Multicolinearity Test Heteroskedastisity Test Autocorrelation Test

109 One-Sample Kolmogorov-Smirnov Test Unstandardized Residual N 48 Normal Parameters a,b Mean 0E-7 Std. Deviation ,07829805 Most Extreme Differences Absolute ,092 Positive ,083 Negative -,092 Kolmogorov-Smirnov Z ,636 Asymp. Sig. 2-tailed ,814 a. Test distribution is Normal. b. Calculated from data.

C. Classical Assumption Test

1. Multicolinearity Test

2. Heteroskedastisity Test

Coefficients a Model Collinearity Statistics Tolerance VIF 1 Board_Size ,504 1,986 Company_Size ,504 1,986 Profitability ,930 1,076 Leverage ,929 1,076 a. Dependent Variable: CSR_Reporting 110

3. Autocorrelation Test

Model Summary b Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson 1 ,735 a ,540 ,497 ,08186 1,243 a. Predictors: Constant, Leverage, Board_Size, Profitability, Company_Size b. Dependent Variable: CSR_Reporting

D. Hypothesis Test

Coefficients a Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 Constant -,781 ,234 -3,330 ,002 Board_Size -,009 ,009 -,151 -1,036 ,306 Company_Size ,118 ,021 ,827 5,673 ,000 Profitability ,078 ,079 ,106 ,992 ,327 Leverage ,004 ,011 ,043 ,401 ,690 a. Dependent Variable: CSR_Reporting Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 ,735 a ,540 ,497 ,08186 a. Predictors: Constant, Leverage, Board_Size, Profitability, Company_Size b. Dependent Variable: CSR_Reporting ANOVA a Model Sum of Squares df Mean Square F Sig. 1 Regression ,339 4 ,085 12,629 ,000 b Residual ,288 43 ,007 Total ,627 47 a. Dependent Variable: CSR_Reporting b. Predictors: Constant, Leverage, Board_Size, Profitability, Company_Size CSR disclosures and its determinants: evidence from Malaysian government link companies Nor Hawani Wan Abd Rahman, Mustaffa Mohamed Zain and Norashfah Hanim Yaakop Yahaya Al-Haj Abstract Purpose – The main aim of this study is to assess the level of corporate social responsibility CSR disclosure of 44 government-linked companies GLCs listed on Bursa Malaysia and to ascertain the relationship of certain company characteristics; namely size, age, profitability and leverage on the total CSR disclosure from the year 2005 to 2006. Designmethodologyapproach – Content analysis is deployed to determine CSR disclosure. A disclosure index consisting of 16 items was developed based on four general themes: human resource, marketplace, community and environment to assess the disclosure level. The relationship between company characteristics and total disclosure was examined using multiple linear regression analysis. Findings – The major finding of this study is that the theme of disclosure has shifted from human resource to marketplace. This is followed by human resource, community and, finally, environment. Ironically, companies are not only disclosing good news, but also badnegative news. This study provides further evidence that is, to a certain extent, some GLCs have influenced other companies’ practices to disclose CSR information. Company size was found to be positively significant associated with the total disclosure. The remaining variables were found to be insignificant in explaining the total disclosure. Originalityvalue – This is the first paper that looks into CSR activities, extent, themes and the determinants of CSR disclosure in the annual reports of Malaysian GLCs. The Malaysian Government, Bursa Saham, Security Commission and other relevant parties could take heed of the findings to further improve CSR awareness, practices and disclosures and quality in GLC. Keywords Malaysia, Organizations, Government agencies, Corporate social responsibility, Disclosure Paper type Research paper 1. Introduction Currently, the traditional role of company’s corporate reporting is being extended not only to financial information, but also to social and environmental information. The combination of these three items of reporting is known as triple bottom-line reporting. According to Gray et al. 1987, such an extension is predicted on the assumption that companies do have wider responsibilities than simply making money for their shareholders. Companies’ failure to report on these matters will cause them to be unable to find their ‘‘license to operate’’ Thompson and Zakaria, 2004. Currently, there are multitude of demands and concerns being voiced by the government on Malaysian public-listed companies PLCs to become more socially and environmentally responsible, and to disclose their CSR initiative and actions through its national mission, ministers’ speeches, policies, campaigns, According to the Minister of Finance II, good CSR is the key towards ensuring the sustainability of business and Malaysian companies in the years ahead Nor Mohamed Yakcop, 2004. DOI 10.110817471111111141486 VOL. 7 NO. 2 2011, pp. 181-201, Q Emerald Group Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 181 Nor Hawani Wan Abd Rahman is an Associate Professor, Mustaffa Mohamed Zain is Deputy Vice Chancellor Academic and Internationalization and Norashfah Hanim Yaakop Yahaya Al-Haj is a Lecturer, all at the Universiti Teknologi Mara UITM, Selangor, Malaysia. Despite the growing pressures on the PLCs to be socially and environmentally responsible, the government also mulls over its controlled companies, government-linked companies GLCs, to actively participate in the area. The uniqueness of GLCs characteristics is their special advantages in terms of access to funds, tenders, and opportunities; the uniqueness that barely fits into a private company and the government held major shareholding in these companies. Thus, having recognized these conditions of GLCs and their important role in the country’s economic growth, they are expected to share the government responsibility in discharging their public accountability by leading others to have good corporate practices on social and environmental matters. Through a total number of 57 GLCs listed on Bursa Malaysia Putrajaya Committee, 2006, the government has highlighted the importance of ‘‘clarifying social obligations’’ as one of the initiatives outlined in the GLCs’ transformation program as an effort to boost the performance of GLCs. The launch of The Silver Book initiative 5 on September 25, 2006, which covers corporate social obligations, is a ‘‘core part of the 15-year national mission to 2020 as the government pushes the envelope further to move the economy up to the value chain’’ The Star Online, 2006. The Silver Book is a guide that defines donations, contributions and other monies that are given out in the companies’ ‘‘efforts to give back to society’’. In spite of growing research on social and environmental reporting in Malaysia, there is only one research Saat et al., 2009 conducted specifically on GLCs that was focused on trend and performance. This study goes beyond Saat et al. 2009. This study aims to investigate whether GLCs listed on Bursa Malaysia disclose their CSR activities, extent, themes and the determinants of CSR disclosure in the annual reports. Specifically, the current study outline two research questions: 1. Do GLCs disclose any aspect of CSR information in their annual report? 2. What are the determinants of CSR disclosure for GLCs? In answering these research questions, several objectives are stated. This paper looks at the overall view of the type and the quantity of CSR disclosure practices among the GLCs and ascertain the relationship between CSR disclosure practices and company characteristics in the Malaysian scenario, in particular with the GLCs. This paper will review the current practice and the development of corporate social reporting. Next the paper will look at the social performance in the annual report and how much is disclosed with the major themes of disclosure and its sub-categories as well as the disclosure practices are identified. The last section will look at the association between the total amount of CSR disclosure with company characteristics; size, age, profitability and leverage. 2. Literature review Gray et al. 1987 define CSR as the process of providing information designed to discharge social accountability, the responsibility to account for actions for which one has social responsibility. In July 2001, a Green Paper Promoting a European Framework for Corporate Social Responsibility presented by the Commission of the European Communities provides a wider definition of CSR as ‘‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’’ as they are increasingly aware that responsible behavior leads to sustainable business success. The World Business Council for Sustainable Development further defines CSR as the continuing commitment by the business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community as society at large The Star, 2007. In the Malaysian context, such views were echoed by the then Deputy Prime Minister, Dato’ Sri Najib Tun Abdul Razak current Prime Minister in a CSR conference held in June 2003, where he delineated CSR as a concept whereby enterprise integrate social and environmental concerns in their business operations with stakeholders on a voluntary basis Tay, 2005. PAGE 182 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 CSR is now being carried out as an extension of normal accounting practices in order to meet different expectations of user groups of CSR. Mohamed Zain 2006 stressed that CSR is generally understood to be the way a company achieves a balance or integration of economic, environmental, and social imperatives while at the same time addressing shareholder and stakeholder expectations. 2.1 The development of CSR in Malaysia 2.1.1 Malaysian empirical studies on CSR. To date, many empirical studies were focused on CSR practices with company’s characteristics see, for example, Mohamed Zain, 1999; Ab Manan and Mohd Iskandar, 2003; Mohamed Zain and Janggu, 2006; Mohd Ghazali and Weetman, 2006; Saat et al., 2009. These characteristics, such as size, profitability, leverage, audit firm and financial performance, influence corporate social disclosure practices. A study by Mohamed Zain and Janggu 2006 examined the extent of social and environmental disclosure of 37 construction companies listed on the Malaysian Stock Exchange from 1998 to 2002 with specific company’s characteristics; size, profitability, leverage and audit firm. Social and environmental disclosure levels were assessed by the number of sentences in the annual report. The result provides strong evidence that the CSD is positively related to companies’ size and profitability. This indicates that, the bigger, in terms of size and profitability a company is, the more the company discloses its social and environmental information. However, no significant relationship was found between the level of CSD and financial leverage and size of audit firm. This simply means that, financial leverage and size of audit firm do not influence the level of social information disclosed. Saat et al. 2009 also employed sentences as measurement tool to assess the level of CSR disclosure practices of 30 GLCs listed on Malaysian Stock Exchange from 2000 to 2004 with companies’ performance as measured by return on assets ROA and return on equity ROE. The study revealed that the level of CSR disclosure among GLCs is high, as the trend of disclosure among social information is increasing from one year to another throughout the period of the study. However, the statistical result indicates that CSR is found to be not significant to the performance of the companies. Only environment theme has a positively weak relationship with the ROA. On quality aspect of CSR reporting, Jaffar et al. 2002 had reviewed and documented the environmental reporting practices from environmentally sensitive industries of Malaysian companies listed on the First Board of Malaysian Stock Exchange for the year 1999. The study examined the association between environmental performance, financial performance, and size, with level of environmental disclosure. Specifically, environmental reporting is measured based on the quality and quantity of reporting. Quality of reporting is assessed by themes and locations of environmental information reported in annual reports. Meanwhile, the measurement of quantity of reporting is based on the volume of reporting. The result revealed that environmental information is not well reported in the annual reports of Malaysian companies. Only 20 percent of the sample companies provided environmental information in their annual reports. Furthermore, result of the study indicates that company size can influence the quantity of environmental information but cannot influence the quality of reporting. Other research by Ab Manan and Mohd Iskandar 2003 investigated the quality of information reporting in the annual report of companies listed on the Malaysian Stock Exchange, which sought to identify company characteristics that influence the quality of information reporting. The quality of reporting was determined on the basis of National Annual Corporate Report Award NACRA criteria of good reporting. Results of the logistic regression analysis show that two main company characteristics influence the quality of reporting i.e. leverage and profitability. A current study by Jaffar et al. 2007 investigated factors that influence the quality of reporting in the annual report of 200 companies from six largest industries listed on the Malaysian Stock Exchange for the year of 2004. The study examined the relationship VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 183 between the qualities of reporting measured using unweighted index with earnings quality and ownership structure. It also included three control variables namely size, profitability and leverage. The results show that ownership structures managerial and government affect the quality of reporting in annual report. Size and profitability, on the other hand have also influenced the quality of reporting in annual reports. Based on the above studies, company characteristics, namely size, profitability and environmental performance affect CSR disclosure in Malaysia Mohamed Zain and Janggu, 2006; Jaffar et al., 2002; Ab Manan and Mohd Iskandar, 2003; Jaffar et al., 2007, whilst leverage shows mixed findings. 