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Legitimacy Theory - Essay Example

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Legitimacy Theory

Besides from this, there are other methods that can be adapted by the company to meet the expectations of the external environment and one of them is to increase external accountability.
The idea behind the concept of increasing external accountability is that organizations can enjoy a continued or higher degree of confidence (i.e. becomes more legitimate) from its external environment when it is more open to the scrutiny of the concerned external agents such as stakeholders and the government (Meyer 1979). To achieve this, they institute reforms in the organization's accounting practices. The logic between legitimacy and reforms in accounting practices that we have just discussed has been analyzed by scholars and some of them have expressed rather pressing and legitimate concerns.
Di Maggio and Powell (1983) argue that the need to project a positive image to achieve legitimacy give rise to inefficient reforms because the external environment may require conformity to symbolic elements that entails sacrifices in addressing technical requirements. The adoption and use of accounting practices perceived to enhance the organization's appearance of rationality and efficiency may even be symbolic, mythical or ceremonial. (Tolbert and Zucker, 1983: Covaleski, Dirsmith and Samuel, 1996). In the words of Meyer and Rowan (1977, p. 341), the accounting structure trying to satiate the external environment would "dramatically reflect the myths of their institutional environment instead of the demands of their work activities".
Empirical evidence of this resulting inefficiency abound especially those in the public sector. The study of Carpenter and Feroz (1992) suggests that the modification of accounting practices of government regulators who were keen to achieve legitimacy had improving actuarial accounting performance as a minor concern. This claim has been corroborated by the studies Matolcsy and Watts (2002) who conducted an examination of accounting reforms in Australian universities in the wake of Unified National System (UNS) of higher education in Australia. The conclusion further supported the notion that the reforms were symbolic.
Another issue surrounding the legitimacy theory and external accountability is the possibility that accounting firms would implement ways so as to make the report look more appeasing/pleasing to the external environment. This is what Andersen purportedly committed for its client, Enron. History tells us that Enron conducted a grand conspiracy of deceiving the public of its true value. Ashford and Gibbs (1990, p. 183) discussed the nature of legitimacy as being highly intense, defensive and reactive to internal and external threats.
In summary, the Legitimacy theory provides an initiative that will result in accounting practices that are geared primarily for satisfying the external environment thereby undermining what is needed to be implemented to satisfy more fully the technical requirements of accounting. To justify any claims with the use of the theory proven to be lacking would be detrimental to the flow of logic. Any claims would become invalid.
2.0 Criticisms of Positive Accounting Theory
In their scholarly work, Watts and Zimmerman (1978, p. 1978) laid the foundations of one of the best ...Show more

Summary

According to Suchman (1995, p. 574), Legitimacy theory is based on the idea that business ventures and even public organizations should conduct their operations in a way that is desirable, proper, congruent and conforming to the social norms, values and beliefs system present in their area of operations…
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