCER one against another to ensure its acceptance and relevance and to legiti-mize their environmental activities (e.g., Hoffman, 1999, p. 354). Such mimick-ing of peers provides an expedient solution as they do not know what else todo. More specifically, legitimacy criteria that guide organizational behaviorare constructed within an organizational field, i.e., ‘‘a community of organiza-tions that partakes of a common meaning system and whose participants inter-act more frequently and fatefully with one another than with actors outside thefield’’ (Scott, 1995, p. 56). Such an organizational field must be ‘‘. . . the centerof common channels of dialogue and discussion’’ (Hoffman, 1999, p. 352). Theexistence of an organizational field structure is reflected by (1) interactionsbetween certain organizations, (2) organizations sharing an increased informa-tion load, and (3) mutual awareness that interacting organizations participatein a common debate (DiMaggio and Powell, 1983, p. 148). Prior researchactually shows that a firm’s CER is partially dependent upon its industryand country of residence (Gray and Bebbington, 2000, p. 253).

2.2. Sources of institutional pressures for CER

Once an organizational field is identified, we need to determine the sourcesof institutional pressures that underlie CER. According to institutional theory,firms respond to contextual pressures by endorsing generally accepted ways ofdoing business to appear legitimate to investors and stakeholders. Historical,cultural, social, and environmental forces that are internal as well as external


to the firm shape accepted ways of doing business. The end result of these influ-ences is that many firms acquire similar structures or implement similar prac-tices over time, with institutional influences becoming visible in patterns ofdiffusion among organizations through isomorphism (DiMaggio and Powell,1983, p. 147). In particular, corporate boards or executives that are uncertainabout the appropriate response to pressures regarding their activities, environ-mental or otherwise, may mimic or benchmark other firms, particularly thoseperceived to be more legitimate and/or successful. The unavailability of manymodels to mimic or to consider typically implies faster practice convergence(Strang and Meyer, 1993, pp. 500–501).

DiMaggio and Powell (1983, p. 150) identify three forms of institutional iso-morphism: coercive, normative and mimetic. Coercive isomorphism impliesthat a focal organization is influenced by other organizations upon which itis dependent and by society’s cultural expectations. Hence, coercive isomor-phism is largely driven by resource dependence relationships (Mizruchi andFein, 1999, p. 657). Normative isomorphism is typically associated with theprofessionalization of a particular field, either through training or throughinteractions with professional associations. Mimetic isomorphism is portrayedas a response to uncertainty: when a clear course of action is not available,organizations tend to mimic peers that they perceive to be successful. Thesethree forms of isomorphism represent complementary sources of pressuresupon organizations to conform to institutional norms.

Haunschild and Miner (1997, p. 479) stress that, within mimetic isomor-phism, uncertainty strengthens the importance of social processes as it stimu-lates the use of social comparison as the basis for making decisions. Thus,from a cognitive institutional perspective, managers observe other firms’ envi-ronmental disclosure policies and contents and reflexively enact those struc-tures at their own firm. Uncertainty-induced mimetic isomorphism flourishesbest in the absence of coercive or normative influences that reflect organiza-tion-specific intrinsic relationships (Mizruchi and Fein, 1999, p. 665). On theone hand, specific regulation on environmental disclosure may make disclosurecontent dependent upon the occurrence of specific environmental events withinthe context of the organization, while actions from pressure groups may inducea specific agenda for the focused companies. Therefore, we argue that mimetictendencies in CER within an organizational field are undermined when a firm’senvironmental activities attract public media exposure, thus potentially induc-ing a coercive or normative structuring of the organization’s reporting agenda(O’Dwyer, 2002, p. 417). On the other hand, a firm’s continuing access to exter-nal resources may be affected by environmental activities. Such dependencemay induce it to steer away from mimetic tendencies in CER. Providers ofthese external resources have the power to coerce a firm toward specific deci-sions that maintain its external legitimacy as well as its access to external orga-nizations from which it can obtain commitments or resources (Lynall et al.,


2003, p. 418). For firms that are publicly-traded, the critical resource is easyaccess to capital markets at a reasonable cost. Hence, in a way similar to publicmedia exposure, we argue that mimetic tendencies in CER within an organiza-tional field are undermined when a firm is stretching its capability to drawupon financial resources, thus potentially inducing a coercive or normativestructuring of the organization’s reporting agenda.

2.3. Hypotheses

2.3.1. Imitation tendencies in organizational field

Organizations may tend to adopt practices that are used by a large num-ber of other organizations, widespread adoption essentially legitimizing suchimitation (Westphal et al., 2001, p. 720). Haunschild (1993, p. 567) proposesat least three conditions to validate the claim that a firm is engaged in animitation process: (1) there must be a model practice exhibited by a firmor reference group at time t, (2) decision-makers at the imitating firm areexposed to the model, and (3) the imitating firm exhibits the practice witha time lag. Defining a firm’s industry as its organizational field that drivesinstitutional pressures, these criteria underlie the investigation of intra-indus-try imitation of CER on the basis of a similarity score. Hence, consistentwith Haunschild’s criteria, we suggest that (1) CER practices by a firm’sindustry peers in a given year provide a reference benchmark, (2) a firm’sexecutives are more likely to be familiar with their industry and, thus, knowl-edgeable about its practices, and (3) once they have observed other firms’CER practices, a firm’s executives are likely to imitate them in the followingyear. The reference group’s environmental disclosure structure provides aconcrete model that encourages a mimetic response by a firm. Therefore,we hypothesize:

Hypothesis 1. The more there is CER imitation within a reference group, themore a firm tends to imitate its reference group.

2.3.2. Impact of public media exposure and industry concentration on CER

imitationWhen concerns about a firm’s specific activities are not raised, CER can

develop from the assumption of a homogeneous set of CER users. However,particular conditions may heighten the strategic importance and power ofCER as firms respond to public policy pressures and social change by releasinginformation about various programs and initiatives (Walden and Schwartz,1997, p. 144). For instance, the occurrence of an event or fact that has raisedpublic suspicions or concerns over a firm’s environmental activities may leadto the use of CER as an active legitimisation tool. Deegan et al. (2002,


pp. 327–328) find that the extent of social and environmental disclosure byAustralia’s largest firm (BHP Ltd. – a natural resources firm) on specific issuesis closely associated with the media attention they attracted. Therefore, whenlegitimacy is under scrutiny, targeted disclosures become important in an effortto alter perceptions of legitimacy. Neu et al. (1998, pp. 270–271) indicate thatparticular stakeholder groups can be more effective in demanding social andenvironmental disclosures. They assert that environmental disclosures aredirected at important and/or supportive relevant publics and not at peripheraland critical publics. When these demands become more acute (e.g., throughmedia exposure), an idiosyncratic CER that diverges from mimetic tendenciesis likely to emerge. Hence, we hypothesize:

Hypothesis 2. Given reference group mimetism in CER, public media expo-sure weakens a firm’s tendency to imitate its reference group.