2.1.2 CSR framework for Malaysia. The Bursa Malaysia CSR framework was established on September 5, 2006 as a set of guidelines for Malaysian public-listed companies PLCs to help them in the practice of CSR. As stressed by the Prime Minister PM in the 2006 budget speech Badawi, 2006, all PLCs are required to disclose their CSR activities. The directive from PM is really an opportunity to emphasize on the importance of CSR. It is meant to encourage Malaysian PLCs to become more engaged in becoming socially responsible, and to make the way they approach the process of CSR a part of the way they normally work and think. Bursa Malaysia has defined CSR based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders. It is designed to deliver sustainable value to society at large. CSR supports triple bottom line reporting, which emphasizes on three elements, namely economic, social and environmental bottom-line wellness. The Bursa Malaysia CSR framework identifies four main focus areas, namely environment, workplace, community and marketplace. On environment aspects, CSR can focus on a variety of issues such as energy on how to use it efficiently and how to reduce the way its emissions damage the climate, bio fuels, biodiversity and protecting flora and fauna. Under community aspects, supporting employee involvement in community issues enriches the community and company. Activities such as supporting education, youth development and under-privileged are some of the concern. With respect to marketplace, it is where the company finds its important stakeholders such as shareholders, suppliers and customers. Companies can interact responsibly by supporting green products or engaging in only ethical procurement practices. Under workplace aspects, companies are required to be socially responsible for the sake of their employees, whether dealings with basic human rights or gender issues. Another concern is in the aspects such as quality work environment, health and safety, human rights and labor rights are companies’ consideration. Ideally, companies should consider all four CSR dimensions when crafting their own visions. But this does not mean a company must do everything. The important thing is that the company uses the framework to help it to identify its choices and priorities. However, its choice of CSR focus and initiatives will depend on the nature of business, inclination and resources. At times, a company will adopt initiatives that may even have indirect impact on them and society as well. 2.2 GLCs in Malaysia 2.2.1 Definition of GLCs. Generally, GLCs are companies in which some of their shares are controlled by the government Fang et al., 2004. For instance, Singapore Department of Statistics defines GLCs as companies in which the government effective ownership of voting shares is 20 percent or more cited in Hasan, 2006. In the context of Malaysian GLCs, its narrowest definition refer to the companies directly held by the government through the Minister of Finance MoF Inc. or 100 percent owned entities such as Khazanah Nasional and Kumpulan Wang Amanah Pencen. In addition, GLCs are also defined available at www.pcg.gov.my as companies that have a primary commercial objective and in which the Malaysian Government has a direct controlling stake refers to the Government’s ability not just percentage ownership to appoint board members, senior management, andor make major decisions for GLCs, either directly or through government-linked investment companies GLICs. PAGE 184 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 GLICs are defined by the influence of the federal government in: appointingapproving board members and senior management, and having these individuals report directly to the government, as well as in providing funds for operations andor guaranteeing capital and some income placed by unit holders or federal government linked investment companies that allocate some or all of their funds to GLCs investments. This definition currently includes seven GLICs: Employees Provident Fund EPF, Khazanah Nasional Bhd Khazanah, Kumpulan Wang Amanah Pencen KWAP, Lembaga Tabung Angkatan Tentera LTAT, Lembaga Tabung Haji LTH, Menteri Kewangan Diperbadankan MKD and Permodalan Nasional Bhd PNB. For the purpose of the current study, as defined by Putrajaya Committee on GLC High Performance PCG companies are considered as GLCs if substantial shareholders in the companies are either through the Ministry of Finance Incorporated or through GLICs. 2.2.2 Background of GLCs. The Malaysian Government has a strong presence in the economy. In 2004, the Malaysian Government oversaw 40 listed GLCs, accounting for around 34 percent of the total market capitalization of Bursa Malaysia. The combined assets of these companies are approximately RM232 billion or more than half of Malaysia’s gross domestic product cited in Hasan, 2006. Petronas, the oil and gas giant and by far Malaysia’s largest company, is wholly government owned. As at July 31, 2005, there were 57 GLCs Putrajaya Committee, 2006 and account for approximately RM261 billion in market capitalization or approximately 36 percent and 54 percent of the market capitalization of Bursa Malaysia and the benchmark Kuala Lumpur Composite Index respectively with a total employee of 400,000. Since GLCs provide mission-critical services of the country, GLCs play a vital role in the operation of every commercial concern in Malaysia and contribute significantly towards improving the quality of life for the public Badawi, 2004. Their performance greatly impacts the productivity and wellbeing of almost all companies, and almost all Malaysians, across the country thus, the transformation of GLCs into high performing entities is critical for the future prosperity of Malaysia. Therefore, in May 2004, the Malaysia Prime Minister, Datuk Seri Abdullah Ahmad Badawi announced restructuring of GLCs to become more commercial in nature, despite their social and national obligations. In order to smooth the progress of this transformation, the PCG was established. Its objective is to design and implement comprehensive national policies and guidelines to transfer GLCs into high performing entities and establish the institutional framework to program, manage and subsequently to oversee the execution of these policies and guidelines. To raise efficiency and transparency in GLCs, ten initiatives have been identified, developed, launched and implemented across all GLCs starting 20052006. These initiatives have been set out based on their importance as levers for change, their large potential impact on value, and the unique ability of the Putrajaya Committee to drive change in these areas. The ten initiatives are: 1. enhance board effectiveness; 2. strengthen directors’ capabilities; 3. enhance GLICs monitoring and management functions; 4. improve regulatory environment; 5. clarify social obligations; 6. review and revamp procurement; 7. optimize capital management practices; 8. manage and develop leaders and other human capital; 9. intensify performance management practices; and 10. enhance operational improvement. VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 185 2.2.3 CSR on GLCs. In view of the important roles played by GLCs for economic growth and developing the nation as a whole, PCG also includes responsibility of GLCs towards society at large in their fifth initiative; clarify social obligation. In September 25, 2006, The Silver Book was launched as a set of guidelines on how GLCs can contribute to society in a responsible manner thus create a positive impact for their business and society. It also assists GLCs in clarifying and managing social obligations in the most efficient and effective manner in line with best practice regulatory framework or industry norms. In other words, GLCs are required to set their CSR activities based on their business objectives and corporate philosophy and thus are projected to have their own contribution towards society that is beyond their corporate charity. The chief executive officer of Bursa Malaysia, Datuk Yusli Mohamed Yusoff concluded that many companies are actively pursuing CSR initiatives as they believe in the good value that CSR brings such as the ability to attract quality investors, improved financial performance and enhanced reputation The Star Online, 2007. The PCG’s aspiration is that GLCs will lead corporate Malaysia in demonstrating how businesses should contribute in a socially responsible, sustainable and meaningful way while gaining benefits for themselves. The ex-Prime Minister also shares this aspiration, the transformation program initiated by him will be able to take GLCs to a new level of performance, moving them from average to excellence, to glory, and then to distinction; thereby creating more and more global champions and ‘‘best in class’’ companies in Malaysia and thus able to better realize country’s dreams and aspirations, and join the league of developed nations in 2020, for the benefit of current and future generations of Malaysians Badawi, 2005. 3. Methodology The population for this study consists of all GLCs listed on the Malaysian Stock Exchange formerly known as Kuala Lumpur Stock Exchange. The list of companies was obtained from PCG of GLCs available at www.pcg.gov.my As at July 31, 2005, there were 57 GLCs listed on Malaysian Stock Exchange. This study proposed examining all companies’ annual reports from the year 2005 to the year 2006 two years. Of these, 44 are included in the present study. The 13 that are excluded are because nine of the companies do not have information for the full period of study i.e. 2005 to 2006 and the other four companies are from banking and financial sectors, due to the additional regulation imposed on them, they are not suitable to be included on the sample population. As a rule of thumb for determining sample size, Roscoe 1975 as cited in Sekaran, 2005, p. 295, proposes that sample size of more than 30 and less than 500 are appropriate for most research. Annual reports from 2005 to 2006 are selected as a sample owing to several reasons. First, the annual reports year-end 2005 and 2006 are the latest annual reports available. Second, annual reports from two years are selected to compare whether the same independent variables have the same effects on both years Abd Ghaffar et al., 2004. Finally, two years of annual reports are expected to show the pattern of CSR disclosure among GLCs. This is justified on the basis that previous studies have typically used anywhere between a one-year and five-years period; and, according to Moore 2001, this is to avoid the danger of rogue figures for one particular year. 3.1 Content analysis Content analysis method is used to measure the CSR disclosure practices of companies. This method has been used in the social environmental reporting SER literature to evaluate the extent of disclosure of various items as a process of codifying the text of a piece of writing in annual reports of listed companies Gray et al., 1995b; Hackston and Milne, 1996. Content analysis of annual reports is a method for gathering data. It involves as a process of codifying the text of a piece of writing according to pre-defined categories Mohamed Zain and Janggu, 2006 in order to derive patterns in the presentation and reporting of information Guthrie and Abeysekera, 2006. PAGE 186 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 According to Gray et al. 1995b content analysis is a method or technique employed to measure objectively, systematically, and qualitatively the content of communication. This is further defined by Guthrie and Abeysekera 2006 as a ‘‘technique for gathering data contained in the annual report and involved codifying qualitative and quantitative information pre-defined categories in order to derive patterns in the presentation and reporting of information’’. Social disclosure can be measured differently. This study will measure the CSR based on the quantity of disclosure in annual report. Belkaoui and Karpik 1999 proposed four measurements to be used: 1. social disclosure scale by Ernst and Ernst 1973; 2. percentage of prose in annual report; 3. quality of disclosure in annual report; and 4. quantity of disclosure in annual report. Similarly, this study will measure the CSR practices based on quantity of disclosure in annual report and number of sentences is chosen as unit analysis. The use of number of sentences is necessary on the basis that it is more preferable if one is seeking to infer meaning Gray et al., 1995b and it applied with less issue of judgment Unerman, 2000 and provides more reliable measure Hackston and Milne, 1996. According to Mohamed Zain and Janggu 2006 each sentence of disclosure is a grammatically self-contained speech unit expressing an idea, claim or assertion. For the current study, the total disclosure is counted based on the aggregate number of sentences reported on four social disclosure themes 16 sub-categories identified that the companies supply in their annual reports to shareholders. Total number of sentences for each theme is derived based on the aggregate number of sentences disclosed for each of its sub-categories. For example, total number of environment theme is a sum of the total number of sentences identified on its sub-categories, namely pollution, waste and general environment: Total disclosure ¼ Total sentences of human resource þ Total sentences of community þ Total sentences of marketplace þ Total sentences of environment : In the event that one sentence has more than one possible classification or category, then the sentence should be classified or allocated as the activity most emphasized in the sentence. Any disclosure that is repeated shall be recorded as a CSR sentence each time it is discussed. There are four independent variables to be tested that may motivate the voluntary disclosure of CSR disclosure information. Previous studies have investigated the relationship between certain firm characteristics and voluntary disclosure. The areas of interest include company size, age, profitability and leverage. 