Applying stakeholder theory to analyze corporate environmental performance: Evidence from Australian listed companies

Abstract

Purpose

Stakeholder theory has been used extensively as it offers a way to address the changing demands in a dynamic business environment. This study aims to use stakeholder theory to analyze corporate environmental behavior by Australian listed companies.

Design/methodology/approach

By adopting Ullmann's three‐dimensional framework comprising stakeholder power, strategic posture, and economic performance, an ordinary least squares (OLS) regression model is developed. Three measures of stakeholder power are used: shareholder power (SP), creditor power, and government power (GP). Strategic posture is represented by the level of management's environmental concern (EC) and economic performance is proxied by the firm's return on assets (ROA). Using the 2002 Australian Conservation Foundation environmental performance ranking, the OLS model tests for any significant relationships between corporate environmental performance and the three components of the framework.

Findings

The findings suggest that the level of ownership dispersion (SP), the industry sensitivity characterized by the increased governmental sanctions (GP) as well as the management's concern for the environment (EC) are the significant factors influencing the decision to incorporate superior environmental activities in corporate strategic plans. Measures of economic performance (ROA) show no significant relation with the firms' environmental performance. Likewise, suggestions that size and age of the firms could act as intervening variables are not supported by the results.

Originality/value

The empirical results provide evidence that the application of stakeholder theory can contribute towards one's understanding of how corporate entities behave, particularly in adapting to the rapidly changing business environment where environmental issues are becoming increasingly important.

Citation

Elijido‐Ten, E. (2007), "Applying stakeholder theory to analyze corporate environmental performance: Evidence from Australian listed companies", Asian Review of Accounting, Vol. 15 No. 2, pp. 164-184. https://doi.org/10.1108/13217340710823378