Exploring Stakeholder & Legitimacy Theories in Accounting

This essay provides an overview of accounting theory, focusing on stakeholder and legitimacy theories. It examines the core concepts of each theory, emphasizing the importance of stakeholder relationships and the social contract between organizations and society. The analysis draws upon insights from academic journals such as the Accounting and Business Research Taylor & Francis Online, Accounting, Accountability, and Performance Journal, Accounting and Finance John & Sons, Inc and Accounting, Auditing and Accountability Journal, illustrating how these theories apply to real-world organizational practices. The essay discusses how organizations manage stakeholder expectations, maintain legitimacy through various communication strategies, and align their activities with societal norms and ethical standards. It highlights the role of accounting information in disclosing social and environmental impacts, thereby influencing stakeholder perceptions and ensuring long-term sustainability. The essay concludes by underscoring the significance of these theories for promoting ethical conduct and accountability in corporate governance.

Accounting Theory 1
ACCOUNTING THEORY
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Accounting Theory 2
Table of Contents
Accounting Theory..........................................................................................................................3
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................3
Stakeholder Theory..........................................................................................................................4
Accounting, Accountability and Performance Journal................................................................4
Accounting and Business Research Taylor & Francis Online.....................................................5
Internal Marketing Communication and Stakeholder Theory..................................................5
Legitimacy Theory...........................................................................................................................6
Accounting and Finance John & Sons, Inc..................................................................................7
Accounting, Auditing and Accountability Journal......................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10
Accounting Theory

Accounting Theory 3
Executive Summary
There are various accounting theories which affect the operations of different
organizations and these are usually referred to as the accounting theories. Such accounting
theories can be defined as the theories whose primary purpose is to avail information on the best
ways of conducting different activities in regards to the expectations of a society. Some of the
theories include the legitimacy theory, stakeholder theory, and the institutional theory. However,
this report will focus on two of the accounting theories that is the stakeholder theory and
legitimacy theory. The aim of the report, therefore, is to highlight on various concepts of the
above mentioned theories by looking into four articles as illustrated below in the report.
Introduction
There are various accounting theories which give an insight into a number of issues in an
organization. Such theories may include, the stakeholder theory, legitimacy theory and
institutional theory among others. In the report, the selected theories are the stakeholder theory
and the legitimacy theory. The Accounting and Business Research Taylor& Francis Online and
Auditing and Accountability Journal, Accounting, Accountability, and Performance journals
have been chosen for the report to aid in providing an understanding of the concepts of the two
theories as is indicated in the report below. It can be argued that the stakeholder theory entails
looking at the different relationships in the organization and the stakeholders .The stakeholder
theory emphasizes on looking into the major concerns of the different stakeholders.IT looks into
the various concerns of the stakeholders because they determine the performance of an
organization. The legitimacy theory, however revolves around providing information to the
different interested parties on the fundamental activities and actions of a particular organization
relating to the social and environmental issues as will be discussed below in details.

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Stakeholder Theory
The stakeholder theory is a vital accounting theory in every particular organization. The
main focus of this theory is on the relationships between the stakeholders and the organization
based on the interests and concerns of the stakeholders. According to the stakeholder theory,
often it is necessary to take into account the various needs of the particular stakeholders and this
entails treating them with dignity by respecting their decisions which could be of benefit to the
particular organizations (Jensen, 2017 p.75).
The key application areas of the stakeholder theory include the non-profitable
organizations and the voluntary associations among others. Additionally, the accounting
displayed by a particular organization has certain functions which they do in that particular
organization and this is according to the stakeholder theory. For example, the accounting
information avails adequate information on the relevant activities of a particular organization
including the performance levels of the firm to various stakeholders (Miles, 2017 p.445).
Further, the stakeholders often have an access to various categories of information which are
considered to be relevant to them and this is through the accounting information of the particular
organization. It is also a key role of the accounting information.
Accounting, Accountability and Performance Journal
Based on the information provided by this particular journal, the goal of the stakeholder
theory is to ascertain the different ethical morals and norms of a community and this entails the
acknowledgment of a variety of stakeholders including their needs, interests, and requirements
(Shaukat, Qiu and Trojanowski, 2016 p.580). An organization which intends to survive for a
long time has to acknowledge the existence of various stakeholders in the society such as the
customers, employees, suppliers, government, public and law regulators among others and this is