3.2 Analysis of data In order to investigate the relationship of key variables on CSR disclosure patterns Statistical Package for Social Science SPSS is applied in the present study. First, descriptive statistics regarding the variables, including mean, median, standard deviation, skewness, and kurtosis as well as minimum and maximum values, are computed to analyze the pattern and normality of CSR practices by GLCs. In addition, Kolmogorov-Smirnov Test is used to check whether variables tested are normally distributed. Usually, if the significance level is less than probability value, the distribution is said to be normal. To have a meaningful result, multiple regression analysis is used to test for hypothesized relationships. Normally, regression analysis is used to: B determine whether the independent variables explain a significant variation in the dependent variable; VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 187 B determine how much of the variation in the dependent variable can be explained by the independent variables; B determine the structure or form of relationship strength of the relationship; B predict the values of the dependent variables; and B control for other independent variables when evaluating the contributions of a specific variable or a set of variables Malhotra, 2002, p. 541. 3.3 Model development The model that is used in the present study can be specified as: CSRD ¼ a þ b 1 SIZE þ b 2 AGE þ b 3 PROFITABILITY b 4 LEVERAGE þ 1 where: CSRD ¼ total CSR disclosure. SIZE ¼ log of total assets. AGE ¼ number of AGM. PROFITABILITY ¼ net profit after tax by sales ratio. LEVERAGE ¼ total liabilities by total assets ratio 11 ¼ standard normal, randomly distributed error term. 4. Analysis of data and discussion Annual reports of 44 GLCs listed on the Malaysian Stock Exchange for the year ending 2005 and 2006 were collected and analyzed using SPSS version 12.0. The results are as illustrated in the Table I. 4.1 Compan’s characteristics As recorded in the descriptive statistics, the company characteristics in this study demonstrate the mean for the assets value to be RM5,527,021,764, age 28.09 years, profitability 0.507251 and leverage 0.424823 in 2005. On profitability and leverage, respectively it implies that, for every RM1 of sales, the company yields a profit of RM0.51, while for every RM1 of assets, RM0.42 is financed through liabilities. Later, in 2006 the study records an increase of mean for assets value to RM10, 454,673,451, age of 29.09 years but with a slight decline for leverage to 0.421591 and profitability to 0.252785. Included in Table I are the results of skewness and kurtosis. As a rule of thumb, according to De Vaus 2002, a skewness in the range of 21 and þ1 indicates a symmetrical or normal distribution. In this study, age, leverage and profitability 2006 are found to have a symmetrical distribution. However, three variables are found to have non-symmetrical distributions namely size 2005, profitability 2005 and size 2006. To solve this problem, asset Table I Company’s characteristics No. Min. Max. Mean SD Skew Kurt. 2005 Size 44 22,909,441 49,863,600,000 5,527,021,764 9,766,284,217.42 3.459 12.995 Age 44 2 90 28.09 20.547 1.000 1.239 Leverage 44 0.056599 0.948467 0.42482325 0.246414856 0.293 2 0.761 Profitability 44 2 1.5038 17.3602 0.507251 2.6291374 6.400 41.935 2006 Size 44 24,140,369 51,761,700,000 5,921,709,329 10,454,673,451 3.199 10.879 Age 44 3 91 29.09 20.547 1.000 1.239 Leverage 44 0.061005 0.931300 0.42159073 0.242405814 0.366 2 0.687 Profitability 44 2 0.5301 0.9163 0.161443 0.2527852 0.865 2.275 PAGE 188 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 variable is transformed into log specification and profitability variable is transformed into percentage value to enable further statistical analyses to be done. However, the gaps between the minimum and maximum values are high for all company characteristics. For instance, the minimum value of assets for all 44 companies in 2006 is RM24,140,369 and the maximum is RM51,761,700,000, indicating that certain companies are enjoying a good financial position. The leverage ratio in 2006 also highlights the increasing trends of companies to finance the assets by using liabilities instrument, where the minimum value of ratio is 0.061005 and the maximum value is 0.931300. On profitability ratio aspect, the maximum value is 0.9163 and the minimum is 20.5301, indicating that certain companies are enjoying a good financial performance while some are not. High gap between the minimum and maximum values between all samples for the period of two years indicates that the samples are well represented within the population. 4.1.1 General overview of CSR disclosure. Table II provides an overview of the disclosure made for the period of two years, 2005 and 2006, based on the four categories or themes: human resources, community, marketplace and environment. The four major themes are identified and defined as follows to ensure the coding process is reliable: 1. Disclosure is classified as human resource aspect if it contained primarily related information about socially-oriented activities which are beneficial to their employees. 2. Disclosure is classified as community aspect if it contained primarily related information about socially-oriented activities which are beneficial to the general public. 3. Disclosure is classified as marketplace aspect if it contained primarily related information about socially oriented activities which is beneficial to their customers as well as to shareholders. 4. Disclosure is classified as environmental aspect if it contained primarily related information about socially-oriented activities which are directed toward alleviating or preventing environmental deterioration. The results presented in Table II are taken from the number of disclosing companies as a percentage of total samples 44 companies. It is assumed that, the amount of disclosure is related to the importance placed on certain issues, and hence, the higher the disclosure made on such issue, the higher its perceived importance. Results of Table II indicate that the disclosure of CSR information is considerably high, with all companies providing at least one theme of social information. Marketplace information is the most disclosed theme by companies with a percentage of disclosure of 100 percent and 95 percent for the year 2005 and 2006 respectively. The possible reason for the change in disclosure is due to less information disclosed on three sub-categories of marketplace, namely product quality and safety, research and development, and customer service. It is then followed with the disclosure on human resource, community, whilst environmental information is the least disclosed. 4.1.2 Amount of disclosure. This study focuses on number of sentences as a measurement tool for disclosure and is consistent with studies by Hackston and Milne 1996, Mohamed Zain 1999, Saat et al. 2009, and Mohamed Zain and Janggu 2006. Table III highlights the minimum, maximum and mean number of sentences for four CSR disclosure categories, human resource, community, marketplace, and environmental for the year under review. The analysis of Table III reveals that the amount of CSR disclosure range Table II Number and percentage of companies making corporate social responsibility disclosure over time Human resource Community Marketplace Environmental Year No. No. No. No. 2005 36 81.8 31 70.5 44 100 19 43.2 2006 37 84.1 31 70.5 42 95.5 30 68.2 VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 189 from a low of 0 sentence for all four categories except for marketplace category in the year 2005 to a high of 83 sentences for marketplace disclosure in 2005. Even though marketplace disclosure scores the highest number of sentences, the amount of disclosure is not consistent as the maximum number of sentences disclosed in year 2006 was reduced to 77 sentences. It might be due to less information on marketplace to be reported, as there were less issues or activities being carried out in year 2006. However, disclosure for other categories on the other hand, shows an increasing trend from year 2005 to 2006 as the maximum number of sentences keeps on increasing from year to year. For instance, on community aspect, the maximum sentences were 43 for the year 2005 and increased to 70 sentences in 2006. The increasing trends can also be seen for human resource category as the number of sentences increased to 67 in 2006 as compared to 58 numbers of sentences in 2005, yielding an increase of 15.5 percent. The increasing pattern of disclosure will be best explained as CSR disclosure became mandatory for public listed companies financial year ending December 31, 2007 and also the introduction of The Silver Book for GLCs on September 2006. The above result seems to suggest that the GLCs are concerned and have taken initiatives to disclose the above mentioned aspects, thus adhered to the regulatory requirements and Prime Minister’s directions to report CSR activities in the annual report. 4.2 Themes of disclosure The themes or subcategories of disclosure are divided into four categories, human resource, community, marketplace and environment. Table IV shows the amount and percentage of disclosure for the year 2005 and 2006. Percentage of disclosure on each theme was derived by taking the number of sentences disclosed for each theme over total sentences disclosed for the year times 100 percent. For example, percentage disclosure on human resource indicates a decreasing trend from year 2005 to 2006, even though the numbers of sentences are increasing. This is because, the percentage of disclosure is based on the total sentences for the year, which is in year 2006, the total sentences is higher than 2005, which lead to decrease in percentage of disclosure on human resource aspect for 2006. Disclosure on marketplace is the most favorite with a total of 1,766 sentences or an average of 883 sentences per year. This implies that marketplace is the most important theme of disclosure and recognized annual reports as a medium to transfer information to customers about products and services offered. Other than that, GLCs want to convince their users that products or services offered are at par compared to others. This is followed by disclosure on human resource and community with an average of 558 and 547 sentences per year Table III Social disclosure by general themes Total sentences Min. Max. Mean Theme 2005 2006 2005 2006 2005 2006 2005 2006 Human resource 550 566 58 67 12.5 12.86 Community 452 642 43 70 10.27 14.59 Marketplace 894 872 3 83 77 20.32 19.82 Environment 141 229 25 38 3.2 5.2 Total CSR 2,037 2,309 3 4 150 184 46.29 52.47 Table IV Amount and percentage of disclosure by general themes Human resource Community Marketplace Environment Total No. No. No. No. No. 2005 550 27 452 22.2 894 43.9 141 6.9 2,037 2006 566 24.5 642 27.8 872 37.8 229 9.9 2,309 Total 1,116 51.5 1,094 50 1,766 81.7 370 16.8 4,346 Average 558 25.8 547 25 883 40.9 185 8.4 2173 PAGE 190 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 respectively. Disclosure on environment is the least popular amongst the GLCs under study with an average of 185 sentences per year. This may be due to the perception that their company does not have any environmental impact to the society and not much environmental information to be released in the annual report. 4.2.1 Marketplace. Marketplace information is the most favorite theme of disclosure, where 894 2005 and 872 2006 total number of sentences were reported in the annual report. The minimum number of reported information is 0, indicating that not all GLCs disclose information on marketplace in their annual report, while Malaysia Airport Holding Berhad leads this area of disclosure with the total number of 83 sentences. Table V summarizes the disclosure made for sub-categories of marketplace information. Information on shareholder communication channel and product quality and safety are the two most favorite themes of disclosures by GLCs from 2005 to 2006. This corresponds with the objectives of the Ninth Malaysia Plan, where, in order to promote economic growth, the government will aggressively undertake initiatives to seek new markets, promote exports, attract investments by strengthening the position in traditional market and exploring new markets. Trend analysis of amount disclosed shows that the amount of disclosure dropped by 22 sentences because of less information reported on customer service and research and design. According to Mohamed Zain and Janggu 2006, research culture is new in Malaysia; therefore less emphasis is placed on this area. Another reason might be because of the fact that CSR disclosure is voluntary in nature, as no mandatory requirement to provide such disclosure is currently being exercised in Malaysia for the years 2005 and 2006, even though stress on RD is given an extra emphasis in 9th Malaysian Plan and where more money is budgeted for. 4.2.2 Human resources. Human resource is the second most popular theme disclosed by most GLCs in this study with a maximum total of 566 sentences in 2006 and minimum of 550 sentences in 2005 see Table III. The minimum disclosure for both period of study is 0 sentences, indicating that not all GLCs disclosed human resource information in their annual report, while the maximum number of disclosures by a single company is 67 sentences by Petronas Gas Bhd in 2006. Table VI summarizes the total and sub-categories of human resource disclosure made about employee-related matter from 2005 to 2006. The table shows the increasing number of total disclosure by 2.9 percent an increase of 16 sentences. The increase is mainly contributed by an increase in all three subcategories of human resource except sports and wellness disclosure. The increasing trend is contributed mainly by health and safety by 14 percent Table VI Amount of sub-categories of human resource disclosure Sub-categories 2005 2006 Health and safety 172 196 Training and development 228 253 Employees’ welfare 74 76 Sports and wellness 76 41 Total 550 566 Table V Amount of sub-categories of marketplace disclosure Sub-categories 2005 2006 Product quality and safety 270 283 Research and design 137 100 Shareholder communication channel 301 313 Customer service 186 176 Total 894 872 VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 191 an increase of 24 sentences, followed by training and development by 11 percent or increase in sentences disclosed by 25 and employee welfare category by 2.7 percent or increase by two sentences. These definitely might be due to most companies regard their employees as the most valuable assets and would secure their health and safety, provide training and development program together with concern of their welfare in order to maintain an impetus sense of being appreciated and loyalty among employees. Other than that, this is actually consistent with the policy undertaken by the GLCs on occupational safety and health OSH. The stress on OSH policy is consistent with the Occupational Safety and Health Act OSHA 1994, which requires the workers be given a safe and healthy workplace that is reasonably free of occupational hazard. An OSHA 1994 aim is to make further provision for securing the health, safety and welfare of persons at work, for protecting others against risks to safety and health in connection with activities of persons at work. Section 4.2.3 until 4.2.2 [d] onwards will provide examples of disclosure practice pertinent to human resource sub-categories that are extracted from the sample annual reports. 