2.3.3. Impact of industry concentration on CER imitation

While public media exposure may weaken mimetic tendencies, firms evolv-ing within highly concentrated industries, dominated by a number of largefirms, may be confronted with stronger role models than those operating in lessconcentrated industries (Westphal et al., 2001, p. 731). In such an environment,mimetic responses may be reinforced by more pronounced social comparisonbenchmarks. This leads to the following hypothesis:

Hypothesis 3. Given reference group mimetism in CER, industry concentra-tion enhances a firm’s tendency to imitate its reference group.

2.3.4. Routine

In addition to reference group imitation, institutional pressures can driveorganizations to engage into routine social actions. Routines are codifiedand repeated actions that reflect players’ tacit knowledge. In other words, bysimply replicating a firm’s environmental disclosure from a prior period, man-agers at least conform to investors’ and other stakeholders’ expectations anddo not destabilize their internal environmental disclosure process (i.e., to beable to report to outside parties, the information must first be collected inter-nally). Routines, i.e., actions resulting from the force of habit as well as stan-dardized processes, are well recognized to be a cornerstone of institutions (e.g.,Mezias and Glynn, 1993, p. 77). Nelson and Winter (1982, p. 128) also pointout the stabilizing influence of organizational routines since they require fewconscious choices. As such, within an organization, routines translate them-selves into standardized protocols, processes and procedures. Thus, we expectthat in a given year, a firm’ propensity to imitate will depend on its own imi-tation profile in the prior year. This gives rise to the following hypothesis:


Hypothesis 4. A firm’s tendency to imitate its reference group in a prior yeardetermines its tendency to imitate its reference group in the current year.

2.3.5. Impact of economic resources dependency on CER imitation

Mimetic pressures from an organizational field are expected to be attenu-ated by coercive forces that are exerted by parties that control resources uponwhich a firm is dependent (Mizruchi and Fein, 1999, p. 657). Such a view isconsistent with Oliver’s (1991, p. 175) observation that ‘‘. . .organizations donot solely conform to rules, myths or expectations of their institutional envi-ronments.’’ For instance, managerial decisions are certainly influenced by orga-nizational structure, leadership, procedures or strategy. However, they are alsoa reflection of an organization’s external environment as well as of the partic-ular contingencies and constraints that emanate from that environment andwhich affect the firm’s ability to obtain resources (e.g., Pfeffer and Salancik,1978). Within a resource dependency perspective, the acquisition of financialresources by an organization is not taken as given and can actually be problem-atic and uncertain. Resource providers can actually become unreliable in situa-tions of economic or financial stress (Carpenter and Feroz, 2001, p. 571).Hence, we propose the following hypothesis:

Hypothesis 5. Given reference group mimetism in CER, economic resourcesdependency weakens a firm’s tendency to imitate its reference group.

In addition to these formal hypotheses, we will explore the impact of thenational context and of the information quality level of the disclosures onmimetic patterns.

2.3.6. Country-specific context

The study focuses on three countries with cultural, socio-political and regu-latory particularities that create a strong institutional background for any firmthat operates within it: Canada, France and Germany. Hence, within each ofthese countries, corporate managers’ actions and decisions are likely to bedependent upon a country’s (para)legal environment, i.e., relevant laws, regu-lations and (professional) recommendations. The legal environment offers nor-mative and cognitive guidance within a socially constructed field of proper,responsible, legitimate behavior.

While CER patterns across these three countries do exhibit an upwardtrend, KPMG surveys show that the proportion of firms with CER rose signif-icantly in both France and Germany during the nineties (KPMG, 1999) andsince 2000 (KPMG, 2002). However, Germany started with a much higherbase. Canadian firms have a long history of extensive voluntary reporting.The preeminence of resources-based firms also lead to the enactment of consid-erable environmental regulations (Cormier and Magnan, 1999), which accom-


panied by a set of very specific environmental disclosure standards, led to a rel-atively high environmental disclosure level even in the beginning of the nineties(e.g., financial reporting standards related to asset removal and environmentaldebt, e.g., CICA No. 3060 in Canada in 1992; SFAS No. 121 and 143–144 inthe USA in 1995 and 2002).

2.3.7. Mimetic process and CER quality levels

The potential relevance and usefulness of quantitative-monetary informa-tion disclosure is generally perceived to be higher than that of descriptiveand qualitative information disclosure. Since, corporate stakeholders increas-ingly use environmental performance data to monitor, benchmark and rankcompanies (KPMG, 1999 and 2002), quantitative performance data may beinferred to be in higher demand than descriptive and qualitative information.However, we expect that the uncertainty effect surrounding disclosure increaseswith the quality level of the CER content, due to potentially more challengingfeedback consequences of more specific and of quantitative-monetary disclo-sures. Hence, it can be assumed that uncertainty-driven mimetic tendencieswould not be indifferent to the disclosure quality level. Therefore, we examineif mimetic patterns exist for three different information quality levels sepa-rately. We expect that the mimetic patterns will be stronger for the higherinformation quality level.

3. Method

3.1. Sample and data

The method involves longitudinal analyses of imitation using content ana-lytic data over a six-year period (1992–1997) in three countries: Canada;France, and Germany. The total sample comprises 1058 firm-year observationsfrom the largest firms in each country. Table 1 provides a detailed breakdownof sample firms.

Table 1Sample firms by year and country

Canada France Germany

1992 66 23 391993 74 40 441994 90 43 471995 94 45 481996 105 48 501997 103 45 54

Total 532 244 282


3.1.1. Canada

The Canadian sample comprises 532 firm-year observations for environ-mental reporting. First, non-financial firms represented on the Toronto StockExchange 200 Index were identified, resulting in 147 potential sample firms.Second, annual and environmental reports for 106 of these firms were availablefrom the four university libraries in Montreal for a potential total of 602 firm-year observations (6 years). As a result of mergers, restructurings and acquisi-tions and because of missing reports, the final sample includes 532 firm-yearobservations, including 27 environmental reports.