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because, they have a lot of influence on the various activities of an organizations (Dias,
Rodrigues and Craig, 2016 p.660).
Stakeholders are defined as certain individuals and groups who influence the decisions
made in different organizations for the purpose of carrying out certain activities which are
fundamental to the success of that particular organization. The other objective of the stakeholder
theory is on relationship powers of the stakeholders such that it addresses such powers and this is
attributed to the fact that the relationship powers have a great influence on the legitimacy of a
particular organization (Watson, 2015 p.10).
Accounting and Business Research Taylor & Francis Online
Internal Marketing Communication and Stakeholder Theory
According to Cooper (2017 p.90), generally, a two-way communication has often been
used to run a successful internal marketing strategy. The growth and huge profits generated by an
organization are generally due to an effective satisfaction of the customers which is based on
their loyalty to the particular organization. The internal marketing can be used as a tool for
developing a service culture of an organization.
Apart from taking into account the different interest of the customers, it is important to
look into the particular concerns and interests of the employees and this is due to the fact they
greatly impact on the performance of the particular organizations by improving daily on such
performances (Yakovleva, 2017 p.30). According to this journal, it defines the stakeholders as
those groups of individuals who have the fiduciary relationship with particular organizations and
hence there is the need to satisfy the interest of the various stakeholders such as the media,
community, government, shareholders, suppliers and the employees among others.
Also, according to the stakeholders’ theory, the stakeholders are certainly important
components of an organization who should be involved with the activities of an organization

Accounting Theory 6
such as the execution of the various policies. Such policies are however important during the
correction of a variety of deficiencies especially in the performances of the particular company
(Schaltegger and Burritt, 2017 p.700).
Legitimacy Theory
The above accounting theory focuses on the different actions and activities of a various
firms and those activities are mainly concerned with the environmental and social issues of a
particular society. The key element which the legitimacy theory depends on is the social
contracts such that the law requires of the different organizations to carry out their primary
activities within the accepted ethical morals which does no harm to a community surrounding the
organization. For an organization to become successful in a particular society, it has to take into
considerations the ethical conducts and actions which entirely depends on the requirements of
the social contract. The legitimacy of an organization is a display of the presence of a social
contract which exists between the society and organization (Luger, Mammen and Haleblian,
2015 p.100). Such a legitimacy is an essential element which aids in sustaining the particular
organization for a very long time. All the activities of an organization must be done in a way
which reflects a value system consistent with that of the particular community. It is therefore
prudent that the organizations take into account all the rights of everyone including the
shareholders to survive indefinitely.
The organizations use different approaches to obtain their legitimacy level. One key way
through which the organizations obtain their legitimacy is by providing relevant information to
the society on the various changes which have been made in such an organization especially in
their operations and activities. The change of different perceptions of the community based on
the vital activities of an organization results in gaining of legitimacy by the particular
organization (Fernando and Lawrence, 2014 p.155). Another technique used by firms with the

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aim of maintaining legitimacy is by a change of the various opinions of the community by
drawing away their focus to issues which do not relate to the particular organization at hand.
Some of the issues could be relating to the correlation between the society and the organization
and this could be based on the different goals, for example, the information which may be
negative to the public interest and hence may slow the growth of the particular organization.
Accounting and Finance John & Sons, Inc.
According to Martínez‐Ferrero, Garcia‐Sanchez, and Cuadrado‐Ballesteros, (2015 p.55),
the main attention of this accounting theory entails the assessment of various firms their level of
performances. The legitimacy theory considers the different reactions and actions of the
organizations on the basis of financial disclosures pertaining to certain matters such as the social
and environmental activities of that particular firm.
The different activities relating to the social and environmental elements must be
disclosed by an organization and this is to be done to the public since they determine a lot the
performance level of a firm (Rivera, Muñoz and Moneva, 2017 p.485). Several techniques have
often been employed by the organizations to manage their legitimacy level in the eyes of the
public. Such approaches, however, are based on the selection method of a particular information
and the language used for disclosure of information to the general public. For example, an
organization can manage its legitimacy level b through the disclosure of forthright information to
a particular community and this usually relates to matters on the activities of the organization
which displays the prevailing circumstance of events existing in the organization. The other
technique entails, non-disclosure of the forthright information to the community and this
constitute the failure to provide information on the existing situation in the community.

Accounting Theory 8
Accounting, Auditing and Accountability Journal
The main goal of legitimacy theory according to the journal is on the voluntary disclosure
of accounting information which is critical for the success of any particular organization. The
voluntary disclosure is part of the legitimization process. The sole purpose of the legitimacy
theory is to take into account the various perceptions of interested groups who are competing for
different resources in the community and this aids an organization to achieve most of its
fundamental goals with the aim of sustainability (Deegan, 2014 p.265). According to the
legitimacy theory, all the organizations should carry out their activities based on the norms and
ethical morals of a society.
The legitimacy level of a firm is a typical view on the firm by different individuals in the
community and this is based on their operations. The norms, beliefs, and values of a particular
society must be considered by a particular organization when carrying out their activities so as to
maintain their legitimacy level (Michelon, Pilonato, Ricceri and Roberts, 2016 p.10). There are a
variety of techniques used by the organizations with the aim of maintaining their level of
legitimacy. Such methods depends on the legitimacy gap threat. When a variety of expectations
of the stakeholders have not been met due to the different activities of an organization, the threat
of the legitimacy gap will occur in the organization.
There is also the need to improve on the legitimacy level of an organization and therefore
various organizations have devised certain techniques of enhancing their legitimacy. A key
technique used by the organizations involves the exhibition of how effective certain methods,
outputs and goals are and this is done by availing adequate information to the society with the
aim of changing their perception about the activities of such particular organization. The other
technique is by manipulating the expectations of a particular community and this entails the
alignment of such expectations with the goals, methods, and outputs of the particular