4.2.3 Community. Next to human resource disclosure, community data are another most favorite theme of disclosure with the total of 452 sentences reported in 2005 and increased to 642 sentences being disclosed in year 2006, or an increase of 42 percent see Table VII. The score of 0 sentences min value indicates that not all GLCs disclose their community details in the annual report, while the maximum number of disclosure by a single company is 70 sentences in the year 2006 and 43 sentences in the year 2005, both of which were reported by Telekom Malaysia Bhd. Table VII summarizes the data for community disclosure since 2005 to 2006 of the 44 companies under study. The table shows the increasing number of total disclosure by 190 sentences. This increasing trend of disclosure is mainly contributed by disclosure on the sub-category of education, disaster relief and charity and donations. The increasing trend of disclosure in these areas might be due to the introduction of the ‘‘Caring society policy’’ and ‘‘Vision 2020’’ Janggu and Mohamed Zain, 2006 by the government in the early 1990s and the third thrust of the National Mission based on the Ninth Malaysian Plan 2006-2010 where the government strongly believes in eradicating poverty, generating more balanced growth in ensuring the benefits of growth are enjoyed by the Malaysian people in a fair and just manner. As stressed by Mohamed Zain 1999 disclosing companies might want their readers to know that they are good corporate citizen, adhering to the government policy and they are accountable to the wider public. Apart from legitimizing their business, GLCs are expected to enjoy benefits from contribution to the society such as increase in ceiling for tax deduction contribution to charitable organizations, extension of tax deduction, and enjoy favorable consideration by KWSP and KWAP in their investment decisions. Educational sub-category is seen as the most favorable theme to be reported by GLCs with total sentences of 186 in year 2005, and increased to 261 in year 2006. This pattern is expected as this is part of GLCs’ contribution to supporting the Ministry of Finance and Khazanah Nasional’s Project PINTAR, the acronym for Promoting Intelligence, Nurturing Talents, and Advocating Responsibility. The project was incepted to encourage GLCs to play a more active role in helping raise awareness of the importance of education and to Table VII Amount of sub-categories of community disclosure Sub-categories 2005 2006 Education 186 261 Disaster relief 53 95 Poor 72 83 Charity 85 126 Sports and culture 56 77 Total 452 642 PAGE 192 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 improve the academic standards of underprivileged children. This project has been outlined in The Silver Book as one of the ten initiatives identified under the GLC Transformation Program Managing Director of MAHB, 2006 Annual Report. Section 4.2.3 [a] until 4.2.4 onwards will provide examples of disclosure practice pertinent to community sub-categories that are extracted from the sample annual reports. 4.2.4 Environment. The degree of disclosure on environment by GLCs is the least favored among the four themes discussed above. Despite the number of companies providing voluntary environmental disclosure may have increased or appears to be encouraging Thompson and Zakaria, 2004; Elijido-Ten, 2004 factors such as lack of government and public pressure, fear of readers’ reaction and perception on their organizations, which did not have environmental impact, are said to contribute to low level of reporting see Thompson and Zakaria, 2004. Jaffar et al. 2002 also pointed out that the reluctance to disclose on environmental theme occurs if companies feel that such disclosure will have negative implications on their social and financial performance. The current study shows that the total sentence disclosed is 229 in year 2006, increased by 88 sentences as compared to year 2005. On average, each GLCs reported 3.2 sentences in year 2005 and increased to 5.2 sentences in 2006. However, there are GLCs that did not report any aspect of environmental information, while the maximum disclosure is by Malaysia Airport Holding Berhad with the total sentences of 88 in 2006. Disclosure on environmental theme is sub-categorized into pollution, waste and general environment as shown in Table VIII. Increasing trend of disclosure is supported by disclosure by all sub-categories especially on general environment and waste. This trend is consistent with a survey by ACCA Malaysia, which revealed that the number of reporting companies has grown and this might be due to positive respond towards professional accounting bodies’ promotion on environmental reporting such as NACRA’s Best Annual Report Awards for Environmental Reporting and Malaysian Environmental Reporting Awards MERA. Currently, the government’s effort to step up enforcement and increase preventive measures on environmental issue being carried out to ensure there is a balance between development and environmental sustainability. According to the Ex-Prime Minister YAB Dato’ Seri Abdullah Ahmad Badawi while tabling of the motion on the 9th Malaysian Plan on March 3, 2006, in order to maintain environmental sustainability, government has allocated RM510 million for cleaning, preserving and beautifying rivers; RM350 million for coral management; RM200 million for reforestation; and another RM70 million for the management of wildlife protected areas in order to maintain environmental sustainability. 4.3 Statistical analysis Before examining the association between total CSR disclosure and company characteristics, data obtained from the annual report for the period of two years, year 2005 and 2006 is tested for its normality and correlation among variables. In order to meet the above stated objectives, test of normality Kolmogorov-Smirnov Test and multicollinearity are undertaken. 4.3.1 Multiple regression analysis. In examining the relationship between CSR disclosure and company characteristics, the statistical technique employed is multiple regressions. Table IX shows the result using multiple regression test. Adjusted R 2 value of 32.8 percent in Table VIII Amount of sub-categories of environment disclosure Sub-categories 2005 2006 Pollution 28 43 Waste 39 47 General environment 74 139 Total 141 229 VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 193 2005 indicates that only 32.8 percent of variance in total CSR disclosure is significantly explained by the four IV considered in this study and another 67.2 percent was left unexplained. As in 2006, adjusted R 2 value of 30 percent indicates that only 30 percent of the variance in total CSR disclosure is significantly explained by the four IV considered in this study which still leaves 70 percent unexplained. Multiple regression suggests that only size is significant to CSR disclosure. However, the adjusted r square is still numerically small which could indicate that there may be other factors that might affects the relationship of CSR such as types of industry, ownership, composition of directors, etc. These, however, are not part of the study. Another factor that might influence that small adjusted R 2 R 2 is the small number of sample which is only 44 numbers. However, as indicated by Sekaran 2005, a sample of 30 is more than sufficient to make a generalization. 4.3.2 Relationship between total CSR disclosure and company sizes. The objective is to identify whether the company size is associated to the CSR disclosure. The test conducted is at 5 percent significance level. The variable used to measure the company size is total assets. Company size was hypothesized to have positive relationship with the total CSR disclosure in the annual report. The statistical result reveals that total assets is positively and significantly related to total CSR disclosure in year 2005 and 2006 with a value of t ¼ 4 :980 p ¼ 0 :000 and t ¼ 4:183 p ¼ 0:000 respectively. This implies that GLCs with high total assets tend to disclose more CSR information than GLCs with lower total assets. This is consistent with evidence found in Singhvi and Desai 1971; Gray et al. 1995a; Naser et al. 2002; and in Malaysia by Mohamed Zain 1999; Jaffar et al. 2002; Ismail 2002; Abd Ghaffar et al. 2004 and Mohamed Zain and Janggu 2006 which found that there is a positive relationship between total CSR disclosure and company size. Therefore, it can be concluded that for Malaysian GLCs, the firm size is a significant item to measure disclosure of CSR information. 4.3.3 Relationship between total CSR disclosure and company ages. The objective is to identify whether the company age is associated to the CSR disclosure. The test conducted is at 5 percent significant level. The variable used to measure the company age is the number of annual general meeting notices. Company’s age was hypothesized to have positive relationship with total CSR disclosure. Statistical results show the positive but insignificant association in year 2005 t ¼ 0 :452 and p ¼ 0 :654, and negative and insignificant relationship in year 2006 t ¼ 20 :560 and p ¼ 0 :579. In other words, company age has no significant relationship with CSR disclosure Table IX Multiple regression analysis t-value Sig p 2005 Log size 2005 4.980 0.000 Age 2005 0.452 0.654 Profitability 2005 2 0.544 0.590 Leverage 2005 2 1.244 0.221 R square 0.391 Adjusted R square 0.328 2006 Log size 2006 4.183 0.000 Age 2006 2 0.560 0.579 Profitability 2006 0.738 0.465 Leverage 2006 2 0.064 0.949 R square 0.365 Adjusted R square 0.300 Note: Significant at the 0.05 level PAGE 194 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 for both years under study. Therefore, H2 is rejected and can be concluded that there is no significant association between total CSR disclosure and company age. This finding, however, contradicts the study by Abdul Hamid 2004. In her study, she found that CSR disclosure was significantly affected by age of the company. 4.3.4 Relationship between total CSR disclosure and company leverage. The objective is to identify whether the company leverage is associated to the CSR disclosure. The test conducted is at the 5 percent significant level. The variable used to measure the company leverage is total liabilities over total assets. Company leverage was hypothesized to have positive relationship with total CSR disclosure. Statistical result shows negative and insignificant association for both period of study, value of t ¼ 21 :244 and p ¼ 0:221 in 2005 and t ¼ 20:064 and p ¼ 0:949 in 2006. These results provide evidence that leverage variable has a negative and no significant correlation with the total CSR disclosure. This finding rejects H3. This is consistent with studies by Mohamed Zain and Janggu 2006, Abd Ghaffar et al. 2004 and Katmun and Ab Rashid 2007, which found no statistical association between company leverage and disclosure. 4.3.5 Relationship between total CSR disclosure and company profitability. The objective is to identify whether the company profitability is associated to the CSR disclosure. The test conducted is at 5 percent significant level. The variable used to measure the company profitability is net profit after tax over sales. Company profitability was hypothesized to have positive relationship with total CSR disclosure. The statistical result shows that t ¼ 20 :544 p ¼ 0 :590 and t ¼ 0 :738 p ¼ 0 :465 for the year 2005 and 2006 respectively. These results imply that profitability variable is insignificant in measuring the association with total CSR disclosure; therefore provide enough evidence to reject H4. This finding is consistent with study by Gray et al. 1995a, Hackston and Milne 1996, Abd Ghaffar et al. 2004,; Katmun and Ab Rashid 2007, Abdul Hamid 2004, and Mohamed Zain 1999. Gray et al. 1995a claimed profit is not related to voluntary disclosure in the same period, but may be related to the lag profit. This finding, however, contradicts the studies by Singhvi and Desai 1971, Naser et al. 2002, Jaffar et al. 2007, and Mohamed Zain and Janggu 2006. In their studies, they found that profitability was significantly affected by the total social disclosure. 