3.1.2. France

The French sample comprises 244 firm-year observations for environmentalreporting which are selected in the following manner. First, all non-financialFrench firms listed on Stock index SBF120 were identified. These firms’addresses were then obtained from the DAFSA Corporate Directory (an annualpublication describing all publicly listed French firms). Second, all these firmswere then sent a request for their annual reports and/or separate environmentalreports of the last 6 years. Out of 57 firms that were contacted, 48 firms respondedto the request for a resulting sample of 244 firm-year observations: 238 annualreports and 6 environmental reports (not all firms sent reports for the six years).

3.1.3. GermanyThe German sample comprises 282 firm-year observations for environmen-

tal reporting which are selected in the following manner. First, 76 non-financialfirms listed on the DAX30 and MDAX stock market indices were identified.Second, annual and/or environmental reports for 55 of these firms were avail-able from the Antwerp University library for a potential total of 330 firm-yearobservations (6 years). As a result of mergers, restructurings and acquisitionsand because of missing reports, the final sample includes 282 firm-year obser-vations, including 13 environmental reports.

Sample firms are active in seven industrial sectors: Consumer goods andservices, Light and industrial manufacturing, Chemicals and drugs, Distribu-tion, Food and beverages, Technology, Heavy industry, Metals-gold-mines(Canada), Paper and forest products (Canada) and Oil and gas (Canada).

3.2. Model

The empirical basic model is the following:

Similarity indexit

¼ Similarity indexit�1 þReference group similarity indexit�1

þReference group similarity indexit�1 � Public media exposureit

þ Concentration ratioit þ Economic variablesit þ Control variablesit


3.3. Measures

3.3.1. CER content

Content similarity is the focal construct by which imitation is measured.Content similarity is measured within a reference group at the industry-countrylevel, with CER content being captured through a coding instrument designedby Cormier and Magnan (2003, p. 49). CER coding comprises 37 items that aregrouped into six categories: economic factors, laws and regulations, pollutionabatement, sustainable development, land remediation and contamination(including spills) and environmental management (see Appendix A). CER con-tent is rated in terms of information quality level, with a score of three (3) foran item described in monetary or quantitative terms, two (2) when an item isdescribed qualitatively but in specific terms, one (1) for an item discussed ingeneral, indicative terms and zero (0) when there is no mention of an item.Hence, annual and environmental reports issued by sample firms from 1992to 1997 were read and all environmental reporting items were duly notedand rated according to the level of detail provided by the firm. To ensure con-sistency over time and across firms, all individual firms were scored indepen-dently by two persons.4

Using a scale to qualify a firm’s environmental reporting is appropriate forthe following reasons. First, it allows for a detailed coding on discrete topicsthat can be used as reference points to compare CER content between firms.Second, the process of reading and of coding a firm’s annual and environmen-tal reports, including financial statements’ footnotes, leads to a comprehensive

4 A coding manual documenting coding instructions as well as standardized coding worksheetswere prepared before hand. Each coder applied the following coding sequence: (1) independentidentification of the occurrence of items relative to the different coding categories; (2) independentcoding of the items according to quality level of content and (3) timed reconciliation between codersand final arbitration by one of the co-researchers if no timely agreement could be reached. Thecoders were intensively trained in applying coding instructions and in using the coding worksheets.They were unaware of the research hypotheses. Initial differences in identifying grid itemsaccounted for 8.2% of the maximum number of items identified. Of the information quality levelcoding, 5.1% had to be discussed for reconciliation. On average, a researcher had to intervene in12% of the disagreements. Moreover, the coding scores for the 46 distinct environmental reportswere reviewed by a researcher. Overall, we think that this coding process provides a reliablemeasure of environmental reporting. Internal consistency estimates (Cronbach’s alpha on scorecomponents) show that the variance is quite systematic (alpha = 0.75 in Canada, 0.71 in Franceand 0.73 in Germany). Over the sample period, alpha varies from 0.69 in 1994 to 0.77 in 1992. Thisis higher than Botosan (1997, p. 335) who finds a Cronbach’s alpha of 0.64 for an index includingfive categories of disclosure in annual reports. Cronbach’s alpha estimates the proportion ofvariance in the test scores that can be attributed to true score variance. It can range from 0 (if novariance is consistent) to 1.00 (if all variance is consistent). According to Nunnaly (1978), a score of0.70 is acceptable. Finally, the reliability factors using Parallel model (assuming that items haveequal variances and equal error variances across replications) provides unbiased estimates ofreliability (0.75 for Canada, 0.69 for France and 0.73 for Germany).


coverage of environmental reporting. Third, while other disclosure studies relyon word counts to measure environmental reporting (e.g., Neu et al., 1998, p.274), Cormier and Magnan’s (2003) scale allows for the researcher’s judgmentto be impounded in rating the ‘‘value’’ of the disclosure made by a firm. Whilethis process is more subjective, it ensures that irrelevant or redundant general-ities are not considered to be strategic environmental reporting.

3.3.2. Similarity index (for each focal firm)

The measurement of CER similarity indices entails the following steps.First, a focal firm’s CER content is initially measured using the coding grid,encompassing six individual CER components.

Second, for each of the six CER components, a dissimilarity score is thencomputed for each firm:

Component dissimilarity scoreij

¼ ABS½ðCERÞij �MðCERÞj�=SDðCERÞjwhere j is a specific CER component and CERij, the CER component score j

for firm i. ABS indicates an absolute value and M (CERj) and SD (CERj) rep-resent the mean and the standard deviation for CER component j in the focalfirm’s reference group (excluding the focal firm’s CER component). Essentially,the higher the dissimilarity score, the more distant a focal firm’s CER is fromthe reference group. The reference group, or organizational field, comprisesother firms within the same industry (SIC code) and country.

Third, the dissimilarity scores at the component level are then aggregated toobtain a firm-level total dissimilarity score reflecting all components:

Total dissimilarity scorei

¼ Rðj¼1 to nÞABS½ðCERÞij �MðCERÞj�=SDðCERÞjFourth, to convert the dissimilarity score into a similarity index, we subtracteach focal firm’s total dissimilarity score from the highest dissimilarity scorein the sample:

Similarity indexi ¼ Highest dissimilarity score in the sample

� Total dissimilarity scorei

Following this third step, higher values of the resulting similarity index indicategreater similarity. It provides a relative ranking of firms within a referencegroup, while retaining differences in similarity profiles between referencegroups. The variation coefficient approach is consistent with earlier work byDiMaggio and Powell (1983, p. 156) and by Scott (1995, p. 76) and is usedto indicate conformity to institutional norms. In the absence of best practicebenchmarks, average behavior can be rationalized to be the best proxy for‘‘generally accepted’’ or ‘‘appropriate’’ behavior.


