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Sustainability 2017, 9(3), 376; doi:10.3390/su9030376

Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach

1
SVCO Research Group, Universidade de Santiago de Compostela, Santiago de Compostela 15782, Spain
2
Department of Financial Economics and Accounting, Universidade da Coruña, A Coruña 15071, Spain
*
Author to whom correspondence should be addressed.
Academic Editor: Elena Cristina Rada
Received: 17 January 2017 / Revised: 14 February 2017 / Accepted: 27 February 2017 / Published: 4 March 2017
(This article belongs to the Special Issue Risk Assessment and Management)
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Abstract

Reputation is a complex and multidimensional concept that may be organized in downside and upside reputational risk. In this article, we present a formal modelling for the management capabilities of environmental management and reporting over reputational risk, considering that reputational risk is becoming increasingly important for organizations and it directly depends on the information available about companies’ environmental performances. As long as the effectiveness of communication and disclosure plays a key role in the process, the usefulness of environmental management and reporting as a hedging instrument for reputational risk is addressed through different levels of information transparency. When considering a scenario of voluntary reporting, we show that environmentally concerned companies can reduce the cost of environmental management as a reputational risk strategy, as well as reducing the potential loss of reputational value from reputational threats and increasing the potential profit from reputational opportunities. In the context of mandatory reporting, we highlight the role of assurance companies as bearers of the risk of bad reputations for non-concerned companies. As a result, this novel approach applies theoretical oriented research from options theory to reputational risk management literature, so that it benefits from the option’s well known theory, robustness, and conclusions. View Full-Text
Keywords: corporate social responsibility; corporate reputation; reputation management; risk management; financial risk corporate social responsibility; corporate reputation; reputation management; risk management; financial risk
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MDPI and ACS Style

Pineiro-Chousa, J.; Vizcaíno-González, M.; López-Cabarcos, M.Á.; Romero-Castro, N. Managing Reputational Risk through Environmental Management and Reporting: An Options Theory Approach. Sustainability 2017, 9, 376.

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