Accounting Theory 9
organization (Anessi-Pessina, Barbera, Sicilia and Steccolini, 2016 p.500). Lastly, the
organizations can maintain their legitimacy through a change of the outputs, methods, and goals
to conform to the expectations of a particular community (García‐Sánchez and García‐Meca,
2017 p.150).
A way of changing such a perception n is by providing certain fundamental information
relating to such changes made in a particular organization. A key benefit of the legitimacy theory
is that it is a motivation tool used in various organizations to direct the efforts of different
employees towards the common objectives of the organization especially those in the accounting
information.
Conclusion
In summary, based on the journals, it can be concluded that the legitimacy theory and the
stakeholder theory can be used as a key motivational tool to enhance social disclosure. A key
purpose of the toe theories is that they tend to look into the corporate social disclosure which is
an essential aspect of any particular organization and this is because a good corporate social
disclosure results into the success of an organization. The primary focus of the stakeholder
theory is on the acknowledgment and respecting the rights and interests of the different
stakeholder in the organization since they have a lot of impact on the activities and thus the
success of the particular organizations. For the legitimacy theory, it is one of the accounting
theories which takes into account the disclosure of accounting information and such information
usually relates to the societal and environmental activities of a particular organization. It is
prudent for all the organizations to take into account the above mentioned accounting theories
since they influence the various activities of the particular organization.

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References
Anessi-Pessina, E., Barbera, C., Sicilia, M. and Steccolini, I., 2016. Public sector budgeting: a
European review of accounting and public management journals. Accounting, Auditing &
Accountability Journal, 29(3), pp.491-519.
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Deegan, C., 2014. An overview of legitimacy theory as applied within the social and
environmental accounting literature. Sustainability accounting and accountability, pp.248-272.
Dias, A., Rodrigues, L.L. and Craig, R., 2016. Global financial crisis and corporate social
responsibility disclosure. Social Responsibility Journal, 12(4), pp.654-671.
Fernando, S. and Lawrence, S., 2014. A theoretical framework for CSR practices: integrating
legitimacy theory, stakeholder theory and institutional theory. Journal of Theoretical Accounting
Research, 10(1), pp.149-178.
García‐Sánchez, I.M. and García‐Meca, E., 2017. CSR engagement and earnings quality in
banks. The moderating role of institutional factors. Corporate Social Responsibility and
Environmental Management, 24(2), pp.145-158.
Jensen, M.C., 2017. Value maximisation, stakeholder theory, and the corporate objective
function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.
Luger, J., Mammen, J., and Haleblian, J., 2015. Security Analaysts' Influence on Acquisition
Decisions: A Joint Agency and Legitimacy Theory Approach.
Martínez‐Ferrero, J., Garcia‐Sanchez, I.M. and Cuadrado‐Ballesteros, B., 2015. Effect of
financial reporting quality on sustainability information disclosure. Corporate Social
Responsibility and Environmental Management, 22(1), pp.45-64.

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Michelon, G., Pilonato, S., Ricceri, F. and Roberts, R.W., 2016. Behind camouflaging:
traditional and innovative theoretical perspectives in social and environmental accounting
research. Sustainability Accounting, Management and Policy Journal, 7(1), pp.2-25.
Miles, S., 2017. Stakeholder theory classification: A theoretical and empirical evaluation of
definitions. Journal of Business Ethics, 142(3), pp.437-459.
Rivera, J.M., Muñoz, M.J. and Moneva, J.M., 2017. Revisiting the relationship between
corporate stakeholder commitment and social and financial performance.Sustainable
Development, 25(6), pp.482-494.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.
Shaukat, A., Qiu, Y. and Trojanowski, G., 2016. Board attributes, corporate social responsibility
strategy, and corporate environmental and social performance. Journal of Business
Ethics, 135(3), pp.569-585.
Watson, L., 2015. Corporate social responsibility research in accounting. Journal of Accounting
Literature, 34, pp.1-16.
Yakovleva, N., 2017. Corporate social responsibility in the mining industries. Routledge.