In: Accounting
what does legitimacy theory suggest for corporate disclosure and reporting and how the social contract theory differ from the legitimacy theory。
Solution. When an organization decides to enter in a competitive business market it needs to set general objective of achieving its goal along with social impact in society, to sustain. Legitimacy theory focuses on organization's social and environmental reporting. To build trust in society, the organization needs to follow socially constructed regulations. It suggests, records and discloses information that will enhance their organization's image to be more legitimate.
Social contract theory acts as a binding force between an organization and society. It provides mutual interest and regulation by disclosing organization's true activities and society providing with capital and availability of resources for its smooth operation. Whereas, Legitimacy theory provides with rules and procedures to build and implement social and environmental disclosures in order to meet social contract objective.