4.4 Discussion of findings Table III shows the total amount of disclosure reported by the GLCs for 2005 and 2006. Total CSR disclosure is based on the total number of sentences calculated on all four themes, namely human resource, community, marketplace and environment. In year 2005, total number of sentences reached 2037 and increased to 2309 in year 2006, indicating an increasing trend of disclosure for both period of study. The result also indicates that all or 100 percent of GLCs disclosed at least one sentence of social and environment disclosure for both period under study, 2005 and 2006 with a minimum number of sentences of three and four respectively. The highest disclosure is 150 sentences in 2005, increased to 184 sentences in 2006, disclosed by Golden Hope Plantation Berhad and Malaysia Airport Holding Berhad respectively. This indicates a healthy and growing level of awareness among GLCs in this aspect. The result is consistent with other studies for example Mohamed Zain 1999; Jaffar et al. 2002; Thompson and Zakaria 2004; Saat et al. 2009; Mohamed Zain and Janggu 2006 which found the amount of social and environmental disclosure by Malaysian companies to be limited but growing. Additionally, Amran and Susela 2007 stated that companies that are owned significantly by the government via government agencies do have better CSR disclosure. The descriptive analysis indicates that there is a general trend of increasing total disclosure and major themes of disclosure during the period of 2005 to 2006 except for marketplace disclosure. The slight drop of marketplace disclosure in 2006 by 22 sentences or 2.5 percent may be best explained in the reduction of disclosure of two sub-categories, namely RD by 37 sentences or reduced by 27 percent, and customer service by ten sentences VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 195 or reduced by 5.4 percent. As research culture is new in Malaysia, therefore less disclosure is expected on this area Mohamed Zain and Janggu, 2006. Based on the analysis of descriptive statistics, marketplace is the most popular theme of disclosure with the higher average of disclosure per year 883 sentences, followed by the human resource 558 sentences, community 547 sentences and lastly environment 185 sentences. This implies that marketplace disclosure is considered more important than other CSR themes. The trend seems to be changing. Previous studies indicate that human resources are the most favorite theme see Mohamed Zain, 1999, Mohamed Zain and Janggu, 2006. This could suggest that companies are realizing that annual reports are another tool or avenue for them to promote their products. This is consistent with finding by Nik Ahmad et al. 2003 and Abdul Hamid 2004 which reveals that product-related disclosure was highest and among the suggestions provided were that players from sample industry try to introduce more competitive product to attract depositors and public to use their products and another possible reason is to create confidence among depositors, investors, and the public to place their money with their institutions and also to maintain its goodwill. Detailed analysis of data reveals that high disclosure on marketplace is contributed largely by disclosure on shareholder communication channel. This is true in a sense that, as GLCs are significantly owned and closely watched by the government, a medium of transferring of information must be put in the right place so that shareholders including government will be able to retrieve information desired at any time as required. Previous studies suggest that certain firm characteristics, size, age, profitability and leverage were found to have a significant relationship with total CSR disclosure. However, the current study found only size as measured by total assets has positive significant relationship with CSR disclosure. This implies that, the higher the company’s total assets, the higher would be the amount of CSR disclosure. This is consistent with studies by Jaffar et al. 2002, Abd Ghaffar et al. 2004; Mohamed Zain and Janggu 2006, Alsaeed 2006, and Jaffar et al. 2007 Other variables, on the other hand, show an insignificant relationship. Therefore, this rejects the assumption that age, profitability and leverage can influence the level of CSR disclosure. These findings support findings by Alsaeed 2006, Abdul Hamid 2004, Mohamed Zain and Janggu 2006, Saat et al. 2009, Abd Ghaffar et al. 2004, and Katmun and Ab Rashid 2007. In general, the prospects of CSR disclosure in Malaysia especially in GLCs appear encouraging and growing. The relationship tested between total CSR disclosure and certain firm characteristics in this current study and other past studies shows mixed results. Hence, it is impetus to find out the reasons behind it. However, this thesis does not wish to reside on this, it aims to assess the extent of disclosure and its association with the variables being tested. 5. Conclusion The main objective of the study is to examine the type and quantity of CSR disclosure practices from the year 2005 to 2006. The second or final objective is to ascertain the relationship between company’s characteristics and CSR disclosure among GLCs. Descriptive results have shown an increasing trend of CSR disclosure, where the total number of sentences disclosed in 2005 is 2,037 with an increase to 2,309 sentences in the year 2006 with all GLCs disclosing CSR information in their annual reports as the minimum number of total disclosure is three and four sentences in year 2005 and 2006 respectively see Table III. This is supported by recent studies which acknowledged the increasing pattern of CSR disclosure in the annual reports ACCA, 2002; Thompson and Zakaria, 2004; Mohamed Zain and Janggu, 2006; Amran and Susela, 2007; Saat et al., 2009 while focus or role by government and regulatory organization may be the main reason why disclosures by Malaysian companies including GLCs are on the rise see: Mohamed Zain and Janggu, PAGE 196 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 2006; Saat et al., 2009 and implies that the level of social and environment awareness among GLCs is already in place. A review of the amount of CSR disclosure indicates that marketplace is the most popular theme of disclosure at an average of 20 sentences per company per year or a total of 1,766 sentences for two years. The second most popular theme of disclosure is human resource with a total of 1,116 sentences or an average of 13 sentences per company per year. This is not surprising as greater awareness, greater social commitment, announcement of making CSR mandatory for public-listed companies year ending December 31, 2007, establishment of CSR framework and introduction of The Silver Book specifically for GLCs could result in increasing trend of disclosure among GLCs. This study assumes that the total disclosure is related to the importance placed on certain issues, therefore, the higher the perceived importance, the higher is the disclosure on such issue. According to Haron et al. 2004 as CSR is voluntary in nature, the choice of social issues disclosed tends to reflect the Malaysian Government’s priority or the particular obligations which companies have. This can be best explained with a strong awareness by GLCs of the importance of marketplace disclosure during the period of study and disclosure through annual report might help to ensure their end products are acceptable to the users and consequently, companies are able to get some respect or recognition from them. Another possible reason for the increase in marketplace disclosure could be due to the pressure made by customers and consumer associations on the importance of reliable information about the product quality and safety, customer service and product enhancement or innovation through research and design. Shareholders or investors stress the need for companies to improve their disclosure and transparency regarding company practices could be the other potential grounds for disclosure, as their right to information gives very important influence on the decision for disclosure. On the statistical results, company size as measured by total assets is found to have a significant relationship with total CSR disclosure. This signifies that large companies tend to disclose a greater amount of CSR information than small companies. This is consistent with previous Malaysian studies which concluded that larger companies tend to disclose more information than small ones. There are several reasons for this but most importantly, large companies are closely watched by investors, and those companies have the ability to absorb extra costs for greater disclosure Alsaeed, 2006, to maintain their good image and reputation Naser et al., 2002, to make sound investment decisions Jaffar et al., 2002, and to retain customer loyalty and talented employees Idowu and Towler, 2004. However, no significant relationship was found between the CSR disclosure and other company attributes; namely age, profitability and leverage. This rejects the assumption that the level of CSR disclosure increases as the age of the company increases. Hence, the possibility that the old companies will improve social disclosure practices over time is not found. No relationship between total CSR disclosure with profitability and leverage simply means that profitability and leverage do not influence the level of CSR disclosure. Moreover, in Malaysia, the most popular source of financing is via banks and other financial institutions, and it is expected that debt has less significant effect on voluntary disclosure Abd Ghaffar et al., 2004. These practice scenarios differ from other countries where public debt debt security is their main sources of financing. Abd Ghaffar et al. 2004 claimed that, due to this different scenario, most research studies found no significant relationship between voluntary disclosure and leverage. The current study also provides evidence that Malaysian CSR is coming of age as disclosure practices by some of GLCs are rather open. A good example is the disclosure made by Malaysia Airport Holding Berhad on employee health and safety aspect where CSR information is not totally dominated by good news, but also bad news. This will in turn, promote corporate transparency. Additionally, disclosure on shareholder communication channel signifies that information disclosed in the annual reports is seen to be useful and relevant to the stakeholders. This is because stakeholders, especially shareholders, can VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 197 directly access and retrieve information needed not only through company annual reports, but also via company web sites and they are able to present themselves during the press conference and dialogue session conducted by the company. With such number of communication channels offered, it will indirectly reduce the information gap between preparer and user. According to Deputy Prime Minister participation of multiple stakeholders is important in bringing about an environment where CSR disclosure can become more transparent The SIDC Bulletin, 2004. Some degree of recognition also needs to be given to Petronas, Sime Darby, Tenaga Nasional and Telekom Malaysia for their commitment in developing the nation’s human capital through education, scholarship, and the founding of major private universities. Other than that, the initiative by the GLCs to disclose information on disaster relief represents the company awareness pertaining to their obligation to the society as Zinkin 2004 claimed that business is said to have a compulsion to help society. On the environmental front, companies such as Golden Hope, Plus, Malaysia Airport Holding Berhad and Pharmaniaga have adopted and shown their commitment towards the environment by implementing zero burning technique, promoting of automated toll collection to reduce the exhaust emission and minimizing impact of waste water. The economic tendency these days make it beneficial to analyse GLCs and other private companies separately as the term private sector is supposed to describe the sector within the economy that is not owned by the state; where private individuals make private choices with private resources for private gains or losses. The current global economic recessions has made the future scenarios harder to foresee as such most companies are exposed to greater risk and government’s aid is really obligatory. Consequently, companies transformed to government’s owned companies becoming more common in the participation of business in driving the economic growth of the country. 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Yakcop, N.M. 2004, Special address presented at the Corporate Social Responsibility Conference – CSR: Creating Greater Competitive Advantage, Kuala Lumpur, June 21-22. Zinkin, J. 2004, ‘‘Why Malaysia’s companies must be socially responsible’’, available at: http: findartricles.comparticlesmi_qn6207is_ai_n24907844 Further reading ACCA 2004, Report Summary: The State of Corporate Environmental and Social Reporting in Malaysia, ACCA Malaysia, Kuala Lumpur. PAGE 200 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 7 NO. 2 2011 Anwar, Z. 2006, ‘‘Making a difference through corporate social responsibility: meeting the challenges’’, paper presented at the SCUNDP Corporate Social Responsibility Seminar, Conference Hall, Security Commission, July 27. 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Corresponding author Mustaffa Mohamed Zain can be contacted at: dmustaffsalam.uitm.edu.my VOL. 7 NO. 2 2011 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 201 To purchase reprints of this article please e-mail: reprintsemeraldinsight.com Or visit our web site for further details: www.emeraldinsight.comreprints Disclosures About CSR Practices: A Literature Review 45 Disclosures About CSR Practices: A Literature Review Corporate Social Responsibility CSR is now prominent and evident more than ever due to the emphasis laid on businesses regarding environmental, social and ethical issues. The level of CSR activities of the firms is made known to public only through the disclosures. This paper reviews the literature on CSR disclosures and the effect of these disclosures. There are various factors which determine the extent of disclosures like the size of the firm, industry, high visibility, etc. Introduction Corporate Social Responsibility CSR is now prominent and evident more than ever due to the emphasis laid on businesses regarding environmental, social and ethical issues. This is because over the recent years, there have been social, political and economic pressures on corporate management to pay attention on social and environmental consequences of corporate activities. These pressures motivated the corporate management to actively participate in a wide range of social welfare activities. CSR now-a-days covers almost all issues like the use of child labor; inequality of employment; environmental impact; involvement in local community; products’ safety; company cultures; brand image and reputation. Apart from this, companies are now disclosing these activities in their annual reports, and one of the parameters to judge the performance of a company is CSR reporting. Corporate Social Responsibility CSR is defined by Naylor 1999 and mentioned in the work of Douglas et al. 2004 as “the obligation of managers to choose and act in ways that benefit both the interests of the organization and those of society as a whole.” Commission of the European Communities defines CSR as a concept by which “companies decide voluntarily to contribute to a better society and a cleaner environment”. It states that behaving in a socially responsible way amounts to “going beyond compliance and investing ‘more’ into human capital, the environment and the relations with stakeholders”. Fraser 2005 describes CSR