3.3.3. Reference group similarity index

Mimetic isomorphism in CER is assumed to be a reference group-drivenphenomenon. Hence, for each focal firm within a reference group, other firms’content similarity indices are averaged and lagged by one year. The resultingmeasure provides a proxy for the extent of imitation patterns within a referencegroup that could influence a focal firm’s own imitation reaction in a followingyear.

3.3.4. Public media exposure

Active monitoring by stakeholders, which reflects societal concerns about afirm’s activities, is likely to interfere with and disrupt a company’s imitationbehavior. A proxy for such monitoring is the intensity of a firm’s press cover-age (Neu et al., 1998, p. 276). Through the use of the ABI/Inform database,news stories about each sample firm’s environmental management werereviewed annually from fiscal years 1992 to 1997. Public Media Exposure isthe number of total number of news stories that refer to a particular firm’senvironmental activities in a given year stories on the same event as well as dis-tinct events. Hence, the interaction between public media exposure and refer-ence group imitation is introduced as a determinant of a firm’s mimeticbehavior.

3.3.5. Industry concentrationAs a measure of industry concentration, we use a concentration ratio, i.e.,

an indicator of the relative size of firms in relation to the industry as a whole.We rely on the commonly used four-firm concentration ratio, which consists ofthe percentage of market share owned by the largest four firms in the industry.Since our sample essentially comprises large international firms, we computethe concentration ratio for the three countries regrouped. For each year-obser-vation, we divide total sales of the largest four companies by total sales of theremaining firms in the industry. A positive association is expected betweenconcentration ratio and imitation (Westphal et al., 2001, p. 731).

3.3.6. Routine – similarity index (lag)

As disclosure positions can be largely ritualistic (Gibbins et al., 1990,p. 130), disclosure activity (environmental reporting included) could be subjectto significant inertial forces (Aerts, 2001, p. 29) and may tend to become rou-tinized over time. Hence, the lagged focal firm’s similarity index is introducedas a control variable to capture this factor.5

5 Adding the lagged dependent variable also implies control for omitted firm characteristics.


3.3.7. Resource dependency – economic variables

We also introduce several economic variables as proxies for competitive andcoercive pressures in imitation behavior. These variables reflect the interests offinancial resources providers upon which a firm may be dependent. We expectthat the more a focal firm is dependent upon financial resources providers, theless it will engage in mimetic behavior. Under conditions of external financialdependence, the firm should strive to maintain its access to external capitalmarkets, using all means at its disposal, including CER. More specifically,we posit that economic variables will have the following relationships with afirm’s similarity index:

• Leverage (leverage), as measured by (long term financial debt)/(equity): thegreater a firm’s leverage, the more it is likely to dependent upon the termsimposed by debtholders and bankers. Such a firm is expected to engage inless imitation.

• Capital investment intensity (capital investment intensity), as measured bythe ratio of gross property, plant and equipment over total assets, and intan-gible assets (market-to-book value), as measured by the ratio of stock marketprice over stockholders’ equity.The more a firm has to make long-term investments, in either capital (capitalinvestment intensity) or intangible assets (market-to-book), the more itrequires upfront financing by external financial resources providers, thusleading it to engage in less imitation.

• Profitability as measured by a firm’s return on assets (ROA): Profitability isexpected to be negatively related to imitation as poor performance weakensa firm’s position in capital markets.

• Concentrated ownership (concentrated ownership), as measured by a dichot-omous variable taking a value of one (1) when an investor, or a related groupof investors, owns more than 20% of a firm’s outstanding voting shares, andzero (0) otherwise. According to International Accounting Standards, anownership stake of 20% defines significant influence over a firm’s affairs.Higher ownership concentration implies that a firm is less dependent uponexternal capital markets and will more likely engage in mimetic behavior.

• Extensive foreign ownership (foreign ownership), measured as a dichoto-mous variable taking a value of one (1) when foreign investors own morethan 20% of a firm’s outstanding voting shares, and zero (0) otherwise.Higher foreign ownership implies that a firm is more dependent upon exter-nal capital markets and is less likely to engage in mimetic behavior.

3.3.8. Control variables

We control for time-specific determinants of imitation by including year-specific dummy variables in the models. Additionally we controlled for the fol-lowing variables:


• Age of a firm’s property, plant and equipment (fixed assets age).• Risk (beta).• Firm size (firm size).• SEC registrant (SEC).

Size has been shown to predict mimetic tendencies (Fligstein, 1991; Deep-house, 1996; Westphal et al., 2001). In addition, there is consistent prior evi-dence of a positive relation between the extent of corporate disclosure andfirm size (Scott, 1994; Cormier and Magnan, 1999; Neu et al., 1998). Firm sizeis measured as the natural logarithm of total asset.

Volatility creates uncertainty in the mind of external parties, especiallyfinancial stakeholders, and could induce firms to conformity strategies to coun-ter external impressions of distinctiveness in environmental concerns. Hence,volatility, as measured by beta, is expected to be positively related to imitation.

Fixed assets age is used as a proxy for a firm’s polluting activities, which dounderlie its CER and, potentially, its ability to imitate other firms’ CER. Weuse the ratio of accumulated depreciation on property, plant and equipmentdivided by annual depreciation expense.

Finally, sample firms, or their subsidiaries, that are registered with the Secu-rities and Exchange Commission are identified specifically (Scott, 1994, p. 38;Cormier and Magnan, 1999, pp. 444–446). These firms are subject to morestringent and exhaustive disclosure regulations, which may constrain their imi-tation behavior. SEC registration is introduced as a dichotomous variable (1 ifthe firm is a SEC registrant; 0 if not).

4. Results

4.1. Descriptive analyses

Table 2 (panel a) presents descriptive statistics about similarity indices forthe sample and by country. In terms of information quality level, descriptivecontent exhibits the highest similarity index with a mean of 29.96. Similarityindices are, on average, lower in Canada (78.60) than in France (83.75) andGermany (81.98), potentially reflecting the environmentally sensitive natureof Canadian resources industries. Table 2 (panel b) actually shows that similar-ity indices are, on average, lowest for the ‘Paper and Forest Products’ industry(76.04) and for ‘Metals, Gold and Mines’ (77.00), and highest for the ‘Distri-bution’ industry (mean 88.12) and ‘Technology’ firms (mean 85.40). Table 2(panel c) provides some descriptive statistics about explanatory variables. Sam-ple firms are relatively large with total assets averaging 5 billion Euros (Cana-dian $ data being translated at average yearly rates). Fifty-six percent of samplefirms exhibit concentrated ownership, i.e., an investor owns at least 20% of


their shares. Twenty-eight percent of sample firms are also listed on a US stockexchange.

