The NIS applied to accounting began around the 1970s, by the investigator Anthony Hopwood, with publications in scientific magazines such as Accounting, Organizations, and Society . The NIS is founded on the premise that organizations answer to their institutional environment pressures and “adopt structures and/or procedures that are socially accepted as being the appropriate organizational choice” (, p. 569). According to the NIS, accounting practices are the result of the institutional nature and of the economic pressures from their institutional environment, operating in an open system. IT appears as a response to the main stream in accounting research, which sees accounting practices as an economic, rational, and logical result . DiMaggio and Powell believe that the NIS rejects the rational actors’ models, standing up for an interest in institutions as independent variables. For such, they attempt to give cognitive and cultural explanations to those models.

https://intuit-payroll.org/ argue that the tendency to conform makes organisations similar without necessarily improving them. Governments and organisations with unclear and unreliable goals take legitimacy as an excuse to illustrate economic and social correctness while in actual sense, such organisation or governments as the case might be are simply ineffective.

1. Overall vision on the institutional theory in the organizational practices

When an actual or potential disparity exists between the two value systems there will exist a threat to organisational legitimacy. At its simplest, within the Organisational view “legitimacy an operational resource … that organizations extract – often competitively – from their cultural environments and that they employ in pursuit of their goals” (Suchman, 1995, p. 575 6, emphasis in original). Legitimacy, just like money, is a resource a business requires in order to operate. Low legitimacy will have particularly dire consequences for an organisation, which could ultimately lead to the forfeiture of their right to operate. In terms of accounting research, given the time frames involved and questions generally being considered, the current business environment, including the capitalist structure, democratic government, etc. are generally taken as a given, a static context within which the research is situated.

The core belief of the manager’s approach is that information is a vital tool to manage stakeholders so as to win their acceptance and support. Further, the same information can be used to manipulate the stakeholders so as to avert disapproval and distract opposition. The parallel is uncomplicated and exemplifies the current debate regarding legitimacy theory. The concept of legitimacy has not advanced to the point where the gap cannot be precisely measured. The distinction between lawful and unlawful behavior within an organization is readily apparent. This is also the primary reason why the theory of legitimacy is presently regarded as emergent. According to the legitimacy theory, legitimacy is a common perception regarding an object’s activities as beneficial or suitable within the bounds of culturally accepted norms.

Sustainability and Financial Reporting Quality for Listed Manufacturing Companies in Nigeria: The Legitimacy Theory Perspective

The authors discovered that the amount of information about the Legitimacy Theory Of Accounting potentially unavailable to the public poses an ongoing threat to the corporation’s credibility. A legitimacy gap may develop when a portion of an organization’s shadow is revealed, whether by accident, by an activist group, or by a journalist’s action.

In their work, Tilling and Tilt follow a longitudinal case study using the LT to understand the organizations’ motivation to voluntarily disclose environmental and social information. Sciulli argues in his works on sustainability reports in the PS that no theory is predominantly adequate to the investigation on sustainability. Instead, there is a series of theories that, isolated or together, offer suitable information and clarifications for behaviors and management practices, namely, the LT, the IT, and the ST. The LT has been widely used in this context . It suggests that social responsibility disclosure provides an important way of communicating with stakeholders, and of convincing them that the organizations is fulfilling their expectations .

Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory

According to Suttipun , despite the different theoretical approaches that are used to explain TBL reports, the LT and the ST are the theoretical perspectives more widely put forward in literature on environmental and social accounting. An organization’s legitimacy is granted and controlled by people outside the organization. Thus, it attempts to implement certain strategies in order to change stakeholders’ perception and divert their attention from certain issues so as to change their expectations regarding the organization’s performance. Thus, organizations are encouraged to disclose appropriate environmental information to their stakeholders to ensure that their behavior is perceived as legitimate .

Institutional theorists believe that compliance with institutional norms established for a long time is the way to institutional and social legitimacy . Institutional change can come from “pressures resulting from functional, political, or social sources”.

According to , a stakeholder is any group or person who may influence or be affected by the organization’s goals. Several academics attempted to refine Freeman’s definition of a stakeholder by more precisely categorizing them. Subgroups of stakeholders such as shareholders, employees, and customers ; single-issue and multiple-issue stakeholders ; supportive, marginal, and unsupportive stakeholders . They are intended to highlight numerous stakeholder groups with varying and potentially conflicting needs. Because of the globalization, organizations can choose different elements of any system that suit their requirements. The timing differences for firms to adopt institutional changes show the potential value of the NIS to predict circumstances that make the acceptance of an institutional innovation likely.