The impact of legitimacy threat on the choice of external carbon assurance : evidence from the US

Purpose: The purpose of the study is to examine the impact of legitimacy threats on corporate incentive to obtain external carbon assurance. Design/methodology/approach: The sample consists of the largest U.S. companies that disclosed carbon emissions to CDP over the period 2010–2013. Based on legitimacy theory, we expect that firms are more likely to obtain carbon assurance when they are under greater legitimacy threat. Carbon assurance is measured using CDP data. Three proxies are identified to measure legitimacy threat related to climate change: carbon emissions intensity, firm size, and leverage. Findings: We find that firms with higher levels of emissions are more likely to obtain independent assurance, and large firms show the same tendency, as they are probably under pressure from their large group of stakeholders. In sum, our findings suggest that firms with higher carbon emissions face greater threats to their legitimacy, and the adoption of carbon assurance can mitigate risks to legitimacy via the enhanced credibility of carbon disclosure in stakeholders’ decision making. Research limitations/implications: The study has some limitations. We relied on CDP reports for analysis and focus on the largest companies in the US. Caution should be exercised when generalise the results to smaller firms, other countries or voluntary carbon assurance information disclosed in other communications channels. Practical implications: Our study provides extra insights and an improved understanding on determinants and motivation of carbon assurance, which should be useful for policy makers to develop policy and initiatives for carbon assurance. The collective results should be useful for practicing accountants and accounting firms. Originality/value: We investigate how legitimacy threats affect firms’ choice of external carbon assurance in the context of United States, which has not been documented previously. It contributes to the understanding of legitimacy theory in the context of voluntary carbon assurance.