Table 2Average similarity indices for different information quality levels (Panel a) and average similarityindices by industry (Panel b) and financial variables (Panel c)

Content variable Full sample Canada France Germany

Panel (a)

Indicative content 23.30 22.92 24.19 23.26Descriptive content 29.96 29.01 30.78 31.05Quantitative content 27.43 26.68 28.78 27.68

Total similarity index 80.69 78.60 83.75 81.98

N: 1058 N: 532 N: 244 N: 282

N Full sample Canada France Germany

Panel (b)

Consumer goods andservices

122 82.36 – 85.69 79.97

Light and industrialmanufacturing

154 83.07 82.15 82.52 84.09

Chemicals and drugs 126 79.75 78.91 78.98 80.47Distribution 28 88.12 – 88.12 –Food and beverages 33 84.90 – 86.29 83.65Technology 94 85.40 83.92 87.79 86.74Heavy industry 105 80.92 80.09 80.10 81.91Metals, gold and mines 148 77.00 77.00 – –Paper and forest

products93 76.04 76.04 – –

Oil and gas 155 78.84 78.84 – –

Variable Minimum Maximum Mean Standard deviation

Panel (c)

Risk �0.41 2.09 0.78 0.40ROA �0.15 0.37 0.03 0.09Foreign ownership 0.00 1.00 0.14 0.36Concentrated ownership 0.00 1.00 0.56 0.49Leverage 0.00 60.13 0.61 2.54Fixed asset age 0.00 115.62 7.06 6.82Size (assets in 000 euro) 1,075 124,000,000 4,680,392 12,064,025Market-to-book value �7.94 150.34 2.59 5.93Sales (in 000 Euro) 0.00 120,000,000 3,949,108 9,937,185Fixed assets

(in 000 Euro)0.00 70,000,000 2,207,270 2,796,641

Capital investment intensity 0.00 1.00 0.44 0.26Industry

concentration0.47 0.90 0.65 0.11

Media exposure 0.00 7.00 0.13 0.52SEC 0.00 1.00 0.28 0.45


4.2. Full sample analyses

Table 3 provides results from OLS regression between a focal firm SimilarityIndex and its determinants.6 Model 1 has an adjusted R-square of 67.8%(p < 0.01). An incremental F test indicates that, together, reference group vari-ables significantly contribute to our understanding of the determination offocal firms’ similarity indices (incremental F-change of 3.52; p < 0.05). Consis-tent with Hypothesis 1, there is a positive association between a focal firm’ssimilarity index and its reference group prior similarity index (0.04; p < 0.05).Hence, similarity within an industry leads firms to engage in mimetic behavior.Consistent with Hypothesis 2, there is a negative association between a focalfirm’s similarity index and the interaction term (Prior reference group similarityindex · public media exposure) (�0.01; p < 0.05). In other words, despite sim-ilarity within an industry, a focal firm’s public media exposure will lead it toengage in less mimetic behavior. Consistent with Hypothesis 4, there is a posi-tive association between a focal firm’s similarity index in the current year andits prior year’s similarity index (0.66; p < 0.01). Consistent with Hypothesis 5, afocal firm’s similarity index is negatively associated with capital investmentintensity (�0.70; p < 0.10).

The level of similarity (or CER imitation) differs across countries, withCanadian firms’ similarity indices being lower on average than German firms(�1.25; p < 0.01) while French firms tend to exhibit higher similarity indicesthan German firms (0.60; p < 0.10).

Among economic variables, and consistent with expectations, capital invest-ment intensity (�0.70; p < 0.10) is negatively associated with CER imitation.Among control variables, a firm’s size (�0.35; p < 0.01) and fixed assets age(�0.03; p < 0.05) appear to attenuate imitation tendencies. In contrast, a firm’srisk profile enhances its tendency to engage in mimetic behavior (0.82;p < 0.01).

The potential theoretical relevance as well as prior empirical findings of theimpact of industry concentration on imitation behavior lead us to test if indus-try concentration reinforces the mimetic process (H3). In highly concentratedindustries, dominated by a number of large firms, role models could be stron-ger than in less concentrated industries. Hence, instead of predicting a directrelation between industry concentration and a focal firm similarity index, weassert that it interacts with a reference group prior year’s similarity index toenhance a focal firm similarity index for the current year. Model 2 showsresults from such a reestimated regression with industry concentration being

6 Since regression analyses include lag content similarity, we lose 199 observations (from 1058 to859). Furthermore, there was missing data for 37 firm-year observations, mainly stock market data.This reduces the regressions’ sample sizes to 822 firm-year observations.

Table 3OLS regressions between focal firm similarity index and its determinants

Model 1 Model 2

Intercept ***32.40 ***33.06Institutional variables

Prior focal firm similarity index(routine factor)

***0.66 ***0.66

Prior reference group similarity index **0.04 *0.03Prior reference group similarity

index · public media exposure

**�0.01

Prior reference group similarityindex · industry concentration

*0.02

Prior reference group similarityindex · industry concentration · public media exposure

**�0.01

Industry concentration 1.10Canada ***�1.25 ***�1.30France *0.60 **0.63Economic variables

Leverage 0.01 0.01Capital investment intensity *�0.70 **�0.72Market-to-book value �0.01 �0.01ROA 0.34 0.34Concentrated ownership 0.27 0.27Foreign ownership �0.28 �0.28Control variables

Fixed assets age **�0.03 **�0.03Risk ***0.82 ***0.82Size ***�0.35 ***�0.34SEC �0.20 �0.21

Adjusted R-square (%) ***67.8 ***67.9Incremental F-change (reference group variables) **3.52 ***3.71Durbin–Watson 2.03 2.03N 822 822

1. Unstandardized coefficient.2. *p < 0.10; **p < 0.05; ***p < 0.01. One-tailed if directional prediction, two-tailed otherwise.3. Year-specific coefficients not presented.


introduced in interaction with prior reference group content similarity andpublic media exposure.

Results from Model 2 are consistent with findings reported in Model 1regressions with both prior year’s reference group similarity (H1) (0.03;p < 0.10) and a focal firm prior year’s similarity index (H4) (0.66; p < 0.01)being determinants of its current similarity index. Consistent with Hypothesis3, we find that a firm’s tendency to imitate its reference group increases withindustry concentration (0.02; p < 0.10). Moreover, consistent with Hypothesis2, public media exposure (�0.01; p < 0.05) attenuates such referential imitationtendencies. There is a small improvement in adjusted R-square from Model 1


(67.8%) to Model 2 (67.9%) (incremental F statistic: 2.67; p < 0.07). Hence, itdoes appear that industry concentration has a moderating instead of a directimpact on imitation tendencies.