as sustainable development which needs to be carried out by all the publicly held companies. These companies need to be responsible not only for their shareholders, but also its stake holders like the employees, customers, suppliers, government and non-governmental organizations. Research Scholar, IBS, Hyderabad, India. E-mail: wadhwa.kavitagmail.com Research Scholar, IBS, Hyderabad, India. E-mail: anitapansari1gmail.com © 2011 IUP. All Rights Reserved. Kavitha W and Anita P The IUP Journal of Corporate Governance, Vol. X, No. 1, 2011 46 Gray et al. 1996 defined CSR as the “process of communicating the social and environmental effects of organizations’ economic actions to particular interest groups within a society and to society at large”. Rajtongakal et al. 2006 identified three theories on CSR— legitimacy theory, stakeholder theory and political economic theory. According to the legitimacy theory, firm is a part of a broader social construct whose expectations must be met if the firm wants to sustain itself without extreme societal sanctions being forced. The stakeholder theory focuses on the various stakeholder groups within the society. This theory is divided into two branches. They are the positivemanagerial branch and the ethicalnormative branch. The political theory comprises the economics, politics and society. It treats them as indivisible. The growth in the awareness of CSR has encouraged researchers across the globe to study various aspects of CSR. The CSR activities of the corporations are made public through the reporting that they make. This paper attempts to review the literature on CSR reporting and explores some of the important aspects of CSR. The paper first discusses the nature of CSR and its disclosures, followed by an analysis of the effect of disclosures on the performance of the firm. It then identifies the antecedents for the disclosures and subsequently talks about the users of CSR information before concluding. Corporate Social Reporting Definition Sutantoputra 2009 in his work has defined CSR reporting borrowed from Gary et al., 1987 as “the process of providing information designed to discharge social accountability”, and this information could be provided by annual reports, special publications or reports or even socially orientated advertising. Companies used CSR reporting as a way to communicate to their stakeholders about their social performance. This external communication known as corporate social reporting helps a firm to build a positive image among its stakeholders. Sometimes it is also called social accounting, social disclosure, social auditing, social review, social reporting or sustainability reporting Douglas et al., 2004. Generally the main medium of disclosing CSR activities is the annual report. However, if they are not disclosed in the annual report, and are published separately, then they are known as social and environmental report or CSR reports or sustainability report Sutantoputra, 2009. Douglas et al. 2004 note that reporting of the CSR behavior is different in different countries, which is attributed to the government policies, cultural differences, and stage of economic development. Further, they also state that the volume of disclosure does not necessarily reflect the quality of corporate social reporting. Disclosures About CSR Practices: A Literature Review 47 It has been noted that companies with the highest public profile are more willing to present a positive social image through community involvement activities than those less well-known, in part because such activities are not only deemed to attract consumers, but also justify their existence to the society Branco and Rodriques, 2006. They also observed that although the listed companies are not subject to extensive disclosure requirements with respect to social responsibility activities than unlisted ones, they receive more attention from the general public and are subject to more extensive media coverage. Branco and Rodriques 2006 state that it is the choice of medium and the target public which are important for the kind of disclosures. They say that if the cost of producing and distributing is reduced, then the companies discuss in greater depth the topics of particular interest to other sectors of the general public. They state that internet allows companies to provide information targeted to different stakeholders and obtain feedback from them. Information related to human resources and environmental activities of the organization are available more in the annual reports as compared to the internet. Annual reports are directed towards important resources—investors and human resources. Therefore, it is natural for an investor to be interested in it. On the other hand, since company websites are intended at a broader audience, public companies give prominence to community involvement, products and consumers information Branco and Rodriques, 2006. Classification of CSR Disclosures Every organization provides information to its stakeholders. The information provided by the organization can be broadly classified into mandatory and voluntary. Mandatory information is that which appears in the director’s report in accordance with the requirements of law. On the other hand, voluntary environmental disclosures are those appearing in sections other than the directors’ report. The voluntary sections of the report permit a greater amount of discretion to the organization on the content of material included as they are not mandatory Cowan and Gadenne, 2005. Mandatory Disclosures Cowan and Gadenne 2005 in their study stated that the mandatory information in the annual report provides users of the annual report with factual account of the entity’s compliance with regulations over the reporting period. They further state that the mandatory disclosures will place reporting companies in a position of increased scrutiny. Cowan and Gadenne 2005 observed that the material included in the director’s report should command a different disclosure behavior than that adopted in the voluntary section. Voluntary Disclosures These disclosures are considered in the decision-making process of several user groups. Organizations do not provide voluntary disclosures only as a means to satisfy the user’s right to know but also a way in which the organization would be deemed legitimate by the society and subsequently reap the rewards of such legitimacy Cowan and Gadenne, 2005. Sometimes, organizations use self puffery to a great extent in voluntary reporting Cowan and Gadenne, 2005. The IUP Journal of Corporate Governance, Vol. X, No. 1, 2011 48 There are a few guidelines which the companies need follow to measure their CSR activities. The most important guidelines are those which deal with the environment, supply chain management, hiring practices, community relations, internal management or corporate governance, and charitable donations. The Global benchmarks for the same are United Nations Declaration of Human Rights, the International Labor Organization’s ILOs labor standards, and several globally recognized voluntary standards, such as the Organization for Economic Cooperation and Development OECD guidelines for multinationals and the United Nations Global. However, the most widely accepted reporting guideline is the Global Reporting Initiative GRl, based in Amsterdam and launched in 1997 and declared as a common framework for sustainable reporting Fraser, 2005. Categories of Disclosures As indicated earlier, apart from the mandatory social disclosures, companies also disclose CSR practices in their annual reports voluntarily. Waller and Lanis 2009 have found that out of the six advertising companies, four have voluntarily presented a CSR section in their annual reports. The level of disclosure is different in different companies depending on their institutional environment and the impact of their relevant public, whereas Ingram 1978 in his study found that informational content of social responsibility disclosures depends upon the market segment through which the firm is identified. While analyzing the annual reports of advertising agencies. Waller and Lanis 2009 observed that the companies disclose CSR information in the categories: CSR Strategy—which is given in the form of a vision statement or guidelines or CSR committee; General CSR issues—like human resource issues, social commitment, community involvement, environment issues, etc. Following are the types and categories of disclosures both mandatory and voluntary which are disclosed by the companies in their annual reports as identified by various researchers: • Environment: Environment issue is one of the major concerns which a modern organization is facing because industrial pollution is considered as one of the main sources of global warming. So, companies disclose the activities which they undertake to prevent the environment degradation in their annual reports. Ingram 1978, Abbott 1979, Deegan and Rankin 1996, Hackston and Milne 1996 and W ebb et al. 2009 have found that environment is one of the issues which has received substantial attention in the annual reports of the companies. Researchers across the globe have observed the following categories of the environmental issue: Abbott 1979 has analyzed the annual reports of Fortune 500 companies and found the following information categories of environment which companies disclose: – Pollution control – Product improvement – Repair of environment Disclosures About CSR Practices: A Literature Review 49 – Recycling of waste materials – Other environmental disclosures Deegan and Rankin 1996 have found that the companies disclose policies related to information on environment in their annual report which is given as under: – Environmental policies – Cost of environmental programs – Cost of environmental compliance Ingram and Beal 1980 in their study have concentrated only on environment disclosure and environment performance. They found the following dimensions with definitions of content analysis with their categories by using varimax rotated factor analysis: – Evidence: a Monetary—a statement showing information regarding a firm’s pollution activities in monetary terms; b Non-monetary—a statement showing information regarding a firm’s pollution activities in qualitative terms; c Qualitative—a statement showing information regarding a firm’s pollution activities in qualitative terms; d Declarative—a statement declaring firm’s pollution activities; and e None—a statement not showing a firm’s pollution activities. – Time: a Past—a statement referring to past events; b Present—a statement referring to present events; and c Future—a statement referring to present events. – Specificity: a Specific—a statement showing firm’s own activities; and b General—a statement not referring to firm’s own activities. – Theme: a Public interest—a statement showing the benefits of firm’s activities on external parties; b Economic consequences—a statement showing the cost of pollution control measures to external parties; c Irrational activists—a statement showing the irrational behavior environmental activists; d Government regulation—a statement showing unrealistic government standards; e Litigation—a statement showing firm’s involvement in legal proceedings; f Regulatory compliance—a statement showing firm’s interest in compliance of regulatory standards; g Actual accomplishments—a statement showing firm’s completed activities; h Proposed accomplishments—a statement showing firm’s proposed actions; and i Environmental Concern—a statement showing firm’s commitment to environmental activities. • Fair Business: Ingram 1978 in his paper defined fair business practices as practices of employment of advancement of minorities based on race and sex and support for the minority businesses and observed that the US firms disclose fair business information in their annual reports as CSR practice. The IUP Journal of Corporate Governance, Vol. X, No. 1, 2011 50 • Equal Opportunity: Abbott 1979 found that companies across the globe also disclose such information in their annual reports and treat this information as CSR disclosure. Under this category, various other types of disclosures—minority employment, advancement of minorities, employment of women, advancement of women, minority business, other disadvantaged groups, other statements on equal opportunity, advancement of racial minorities or women and hard core racial minority employment were also found. • Personnel or Human Resources: In this category, firms disclose all those activities undertaken for the welfare and betterment of their employees. Ingram 1978, Abbot 1979, Deegan and Rankin 1996 and Hackston and Milne 1996 have observed that companies make such disclosures very frequently. A few of these observations are mentioned below. – Employee health and safety—Abbot 1979, Deegan and Rankin 1996 – Employee policies—Deegan and Rankin 1996 – Diversity and human resources, health and safety, human rights and supply chain—Webb et al. 2009 – Other employee disclosures like training, personnel counseling, assist displaced employees locate new work—Abbot 1979 • Community Involvement: The activities of the corporation have also relevance to community involvement. Ingram 1978, Abbot 1979, Deegan and Rankin 1996, Hackston and Milne 1996 and Webb et al. 2009 have observed company involvement as a CSR information which companies disclose in their annual reports. Abbot 1979, while analyzing the annual reports of fortune 500 companies have found some of the categories of company involvement such as community activities, public health, education or the arts, other community activity disclosures. • Product quality or safetyConsumers: According to Ingram 1978, Abbot 1979, Deegan and Rankin 1996 and Hackston and Milne 1996 , product is another category of CSR information which companies disclose. • Political: Webb et al. 2009 • Energy: Energy related issues were found in the annual reports of New Zealand companies Hackston and Milne, 1996. Effects of Disclosures CSR is related to social performance of the company which includes all of environmental, economic and social effects on the society. These effects could be positive and negative and actual and potential. Douglas et al. 2004 noted that organizations which fail to meet the societal expectations lose their legitimacy and subsequently their survival