Enhancement and obfuscation through the use of graphs in sustainability reports

Charles H. Cho, Giovanna Michelon, Dennis M. Patten

2012-05-11articleSustainability Accounting Management and Policy Journal89 citationsgreen

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Financial Reporting and XBRL

Abstract

Purpose The purpose of this paper is to investigate the use of graphs in corporate sustainability reports and attempt to determine, first, whether the use of graphs appears to be associated with attempts at impression management, and second, whether differences across three levels of reporting regulatory structure are associated with differences in the level of impression management. Design/methodology/approach Based on a sample of 120 sustainability reports issued by firms from six different countries, the authors empirically test for differences in presentation of favourable, as opposed to unfavourable, items (enhancement) and for differences in the direction of materially distorted graphs (obfuscation). Findings For the overall sample, substantial evidence was found of both enhancement and obfuscation in the graph displays. Also, more limited evidence was found that impression management differs across companies facing different regulatory structures. Research limitations/implications The authors investigate graph use for only one year's reports and for a sample of large companies from only six different countries. Further, the enhancement findings are not evidence that the companies are necessarily providing misleading information. However, the results show that the way information is being provided in corporate sustainability reports appears to be manipulated by the firms to enhance a positive image and to obfuscate negative trends. The reports may thus be less about increasing corporate accountability across the social and environmental domains than about managing impressions. Hence, it may be beneficial for advocate organizations, such as the Global Reporting Initiative, to provide additional guidance on “how” information gets portrayed in sustainability reports. Originality/value The paper expands prior research into corporate manipulation of graphs to the domain of sustainability reporting and adds further evidence that the reporting needs to be carefully assessed.

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