Results for economic and control variables are almost identical to thosereported for Model 1. Separate analyses show that, in fact, firm size may actas a substitute for disclosure level and disclosure variety. The more environ-mental information is disclosed and the more variety in the information pro-vided, the less imitation between the focal company and its reference group.7

4.3. Information quality level analyses

Table 4 documents the differential impact of information quality level of theinformation provided on mimetic tendencies in CER. As discussed earlier, theenvironmental disclosures were scored according to three information qualitylevels: qualitative-indicative disclosures (item score of 1), qualitative-descrip-tive disclosures (item score of 2) and quantitative-monetary disclosures (itemscore of 3). As Table 4 indicates, the hypothesized relationships are convinc-ingly replicated for imitation in quantitative-monetary CER content. Consis-tent with Hypothesis 1, there is positive relation between prior referencegroup similarity and a focal firm similarity index (0.08; p < 0.01). Consistentwith Hypothesis 3, industry concentration enhances the positive relationbetween prior reference group similarity and a focal firm similarity index(0.04; p < 0.05). In contrast, and consistent with Hypothesis 2, public mediaexposure (�0.01; p < 0.05) attenuates industry concentration-driven mimetictendencies. Consistent with Hypothesis 4, there is a strong routine element inthe determination of similarity indices (0.58; p < 0.01). Finally, consistent withHypothesis 5, risk (0.21; p < 0.10), capital investment intensity (�0.37;p < 0.05) and foreign ownership (�0.22; p < 0.10) influence a focal firm’s sim-ilarity index. The adjusted R-square in the quantitative-monetary disclosuremodel is quite high at 63.1%.

Mimetic tendencies are generally weaker for indicative (incremental F-change: 1.09) and descriptive content (2.41) disclosures than for quantitative/monetary content disclosure (10.25). While in both cases firms tend to imitatetheir prior year practices (H4), the influence of prior reference group imitation(H1) is less evident. In determining descriptive content, firms do seem to refer

7 An additional regression (untabulated) is performed to assess if the relationship between focalfirm similarity and reference group similarity can be reversed. The dependent variable in this modelis the current-year reference group similarity index and the main independent variable is a focalfirm’s prior year similarity index. This additional analysis can be seen as a strong test for imitationbehavior (Haunschild, 1993, p. 584). Results show that prior focal firm similarity is not related tocurrent reference group content similarity. This result indicates that the imitation relationship doesnot reverse and that there is not some third variable common to both the focal firm and thereference group firms that is causing the observed content similarity relationship.

Table 4Regression of focal company content similarity on its determinants according to informationquality level of content

Indicativecontent

Descriptivecontent

Quantitative/monetarycontent

Intercept ***13.56 ***19.47 ***13.38Institutional variables

Prior focal company contentsimilarity (routine factor)

***0.52 ***0.46 ***0.58

Prior reference group content similarity 0.04 *0.04 ***0.08Prior reference group content

similarity · industry concentration0.01 0.01 **0.04

Prior reference group contentsimilarity · industry concentration ·

Public media exposure

**�0.02 �0.01 **�0.01

Canada �0.15 ***�1.40 *�0.28France ***0.48 �0.09 ***0.62Economic variables

Leverage 0.01 0.01 0.01Capital intensity *�0.34 �0.04 **�0.37Market-to-book �0.01 �0.02 0.01ROA 0.24 0.28 �0.12Concentrated ownership 0.11 0.05 0.09Foreign ownership �0.19 0.01 *�0.22Control variables

Fixed assets age **�0.02 �0.01 **�0.02Risk ***0.45 **0.36 *0.21Size ***�0.15 ***�0.17 ***�0.21SEC **�0.33 0.16 0.06

Adjusted R-square (%) ***41.5 ***42.5 ***63.1Incremental F-change

(reference group variables)

**2.41 1.09 ***10.25

Durbin–Watson 1.82 1.89 2.11N 822 822 822

1. Unstandardized coefficient.2. *p < 0.10; **p < 0.05; ***p < 0.01. One-tailed if directional prediction, two-tailed otherwise.3. N = 822.4. Year-specific coefficients not presented.


on prior reference group imitation (0.04; p < 0.10). However, industry concen-tration ratio and public media exposure do not have any significant effects. Indetermining indicative content, public media exposure does interact with priorreference group imitation and industry concentration to reduce imitationbehavior. These results suggest that there are less significant mimetic tendenciesfor lower information quality levels. For low quality level disclosure (whichreflects only a symbolic information disclosure attitude), being under a SEC


registrant leads to less CER imitation within the reference group (�0.33;p < 0.05), a result not replicated for the other information quality levels.

4.4. Country-specific analyses

Separate analyses by country are presented in Table 5 (overall content sim-ilarity scores). In general, mimetic tendencies are present in all three countriesbut at different levels. Prior reference group similarity (Hypothesis 1) positivelyinfluences focal firm similarity indices in both France (0.31; p < 0.01) and Ger-many (0.12; p < 0.01) but not in Canada. Consistent with Hypothesis 4, in allthree countries, routine underlies mimetic tendencies (Canada: 0.60, p < 0.01;France: 0.56, p < 0.01; Germany: 0.49, p < 0.01). Consistent with Hypothesis3, the interaction of prior reference group similarity and industry concentration

Table 5Regression of focal company content similarity on its determinants by country

Variable Canada France Germany


Prior focal company content similarity(routine factor)

***0.60 ***0.56 ***0.49

Prior reference group content similarity 0.02 ***0.31 **0.12Prior reference group content

similarity · industry concentration

***0.06 �0.03 **0.03

Prior reference group contentsimilarity · industry concentration · public

media exposure

**�0.02 *�0.01 0.01

Economic variables

Leverage 0.01 �0.35 *0.47Capital intensity 1.07 **�3.02 ***�1.70Market-to-book 0.02 �0.03 �0.12ROA 0.99 �3.92 �0.48Concentrated ownership 0.46 **0.93 0.21Foreign ownership 0.25 *�0.99 �0.17Control variables

Fixed assets age �0.04 �0.02 **�0.10Risk **1.01 �0.19 0.48Size ***�0.68 0.09 ***�0.42SEC �0.16 �0.34 �1.43

Adjusted R-square (%) ***60.1 ***72.6 ***53.3Incremental F-change (reference group variables) ***5.22 ***4.74 ***2.57Durbin–Watson 2.09 1.83 1.92N (total: 822) 416 193 213


Table 6Regression of focal company content similarity on its determinants by country (sample restricted toindustries common to the three countries)

Canada France Germany

Variable


Prior focal companycontent similarity (routine factor)