is endangered. Disclosures About CSR Practices: A Literature Review 51 The effects of CSR disclosure can be seen in two ways—on CSR performance, and on firms’ financial performance relationship between CSR disclosure and firm’s financial performance. Effect of CSR Disclosure on CSR Performance Some of the studies which are done on CSR disclosures have tried to find the relationship between CSR disclosure and CSR performance. Abbot 1979 developed a quantitative scale on the basis of self-reported disclosures which was identified as Social Involvement Disclosure SID scale. The scale was obtained through content analysis of the annual reports of Fortune 500 companies and it was observed that self reporting of such disclosures had a positive impact on the measurement of CSR. Relationship between disclosure level and CSR is also examined by Gelb and Strawser 2001 by analyzing annual reports of 233 firms. They have regressed the firm’s percentile rank within its Association for Investment Management and Research AIMR corporate information committee reports industry group as dependent variable against firm’s CSR rating, the total market capitalization of the firm, the annual market-adjusted stock return for the current fiscal year, the standard deviation of market-adjusted annual returns over the preceding 10 fiscal years, a dummy variable set to one if the firm publicly issued debt or equity securities in the current or following two fiscal years as independent variables by using Ordinary Least Square OLS regression. The results indicate that there exists a positive relationship between the disclosure level and CSR. This indicates that those firms which undertake social activities are more socially responsible and they provide more disclosures on CSR in the annual reports. But results are different in case of analysis done by Ingram and Beal 1980 on 40 firms in four different industries—electric utilities, iron and steel, petroleum refining and pulp and paper. In order to examine the relationship between the Council on Economic Priorities CEP index scores and environmental disclosures of firm, they used product moment correlation. A weak association was found between quantitative measures of disclosures and social performance independent measures. The reason of such weak association is that weak performers are biased in selecting the information to be disclosed in order to appear better as the management has its own discretion to select the information to be disclosed in the annual reports. Furthermore, Rockness 1985 analyzed the statement of the users of companies which make voluntary environmental disclosures. He tested whether these users are able to make accurate judgments regarding the US firms’ environmental performance on the basis of annual report disclosures. He used experimental analysis on 26 largest firms in steel, oil and pulp and paper industries and participants were the members of environmental protection organizations, environmental regulators, financial analysts and MBA students. The results indicate that environmental disclosures helped in forming opinions of the users of the company and also facilitated the comparison of environmental performance of the firm with other firms in the industry. But these results are not similar to the interpretations of actual performance made by CEP. So, the usefulness of the disclosures is questionable at best. The IUP Journal of Corporate Governance, Vol. X, No. 1, 2011 52 Effect of CSR Disclosure on Firms’ Financial Performance: Relationship Between the Two Intuitively, the aim of any business organization is to earn maximum profits and to improve its financial performance. To achieve this, besides mandated disclosures, companies make voluntary disclosures of CSR information in their statements. So, it is assumed that more the CSR disclosure, better is the financial performance. Several researchers across the globe have tried to explore the relationship between CSR disclosure and firm’s financial performance. In order to provide some empirical evidence relevant to the social performance disclosure, Spicer 1978 has analyzed 18 firms listed on New York Stock Exchange in pulp and paper industry and tested the association between economic and financial indicators of investment value, i.e., profitability, size and systematic risk, priceearnings ratio and corporate performance indicator of a key issue, i.e., pollution control record proxy-pollution index—compiled by CEP by using Spearman Rank Correlation Coefficient. As paper and pulp industry is a pollution prone industry, pollution index which is a key issue is taken as an indicator for CSR. It was found that the companies which have better pollution control records are of large size and have high profitability, high priceearnings ratios, low risk total and systematic, whereas the companies which have poor pollution control records are of small size and have low profitability, low price earnings ratio and low risk. Douglas et al. 2004 have found a positive association between company’s reputation index proxy for social performance and its return on equity proxy for financial performance. Determinants of CSR Disclosures Apart from the CSR practices and its categories followed by the organizations, amount, format and location of disclosure of CSR information in annual reports is also gaining attention of researchers. Attempts were also made to find out the determinants of CSR disclosures, or the factors which explain CSR disclosures. Hackston and Milne 1996 examined 47 largest firms listed on New Zealand Stock Exchange and found that the amount of social disclosure made by these companies in their annual reports is on an average three fourths of a page. They also used regression in order to find out the determinants of CSR disclosures. Size and industry are found to be significantly related with the amount of disclosure, whereas profitability was not. The relation of size and disclosure is more significant in high profile firms than the low profile firms. The study also concluded that firms have high social disclosures if they have dual and multiple listings. Webb et al. 2009 also found size and industry driven differences in CSR disclosures in their study on 50 US listed firms in five industries simple manufacturing MFG, RD intensive manufacturing RD, extractive natural resources OIL, intellectual property generation SOFTWARE, sales RETAIL, and the differences were found in the volume and pattern of disclosure of the US firms when compared with the international studies done on global enterprises. As far as the format of disclosure is concerned, they found seven format categories which are mandatory, website, government doc, product fact sheet, CSR report or brochure, press release and others. Disclosures About CSR Practices: A Literature Review 53 By using content analysis Douglas et al. 2004 analyzed six Irish banks and found that largest companies disclose almost all types of CSR information. They observed that significant factors affecting corporate social reporting patterns are country of the head office, size of company and industry group. Branco and Rodrigues 2006 observed that the industries which have higher potential environmental effect disclose more CSR information in their annual reports because of legitimacy reasons. Users of the CSR Information Another concern regarding CSR is how various classes of annual report users assess the importance of environmental disclosures. There are very limited studies in this regard. Deegan and Rankin 1997 tried to investigate whether various class of users of annual reports consider environmental information to be material while taking various decisions and also tried to find how these users rank environment information relative to other CSR information and financial information such as net profits, cash flows, assets and dividend payments. A survey was conducted on 118 respondents in Australia who were shareholders, accounting academics, research analysts, stockbrokers and representatives of financial institutions. Their results indicate that annual report is considered as the most important source of information than any other source by all the categories of users except shareholders and internal users who consider environmental information material as important. All the user groups had consensus that although financial information such as profitability, cash flows, etc., are important, environment information is of their material interest. According to Douglas et al. 2004 the main audience of the information disclosed in annual report is shareholders and social reporting mainly addresses this audience. Conclusion The paper gives an overview of the current literature on various aspects of CSR disclosures. CSR disclosures are of two kinds—mandatory and voluntary. Voluntary disclosures are given by companies to improve the firm’s performance and reputation. The various categories of CSR disclosures are environmental, equal opportunity, human resource, community involvement, product quality, political, energy, etc. These disclosures affect the firm’s CSR and financial performance. There are various factors which determine the amount of disclosure like the size of the firm, industry, high visibility, etc. Although financial information is important for the stake holders of the firm, environment information is also of their material interest. Bibliography 1. 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Webb L H, Cohen J R, Nath L and Wood D 2009, “The Supply of Corporate Social Responsibility Disclosures Among US Firms”, Journal of Business Ethics, Vol. 84, pp. 497-527. Reference 04J-2011-01-03-01 Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Corporate social reporting: empirical evidence from Indonesia Stock Exchange Sylvia Veronica Siregar and Yanivi Bachtiar Department of Accounting, University of Indonesia, Depok, Indonesia Abstract Purpose – The purpose of this paper is to investigate the effect of board size, foreign ownership, firm size, profitability, and leverage on corporate social responsibility CSR reporting and the possible effect of CSR reporting on a firm’s future performance. Designmethodologyapproach – Annual reports were analyzed by content analysis method and multiple regression was used to test hypotheses. Findings – Evidence was found that board size has a positive and non-linear quadratic and concave relationship with CSR. This result confirms predictions that a larger board will be able to exercise better monitoring, but that too large a board will make the monitoring process ineffective. Firm size has a positive effect on CSR. This suggests that larger firms have more resources to devote to social activities and a larger asset base over which to spread the costs of social responsibility. They also face more pressure to disclose their social activities for various groups in society. Profitability and leverage, however, do not have significant influence. Little evidence was found of positive impact of CSR on future performance. This result could encourage firms to disclose their CSR activities because there seems to be a positive affect on future performance. Research limitationsimplications – The measure of CSR may involve subjective judgement and is only limited to annual reports. Practical implications – The paper shows that it is important for a company to increase its awareness on corporate social activities and also its disclosure in the annual report. Originalityvalue – The paper shows that board size has a positive and non-linear effect on CSR, which has been rarely examined in previous research. Keywords Indonesia, Annual reports, Corporate social responsibility, Boards of Directors, Profit, Stock exchanges Paper type Research paper 1. Introduction In the past, firms were considered to have met their responsibilities if they operated within the confines of the law, generated profit, and provided employment for members of society Epstein et al., 1976. Recently, however, firms are also expected to be more socially responsible towards the community in which they operate. Firms are expected to reduce pollution, utilize natural resources effectively and efficiently, maintain a diverse work force, provide employment for minorities and women, eliminate racial and sexual discrimination, and more Adebayo, 2000. In spite of increased community awareness on socially responsible activities, there are still many cases of socially less responsible firms. In Indonesia, for example, the Teluk Buyat case which cause health problems to citizens living in Teluk Buyat and the Lapindo case mud floods covering a huge area in Sidoarjo, forcing people living in those areas to evacuate. There are many similar cases in other countries, for example: www.emeraldinsight.com1753-8394.htm Corporate social reporting 241 International Journal of Islamic and Middle Eastern Finance and Management Vol. 3 No. 3, 2010 pp. 241-252 q Emerald Group Publishing Limited 1753-8394 DOI 10.110817538391011072435 Exxon Valdez legendary environmental tragedy, Bhopal-Unior Carbide caused death and injury of citizens, and Nike employment of underage children. Concern with corporate social responsibility CSR in Indonesia has been increasing. Initially, in Indonesia, Company Act No. 1 Year 1995 did not consider CSR, but later, in 2007 when the Company Act was revised and enacted Company Act No. 40 Year 2007, the act included CSR in article 74, which states that a company having its business activities in the field of andor related to natural resources shall be obliged to perform its social and environmental responsibility. This probably was triggered by several problems related to CSR, such as environmental problems caused by large populations, destruction of forests, poor labour standards, etc. The increasing concern with CSR has impacted also on growing attention to its reporting in companies’ annual reports. CSR reporting has been a research subject of many academicians for over two decades Haniffa and Cooke, 2005. Two major issues of those studies are factors that determine the level of CSR reporting and whether CSR reporting affects a firm’s future performance. The purpose of this research is to investigate the effect of board size, foreign ownership, firm size, profitability, and leverage on CSR reporting; and the possible effect of CSR reporting on a firm’s future performance. There are several contributions of this research. First, it contributes to the CSR literature, especially in Indonesia. Second, we accommodate the non-linear relationship between board size and CSR reporting, which has not been examined yet in most previous studies. Third, the majority of CSR studies were conducted in developed countries that use a one-tier board system, hence they only include board of directors size in their studies. Indonesia adopts a two-tier board system, where there are two boards: board of commisioners and board of directors. It is important to consider the effect of both boards on CSR reporting. 