The emergence of corporate scandals and the use of corporate reporting to address or hide the consequences of such events have led scholars to examine how key stakeholder categories react to different disclosure patterns. While several studies have investigated companies' social, environmental and sustainability (SES) reports and have provided evidence of different behaviors, other studies have focused on how stakeholders perceive a company's image and reputation on the basis of nonfinancial disclosures (Axjonow et al., 2018; Diouf and Boiral, 2017).

Legitimacy theory has been widely used to explain companies' decisions to adopt a disclosure behavior characterized by transparency or enhanced disclosures (Dai et al., 2018). Corporate legitimacy consists of the perception that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions (Suchman, 1995). Thus, obtaining legitimacy by aligning corporate behavior with stakeholder expectations and by shaping stakeholder perceptions is necessary to guarantee the corporation's survival and long-term value. This necessity has created an increased emphasis on effective nonfinancial disclosure as the means to gain organizational legitimacy (Campbell et al., 2003; Dube and Maroun, 2017). SES reporting plays a crucial role in legitimacy communication and preservation after a company has caused an accident, scandal or disaster. Generally, when a company faces corporate scandals and disasters, it responds to the threat of reputational damage by increasing corporate communications (Unerman, 2008; Corazza et al., 2020).

However, a critical issue emerges when a company aims to restore its image through SES reporting, which is related to potential hypocrisy. Although in some cases hypocrisy can be a normal and inevitable practice to handle conflicting demands, companies should redirect and control the stakeholder perceptions of hypocrisy (Christensen et al., 2020). Thus, companies need to balance their words carefully with their actions, avoiding the disclosure of signs of inauthenticity leading to accusations of hypocrisy from critical stakeholders (Beelitz and Merkl-Davies, 2012; Nielsen and Thomsen, 2018). The importance of an accurate disclosure strategy to manage stakeholder perceptions after a crisis resides in the consequences of such perceptions. Accordingly, positive stakeholder perceptions point toward the maintenance of organizational legitimacy, while negative perceptions could imply that the company legitimacy is at risk (She and Michelon, 2019).

This research aims to understand stakeholder perceptions of companies' legitimacy and hypocrisy after a scandal and how those perceptions are influenced by disclosure behaviors. We show that transparent disclosure, consisting of an admission of responsibility for the damage caused, and the illustration of remedial actions lead to companies being perceived as more legitimate and less hypocritical. We also document an interaction effect between these two dimensions. Hence, the effect of admission of responsibility on hypocrisy and legitimacy is stronger for companies that disclose remedial actions.

By shedding light on how stakeholders address corporate reporting when a scandal occurs, we contribute both to the literature on the perceptions of nonfinancial information and to the literature on how legitimacy is restored after a crisis.

This paper is organized as follows. Section 2 reviews the literature and develops hypotheses. Section 3 illustrates the experimental design. Section 4 presents the results of the study. Section 5 highlights our main conclusions, limitations and further research.

This study is a companion paper to another article in this issue. Hence, it represents a development of the analysis conducted in the first paper, where we explore how companies adapt their sustainability reports after a scandal. In this paper, we provide evidence of how stakeholders perceive companies' responses to a scandal in terms of reporting, thus offering a wider picture of the consequences of SES scandals for both the companies and stakeholders involved.

Hypocrisy occurs when a gap between assertions and actions begins to appear (Shklar, 1984). The term refers to the “motivation to appear moral yet, if possible, avoid the cost of actually being moral” (Batson et al., 2006, p. 321). Hampered accountability risks are engendering accusations of hypocrisy. This latter response occurs in a world in which values, ideas or people are in conflict, and it is a means for both individuals and organizations to address such conflict (Brunsson, 2007). In contrast, sincerity is interpreted as a “degree of congruence” that “does not relate to how ethical a company is but how true that company is to its mission statement, value declarations or corporate charter” (Fassin and Buelens, 2011, p. 587).

Recent research argues that firms use hypocritical talk, decisions and actions to manage divergent stakeholder interests and hence maintain legitimacy (Cho et al., 2015). The authors refer to “talk” as written or spoken words presenting organizations' commitments and policies to interact with the general and competitive environment and, in particular, with external stakeholders. While “decisions” are a special type of talk that indicates a future intention and an increased probability of corresponding actions (Brunsson, 2007), “actions” represent the execution of previous talk and decisions (Brunsson, 1993). Every “talk” contributes to building organizational façades, namely, symbolic appearance used to manage organizational legitimacy (Abrahamson and Baumard, 2008; Cho et al., 2015). More specifically, a “progressive façade” aims to show the organization's progress toward strategic goals, while a “reputational façade” illustrates the organization's positive images for stakeholders (Abrahamson and Baumard, 2008). In other words, organizations build façades to influence stakeholders' assessment of their social and institutional practices in an attempt to improve perceptions of the organization, and thereby managing its legitimacy (She and Michelon, 2019, p. 55).