***0.29 ***0.52 ***0.55

Prior reference group content similarity �0.01 **0.21 0.09Prior reference group content

similarity · industry concentration

**0.06 �0.02 **0.04

Prior reference group contentsimilarity · industry concentration · public

media exposure

*�0.02 *�0.01 0.01

Economic variables

Leverage �0.03 �0.37 0.55Capital intensity �0.49 ***�4.98 **�1.91Market-to-book 0.50 0.05 **�0.33ROA *�9.39 �1.65 �0.88Concentrated ownership 0.13 **1.25 0.53Foreign ownership �0.51 *�1.17 0.60Control variables

Fixed assets age ***�0.10 �0.02 **�0.14Risk �0.91 �0.46 **1.41Size ***�1.10 0.04 **�0.45SEC �0.02 �0.03 �2.80

Adjusted R-square (%) ***60.5 ***63.2 ***57.4Incremental F-change (reference group variables) **2.51 *1.96 ***3.13Durbin–Watson 2.26 2.19 1.96N 107 118 143



is associated with higher focal firm similarity indices in Canada (0.06; p < 0.01)and Germany (0.03; p < 0.05). However, these industry concentration-drivenmimetic tendencies are attenuated by media public exposure in Canada(�0.02; p < 0.05) and France (�0.01; p < 0.10).

Consistent with Hypothesis 5, economic-based variables reflecting coerciveforces and resource dependence play an important role in French firms’ imita-tion tendencies: capital intensity (�3.02; p < 0.05), concentrated ownership(0.93; p < 0.05) and foreign ownership (�0.99; p < 0.10). In contrast, resourcedependency considerations do not appear to play much of a role in determiningCanadian and German firms’ mimetic tendencies.


Overall, incremental F-change tests from Table 5 show that reference groupvariables play a significant role in explaining the imitation tendencies in allthree countries.

4.5. Sensitivity analysis

In more environment-sensitive industries, we can expect less similarity asfirms respond to context-specific public pressures.8 This is probably why totalsimilarity is lower in Canada compared with France and Germany. To assess ifthe findings remain consistent when we compare data for common industriesacross the three countries, we estimate the models dropping Oil and gas, Pulpand paper, Metals, gold and mines (Canada), Consumer goods and services(France and Germany) and Distribution (Germany). Untabulated results showthat Canadian environment-sensitive industries have a lower similarity indexthan the remaining Canadian industries. Overall, results presented in Table 6from country-specific regressions remain essentially unchanged. For Canada,ROA becomes a significant determinant of similarity while risk is not signifi-cant anymore. For Germany, Market-to-book ratio replaces Leverage as a sig-nificant determinant of similarity. For France, results remain similar.

5. Discussion and conclusion

5.1. Overview

The purpose of the study is to ascertain the extent to which corporate envi-ronmental reporting (CER) can be conceived as an institutionalised processthat is driven by mimetic tendencies. Toward that end, the CER practices offirms from three countries, Canada, France and Germany, are coded using acomprehensive grid that comprises 37 items grouped into six components.CER practices are then transposed into similarity indices that capture how afocal firm’s CER is similar to other firms within its national industry, otherwiselabelled as reference group.

Overall, results provide substantive evidence that imitation plays a signifi-cant role in corporate environmental reporting. First, consistent with Hypoth-esis 1, CER similarity among other firms within a reference group in a prioryear drives the extent to which a focal firm’s CER is similar to other firms’CER within its reference group in the current year. Therefore, imitation withina reference group context leads on average to greater imitation by a focal firm

8 Based on the National Pollutant Release Inventory (Environment Canada, 2001), oil and gasfirms have the highest pollution rates followed by Pulp and paper firms. Oil and gas pollution ratesexceeds twice Pulp and paper and almost three times Metals and Mining firms.


of its industry-based CER model. Second, consistent with Hypothesis 2, refer-ence group-driven imitation tendencies are influenced by news media exposure,with more exposed firms less likely to engage in imitative behavior. Such a find-ing provides additional support for the mimetism interpretation of similaritypatterns. Third, consistent with Hypothesis 3, industry concentration rein-forces mimetic tendencies. Fourth, consistent Hypothesis 4, a firm’s tendencyto imitate its reference group in a prior year determines its tendency to imitateits reference group in the current year. Finally, there is some support forHypothesis 5 that coercive forces, related to resource dependency, influencefocal firms’ similarity indices.

Mimetic patterns appear to be stronger for quantitative-monetary CERthan for indicative or descriptive contents. In addition, imitation patternsare country-specific, with French firms exhibiting the highest level of similar-ity, followed by German firms and then Canadian firms. Moreover, theunderlying sources of imitation patterns differ also across countries. In Can-ada, focal firms’ CER similarity in a given year is driven by routine (prioryear focal firm CER similarity) and by mimetic tendencies (prior year refer-ence group CER similarity and the moderating effect of public media expo-sure and industry concentration). In France, CER similarity is quite high,with a robust routine factor and significant mimetic relationships. In contrastto Canada, coercive and probably normative forces also appear to influenceFrench firms’ CER practices during the period under investigation. In Ger-many, both routine and the main effects of the reference group variable areapparent, albeit at a somewhat lower scale than in Canada. Public mediaexposure leads Canadian and French firms to distance themselves from theirreference groups’ prior year similarity patterns, a finding consistent with themimetic perspective.

5.2. Discussion

The findings complement stakeholder theory and legitimacy theory views onCER (e.g., Deegan, 2002). Social forces driving the CER process appear to gobeyond resource dependency relationships. These forces are largely uninten-tional and result from taken-for-granted patterns of doing things. The institu-tional imitation rationale also explains why CER exists in the absence oflegitimacy threatening events or active demands of various stakeholder groups.It is consistent with a paradox that is documented in O’Dwyer’s (2002) surveystudy: most responding firms view CER as an ineffective tool for achieving astate of legitimacy, yet they do not abandon CER and continue to engage insome form of environmental disclosures.

The results challenge the idealistic and normative view that CER emanatesfrom a societal accountability process – as a natural response to people’sinalienable right-to-know about the environmental impact of corporate activ-


ities. This would imply a process that is much more transformative and sub-stance driven than the highly ceremonial CER patterns that could be observedin actual corporate practices.

The findings provide some guidance to regulators in the issuance of dis-closure standards. Since it appears that CER follows industry-specific pat-terns, generic disclosure standards are likely to be of limited usefulness oreffectiveness. Mimetic patterns will only be broken by industry- and coun-try-specific disclosure standards that match societal concerns and needs.Moreover, world-wide initiatives such as the Sustainability Reporting Guide-lines (Global Reporting Initiative, 2002), while worthwhile in principle, maylead to normative isomorphism that will not enhance the potential usefulnessof CER.