This latter element, in turn, is a particularly valuable intangible asset for business success and even simply for the survival of an organization. Mitchell et al. (1997) argue that “legitimacy is a social good, it is something larger and more shared than a mere self-perception, and it may be defined and negotiated differently at various levels of social organization” (p. 867). In explaining their concept of legitimacy, the authors accept Weber's (1947) proposition that legitimacy and power are distinct attributes that can combine to create authority but that can exist independently as well. Mitchell et al. (1997) make use of Suchman's (1995) definition of organizational legitimacy, which is established when actions are perceived to be desirable according to social norms.

Lee et al. (2018) support the idea that legitimacy is determined by the way members of a society perceive, think about and feel toward an organization (see also: Hatch and Schultz, 1997). Even though companies may attempt to create legitimacy (Sonpar et al., 2010), if consumers, and stakeholders in general, do not accredit it, then their corporate social responsibility (CSR) efforts could be in vain (Palazzo and Scherer, 2006).

After a scandal, the corporate image is naturally compromised, but the methods of reaction to the scandal are decisive for rebuilding or definitively losing the organization's legitimacy and credibility: if stakeholders do not trust the corporation, then its reputation is damaged, as is its license to operate in society (Petty and Guthrie, 2000). Moreover, if reputation is damaged, relational capital is compromised (Casonato et al., 2019, p. 147; see also: de Castro et al., 2004). Once the license to operate is breached by a scandal, even shareholders and funders often sell their shares – causing share prices to plummet – or withdraw their credit lines. Therefore, a good reputation helps to maintain value, whereas a bad reputation tends to destroy it (Gatzert, 2015).

With reference to reporting as a legitimation tool, Kuruppu et al. (2019, p. 2081) sustain that the choice regarding whether direct action, reporting or a combination of both, should be used in organizational attempts to gain, maintain and manage legitimacy is affected by the visibility of the issue, the salience of the stakeholders involved and the stakeholder networks affected. For example, if an issue becomes public, a firm may need to take action and report to offer explanations or excuses.

This study contributes to understanding possible remedial actions that are effective not only for restoring the organizational façade and corporate image, thereby avoiding stakeholder perceptions of a gap between assertions and actions (hypocrisy in the sense of Batson et al., 2006), but also for rebuilding or reinforcing legitimacy through reporting action that is perceived to be desirable according to social norms (Suchman, 1995).

According to the literature on SES disclosure after a scandal, companies facing crises often develop CSR initiatives as a crisis strategy management response. However, this reactive approach necessitates caution, as when a corporation engages in CSR after a crisis, its CSR efforts may be viewed as an attempt to rectify the perception of corporate legitimacy and clear an eroded reputation.

Some companies decide to offer compensation to stakeholders affected by the damage through remedial CSR activities, whereas others disclose CSR activities that are not directly aimed at remedying the damage caused. Thus, companies implement CSR strategies that either do or do not fit with the damage they caused. The implementation of remedial or nonremedial CSR activities can affect stakeholders' responses. Indeed, how stakeholders interpret the relationship between the CSR initiative and the cause of the firm's hampered accountability could define their perceptions (García-Jiménez et al., 2017). This effect can be explained by stakeholders' attribution of motives that guide companies' behavior. According to attribution theory, CSR initiatives can have two different CSR motivations for implementation: intrinsic and extrinsic. When companies engage in CSR for intrinsic motives, stakeholders perceive the company as sincere, as they trust the “benevolent” character of the organization and the true values of the firm. In contrast, extrinsic CSR practices are those “perceived to be done to get something back or to avoid some kind of punishment from the community in general” (Story and Neves, 2015, p. 113). Therefore, if companies implement remedial CSR activities that attempt to remedy the damage they caused, they are perceived as sincere; as such activities reflect genuine concern. Conversely, the incongruence between CSR activity and the damage caused raises stakeholder skepticism over a company and its social projects, signaling the existence of an ulterior motive to engage in a CSR activity, such as appearing moral while avoiding the cost of being moral (Sen et al., 2006). Hence, if a company launches a CSR initiative in a different domain from the crisis issue, the CSR may not align with stakeholders' expectations that the company concentrate on addressing the crisis. By contrast, a CSR initiative in the same domain as the crisis issue would be considered consistent with the expectations of stakeholders, who recognize the company's genuine care about crisis problem solving (Kim and Choi, 2018).

We hypothesize that companies are perceived by stakeholders more positively when implementing a CSR initiative that is congruent with the cause of the specific disaster or scandal that eroded that company's legitimacy as follows:

Companies are perceived as less hypocritical and more legitimate if they develop a remedial CSR activity.

Both impression management theory and account episodes theory identify the admission of responsibility–as well as offers of compensation–as a relevant component that enables the communication strategies of scandal-ridden companies to appear sincere, convincing and effective.

As information is necessary to change perceptions (Adams and Zutshi, 2004), a strategy that aims at improving a company's legitimacy and affecting external parties must be accompanied by disclosure.