Although we control for economic factors indicative of competitive andcoercive forces underlying imitation tendencies, it can be argued that legiti-macy threats and their impact on CER may promote a form of coercive iso-morphism. Legitimacy pressures can bring management to consider issuesand to report items that would normally stay out of an uncertainty drivenreporting agenda, but would be put on the agenda under pressure of specificand powerful demands. If these demands were to be voiced by regulatorybodies, portrayed by Neu et al. (1998) as especially powerful stakeholdergroups, they could lead to a pattern of normative isomorphism in which theexplicit rules and categories set by the regulatory bodies would become thenorm around which conformity would develop. These alternative forms of iso-morphism seem less plausible at the current time. On the one hand, there is alack of generally accepted and unequivocal legal, para-legal or professionalguidelines with respect to CER. On the other hand, coercive forces may notnecessarily lead to more conformity. As Deegan (2002, p. 298) points out, itwould be very difficult to predict how managers would react in their disclosurestrategy to legitimacy threats, ‘‘conceivably different managers will adopt dif-ferent legitimising strategies from the array of possibilities that would be avail-able – and again, any prediction would be problematic’’. Effective legitimacydriven CER does not necessarily imply a definite, clear-cut or sophisticated dis-closure agenda. In this vein, Oliver (1991, p. 162) argues that demands fromparticular stakeholder groups could conflict and that under such circum-stances, it would make tactical sense to dismiss or at best ‘‘minimally appease’’the information demands of the less powerful stakeholders (the environmental-ists versus financial stakeholders). Such an action would be consistent withO’Dwyer’s (2002, p. 411) argument that: ‘‘Low effort symbolic gestures, suchas the provision of elementary environmental disclosures, may therefore beused to demonstrate minimal appeasement as an alternative to outright defi-ance. This implies that minimal as opposed to detailed environmental disclo-sures may be more likely to form part of a legitimacy process aimed atappeasing the concerns of less powerful ‘‘relevant publics’’.


The views elaborated in this study emphasize the interplay of cognitive andsocio-political factors in the establishment of CER action. Both types of influ-ences are involved in shaping environmental reporting. Given the ambiguityinherent in CER, the reliance on institutionalized rules through well-estab-lished practices facilitates decisions on CER by providing readily availablesolutions for reporting questions. The results of this research suggest that, inpart, contemporaries observe CER of other industry constituents and considerthe popularity of specific topics and presentation levels to be indicative of itsappropriateness. Such conformity driven CER serves as a kind of societal trucein that it both responds to broad societal forces and accommodates in a stablemanner potentially conflicting interests in the corporate environment. Thisconformity driven CER is jeopardized once entity-specific efficiency criteriawith regard to CER become transparent and challenging through public voic-ing, e.g., through public media action.

5.3. Contribution, limitations and future research

This study’s contribution is threefold. First, the study extends neo-institu-tional theory into a new context, environmental reporting, in which externalstakeholder relationships are crucial. Second, the study potentially providesa promising conceptual framework to enhance our understanding of corporatereporting, for which environmental reporting is only one facet. Third, in con-trast to most previous research on CER, this study does not focus on disclosurelevel or disclosure indices per se, but on similarity patterns in CER. An empha-sis on the impact of more general social processes and on the use of social com-parison in CER distinguishes this study from prior work.

The findings are subject to various limitations. First, while we believe thatinstitutional theory provides a comprehensive framework to understandCER, there may be other overlapping effects or influences. Second, while val-idated in prior research, the study’s CER measure may not adequately reflect afirm’s reporting as it is somewhat subjective. However, we argue that such sub-jectivity is necessary to obtain a relevant CER measure and is kept in checkthrough inter-coder validations. Third, the study’s measure of the similarityindex, which is the object of investigation, may or may not capture how a firm’sCER is similar to other firms. The reliance on prior institutional theory-drivenmethods, the partitioning of the similarity index according to its quality leveland the robustness of the findings provide us with confidence about the reliabil-ity of our measure. Fourth, the study focuses on only three countries and,hence, its findings may not be generalizable to firms in other countries. Thewidely different institutional contexts of the countries involved (Canada vs.France and Germany) lead us to believe that the findings are reflective oftwo reporting contexts (Common law-investor focused vs. Civil law-stake-holder focused).


Future research may consider extending the institutional theory frameworkto other aspects of corporate reporting, such as social reporting orperformance reporting. In addition, other countries could be considered sothat a greater variety of institutional contexts is modelized in terms oftheir impact on reporting. Interviews and surveys of corporate executiveswho are involved in the determination of environmental reporting shouldalso be envisaged in order that the description of CER have moredepth.

Acknowledgements

The authors thank participants at the 2003 Cardiff University FinancialReporting Conference for their comments and suggestions. Financial supportfrom the Social Sciences and Humanities Research Council of Canada, FondsQuebecois pour la recherche sur la Societe et la culture (FQRSC) and the Law-rence Bloomberg Chair in Accountancy at Concordia University is alsoacknowledged.

Appendix A. Environmental reporting ratings

Economic factors:

• Past and current expenditures for pollution control equipment andfacilities.

• Past and current operating costs of pollution control equipment andfacilities.

• Future estimates of expenditures for pollution control equipment andfacilities.

• Future estimates of operating costs for pollution control equipment andfacilities.

• Financing for pollution control equipment or facilities.• Environmental debt.• Risk provision.• Provision for charge.

Laws and regulation:

• Litigation (present and potential).• Fines.• Orders to conform.• Corrective actions.


• Incidents.• Future legislation or regulation requirements.

Pollution abatement:

• Air emission information.• Water discharge information.• Solid waste disposal information.• Control, installations, facilities or processes described.• Compliance status of facilities.• Noise and odours.

Sustainable development reporting:

• Conservation of natural resources.• Recycling.• Life cycle information.

Land remediation and contamination:

• Sites.• Efforts of remediation (present and future).• Cost/potential liability (provisions for site remediation).• Spills: (number, nature, efforts to reduce).• Liabilities (actual and potential).

Environmental management:

• Environmental policies or company concern for the environment.• Environmental management system.• Environmental auditing.• Goals and targets.• Awards.• Department or office for pollution control.• ISO 14000.• Participation in elaboration of environmental standards.• Joint projects with other firms on environmental management.

Rating scale:

3: Item described in monetary or quantitative terms.2: Item described specifically.1: Item discussed in general.


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Intra-industry imitation in corporate environmental reporting: An international perspective

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