In the field of psychology, hypocritical behavior is closely associated with the fundamental error of attribution (Polman and Ruttan, 2012). Individuals often try to explain and justify their behavior by attributing it to environmental and/or alien causes, while they often attribute the actions of others to innate characteristics. Some companies declare their responsibility for causing certain damage, whereas other companies prefer not to mention the violation they committed or not to assume their responsibility to avoid the risk of showing that their activities were unacceptable and inappropriate and that their social contract is not legitimate (Parmar et al., 2010). Thus, some companies decide not to share their responsibility for a negative event with stakeholders because doing so highlights failures and mistakes. However, recent studies have shown that disclosing bad news may be perceived as more credible than disclosing good news because management has less incentive to publish it when untrue, revealing weaker perceived hypocrisy of negative than positive information (Jahn and Brühl, 2019).

Since hypocritical behaviors derive from a gap between assertions and actions, companies that do not recognize their responsibility could be perceived as hypocritical by definition. For this reason, we expect companies to be perceived as hypocritical and less legitimate if they did not accept responsibility for their actions and as less hypocritical and more legitimate if they took responsibility for their actions.

Accordingly, we formally frame the following hypothesis regarding companies' behavior in relation to a crisis as follows:

Companies are perceived as less hypocritical and more legitimate if they take responsibility.

Classical SES disclosure theories assume coherence among intentions, decisions and actions (Michelon et al., 2015). Discrepancies between SES disclosure and action can be viewed as a way for companies to attempt to ward off criticism and give false impressions of actual CSR practices (Schoeneborn et al., 2020).

If companies do not recognize their responsibilities but admit to developing remedial CSR activities, stakeholders might charge them with duplicity if they perceive the information as incoherent (Higgins et al., 2020). Thus, we expect that an interaction effect between the disclosure of remedial actions and the admission of fault exists. Hence, we formulate the hypothesis as follows:

When companies develop a remedial CSR activity, they are perceived as more hypocritical and less legitimate if they do not admit their responsibility.

We implement an experimental design to test our hypotheses on stakeholder perceptions of sustainability reports. Previous studies have used experiments to assess users' reactions to disclosures in SES reports (e.g. Kuruppu and Milne, 2010). We draw on prior literature to design the different cases related to remedial actions and admission of responsibility.

We developed an online 2 × 2 between-subjects experiment to investigate the effects of CSR actions (remedial CSR vs nonremedial CSR) and admission of responsibility (own attribution vs attribution to others) on perceptions of companies' hypocrisy and legitimacy by potential users of nonfinancial disclosure. Specifically, regarding the first variable, we considered the relationship between the CSR activities adopted by the company and the damage caused by the company, identifying “remedial” and “nonremedial” CSR activities. The second variable–the admission of responsibility–refers to the company's admission of its responsibility for the damage or its attribution of responsibility to an external cause.

The hypotheses were tested using the data collected through a questionnaire that was randomly distributed through the Prolific Academic (ProA) online crowdsourcing platform. ProA, which was launched in 2014, was selected because the literature claims that its participants produce higher-quality data than participants on other platforms, such as CrowdFlower and Amazon Mechanical Turk (Peer et al., 2017).

Because the study aimed to examine the influence of companies' admission of responsibility and CSR activities on hypocrisy and legitimacy perceptions, different stimuli were used to create four different scenarios. All scenarios involved a partial SES report page from a fictional company. We opted not to use scenarios referring to real companies because the resulting associations could have produced distortions that undermined our findings (McCarthy and Norris, 1999). However, we built on the existing literature on corporate scandals and on our content analysis of the 11 cases to present a realistic scenario. We manipulated the two variables via the contents of the SES report. The fictitious brand was presented in the cover story as follows:

TechAdvance is a German-based multinational information technology company founded in 1990 that currently has 121,000 employees. It produces a wide variety of consumer electronics products and appliances (including electronic kitchen appliances, personal computers, telephones, MP3 players, audio equipment, etc.).

Then, we specified that the company misused chemical substances, which gave 14 employees leukemia. A fictitious page of the corporate responsibility report that TechAdvance published at the end of 2017 was presented to respondents.

The admission of responsibility was manipulated by adopting the following sentences:

“As stated publicly several times by our CEO, the company is clear on its responsibilities related to the damages caused to its 14 employees.”

“As stated publicly several times by our CEO, the company declines all responsibility and attributes the damages caused to its 14 employees to external causes.”

To manipulate the CSR activity, we adopted the following sentences:

“During the year, we continued to meet our commitments to those affected. All legitimate claims for compensation have been and will continue to be met. By the end of 2011, US$5m had been provided to the families of the employees who were the victims of this accident.”

“TechAdvance has been working hard to improve its social responsibility and is helping the communities in Sri Lanka, where a part of the production is located, with the construction of a new school, investing US$5m in this project.”

The manipulation check of the cover story's contents was assessed by undertaking a preliminary test with a sample of 20 respondents that confirmed the perception of the gravity of the damage caused by the company. We asked respondents to rank the gravity of the violation on a seven-point Likert scale: the results show a mean of 6.10, which is significantly different from 4, the central value of the Likert scale (p