2. Literature review and hypotheses development Bowen 1953 published a book, Social Responsibilities of the Businessman, which is largely credited with coining the phrase “corporate social responsibility” and is considered as the Father of CSR. Bowen also provided a preliminary definition of CSR. He defined social responsibility as the obligation of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society Bowen, 1953. But afterwards there have been many definitions of CSR. For example, according to CSR Europe www.csreurope.orgaboutusFAQ_page396.aspx, accessed June 26, 2007, CSR refers to the way a company manages and improves its social and environmental impact to generate value for both its shareholders and stakeholders by innovating its strategy, organisation, and operations. Firms could prepare CSR to inform shareholders and other stakeholders about a firm’s CSR activities. What is CSR? According to Global Reporting Initiatives GRI www. globalreporting.orgAboutGRIFAQsFAQSustainabilityReporting.htm, accessed June 26, 2007, corporate social reportingsustainability reporting is a process for publicly disclosing an organization’s economic, environmental, and social performance. Many organizations find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities, and other stakeholders for information about overall organizational performance. Meanwhile, according to Gray et al. 1987, CSR is the IMEFM 3,3 242 process of communicating the social and environmental effects of organisations’ economic actions to particular interest groups within society and to society at large. As such, it involves extending the accountability of organizations particularly companies beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicated upon the assumption that companies do have wider responsibilities than simply to make money for their shareholders. CSR generally is still prepared on a voluntary basis, resulting in firms choosing different items to disclose and diverse disclosure forms. Consequently, it becomes difficult to compare social activities among firms. To address this issue, GRI was founded in 1997 with a purpose to develop guidance that can be applied globally for economic, environment, and social performance reporting Bhimani and Soonawalla, 2005. GRI has issued sustainability reporting guidelines that can be accessed through its web site: www.globalreporting.org Many studies regarding CSR have been done in many countries. These studies indicated that firms in different countries did disclose different items regarding their social activities. Guthrie and Parker 1989 find that 56 percent of Australian firms, 98 percent of UK firms, and 80 percent of US firms disclose social information human resources, community involvement, environment, and energy and product disclosure. Singh and Ahuja 1983 examined annual reports of 40 public sector companies in India and found that 40 percent of those firms have social disclosures. A study by Savage 1994 in South Africa found that 50 percent of his samples have social disclosure with human resources as the main subject 89 percent, followed by involvement in community 72 percent and environment disclosures 63 percent. Tsang 1998 also found consistent results in Singapore, where 52 percent of his samples have social disclosures. In Indonesia, a study by Utomo 1999 investigated CSR disclosures, and found that most disclosures related to products and consumers. Hartanti 2003 also investigated social disclosure of public firms in Indonesia. She found that the average level of disclosure is still low. Highest disclosures related to product, labour, followed by involvement in society, environment, and energy. The most common form of disclosing CSR is disclosure in annual report. Adams et al. 1998 found that firms in Germany, France, Switzerland, the UK, and Dutch firms, generally disclose their CSR activities through annual reports. Based on those studies, our study focuses on the annual report also as the source of CSR. Kent and Chan 2003 provided a number of reasons why it is justified to use the annual report: . annual report is the principal source of corporate communications to investors and it is widely used by firms to disclose their social activities; . the presentation of financial and social information within one document which is the annual report is one way of reducing costs of disclosure; . annual report is also the type of information most actively sought by pressure groups; and . disclosures through other media, such as the popular press, are subject to the risk of journalistic interpretations and distortions, whereas disclosures through annual report are completely editorially controlled by management. There are several factors that could contribute to the level of CSR. Collier and Gregory 1999 argued that larger board of directors’ size will make it easier to control the CEO Corporate social reporting 243 and the monitoring process will be more effective. But, a very large board could limit the communication and coordination among board members and consequently will hamper monitoring process. A very small board as well as very large board will not be effective, so we expect there is non-linear quadratic and concave relationship between board size and CSR, where larger board size will have positive influence on CSR, but a very large board size will have negative effect on it. Since Indonesia adopts a two-tier board system, board size relates to total of board of commissioners’ and board of directors’ size: H1. Board size positively affects corporate social reporting. H2. Relationship between board size and corporate social reporting is concave. Other variables that could explain social disclosures are ownership structure Cormier and Gordon, 2001 and type of financial statement user Deegan and Rankin, 1997. Different shareholders could demand different disclosures and the demand would be higher if foreign investors have higher ownership Schipper, 1981; Bradbury, 1991; Craswell and Taylor, 1992. Therefore, we expect that the higher the foreign ownership, the higher the level of corporate social reporting: H3. Foreign ownership positively affects corporate social reporting. Many of previous studies find positive relationship between firm size and CSR and reporting. Larger firms may have more resources to devote to social activities and a larger asset base over which to spread the costs of social responsibility Lerner, 1991. This will also positively affect the level of CSR. Larger firms deal with more scrutiny from government and also various groups in society, hence they will be under more pressure to disclose their social activities Cowen et al., 1987. We use total assets as a proxy for company size: H4. Total asset positively affects corporate social reporting. The same argument as for firm size could also be proposed for profitability. Profitable firms may have more resources to devote to social activities and a larger profit base over which to spread the costs of social responsibility. Another argument is management of profitable firms has more freedom and flexibility to engage in and to disclose social activities. Profitable firms also disclose more of their social activities to show their contribution to society. Edwards 1999 finds a positive link between environmental and financial performance. Profitability is measured using return on equity ROE, because this ratio shows how much money a company is making for its investors: H5. ROE positively affects corporate social reporting. Belkaoui and Karpik 1989 show that leverage has a negative and significant relationship with CSR. This is based on agency theory where management with high leverage will reduce its CSR to avoid creditor scrutiny: H6. Debt-to-equity ratio DER negatively affects corporate social reporting. Porter and van der Linde 1995 suggest that well-designed environmental regulations will induce innovation and productivity, which will increase firms’ competitive advantage. Their argument is that with good management, higher competitive advantage will decrease costs, increase productivity, and reduce or eliminate resources inefficiencies. IMEFM 3,3 244 CSR can enhance a firm’s reputation and establish good relationships with banks, investors and government, which in turn are reflected in the company’s performance. Heal and dan Garret 2004 conclude that CSR could contribute to a firm’s long-term profitability. That is why we also argue that there is a lag on the effect of CSR on firm performance, because it takes time for CSR to have an effect on a firm’s reputation and, in turn, on firm performance: H7. Corporate social reporting positively affects future firm performance. 3. Research method 3.1 Research model We use following model to test H1-H6: CSR t ¼ a þ a 1 BOARDSZ t þ a 2 BOARDSZ 2 t þ a 3 FOR t þ a 4 SIZE t þ a 5 ROE t þ a 6 DER t þ e ð 1Þ Expectation: a 1 . 0 ; a 2 , 0 ; a 3 . 0 ; a 4 . 0 ; a 5 . 0 ; a 6 . 0 where: CSR ¼ corporate social reporting, measured by: corporate social disclosure index CSDI; and corporate social disclosure length CSDL. BOARD_SZ ¼ total board of commissioners and board of directors size; FOR ¼ percentage of foreign investor ownership; TASSET ¼ natural logarithm of total asset; ROE ¼ return on equity; and DER ¼ debt-to-equity ratio. Whereas to test H7, we use following research model: ROE tþ1 ¼ b þ b 1 CSR t þ b 2 ROE t þ b 3 MCAP tþ1 þ e ð 2aÞ RET tþ1 ¼ b þ b 1 CSR t þ b 2 ROE tþ1 þ b 3 MCAP tþ1 þ e ð 2bÞ Expectation: b 1 . 0, c 1 . 0 where: ROE ¼ return on equity; and RET ¼ stock return. We use two measures of firm performance: 1 accounting measures ROE; and 2 market measure stock return measured using market adjusted return for a one-year period. We include ROE and MCAP as control variables. ROE one year ahead will be affected positively by current ROE b 2 . 0 and larger firms measured using natural logarithm Corporate social reporting 245 of market capitalization tend to have larger profitability b 3 . 0. Profitability will have a positive affect on stock return c 2 . 0 and market capitalization is used to measure firm size as a proxy for firm’s risk c 3 . 0. To measure CSR, we use content analysis method. Our corporate social reporting checklist includes six subjects environment, energy, labour, product, community, and others. This checklist is modified from a checklist used by Haniffa and Cooke 2005 and Sembiring 2005. We use two measures: 1 number of corporate social reporting items stated in index CSDI; and 2 number of disclosure sentences CSDL. Our samples consists of all public firms listed in the Indonesian Stock Exchange IDX in 2003, with complete data. Because of much missing data incomplete annual report, our final total consisted of 87 firms. 4. Results 4.1 Descriptive statistics Table I Panel A shows descriptive statistics of CSR. Mean CSR disclosure CSDI is 13.74 percent, while mean of disclosure length CSDL is 39 sentences. Most disclosed item is product. It indicates that firms considered disclosure about products as the most important issue to be disclosed. This is not surprising, because product has a direct relationship with the economic benefit that a firm will receive, which is increasing in revenue. Descriptive statistics of other variables used in this study are presented in Table I Panel B. Mean board size is 9, and there is only a small variation within samples. Foreign ownership is only about 20 percent, which indicates that, on average, foreign investors do not have significant ownership of public firms in IDX. SIZE does not show much variation. On average, our samples are profitable firms, hence our results may not be generalized to losing firms and also produce positive returns. Total debt of our samples was approximately twice their equity. 4.2 Factors affecting corporate social reporting Regression result is presented in Table II Panel A shows CSDI as dependent variable whereas Panel B for CSDL. F-statistic of both panels shows that it is significant only in Panel A CSDI but insignificant in Panel B CSDL. All of the independent variables affecting CSR are only able to explain significantly the variation of dependent variables, if the dependent variable is CSDI. Both panels show relatively consistent results. BOARD_SZ and BOARD_SZ 2 are significant and, respectively, have positive and negative sign H1 and H2 are not rejected. These results confirm our prediction that a larger board will be able to exercise better monitoring including monitoring on CSR in annual reports, but too large a board will make the monitoring process ineffective negative impact. FOR has no significant affect on CSR H3 is rejected. This finding is inconsistent with evidence found in Schipper 1981, Bradbury 1991, Craswell and Taylor 1992 that foreign investors will demand higher disclosure. This result may be due to inability of foreign investors to exercise greater monitoring due to lower level of ownership see statistics descriptive result. Or foreign investors are not as concerned with CSR because of their short-term investment horizon in public firms in Indonesia. IMEFM 3,3 246 Firm size, measured by total asset, has a positive and significant effect on CSR H4 is not rejected. This suggests that larger firms have more resources to devote to social activities and a larger asset base over which to spread the costs of social responsibility Lerner, 1991. Larger firms also face more pressure to disclose their social activities from various groups in society. This result is consistent with Belkaoui and Karpik 1989, Hackston and Milne 1996, Gray et al. 2001 and Sembiring 2005. ROE and DER do not have significant influence on CSR H5 and H6 are rejected. This indicates that profitability and leverage do not have significant influence on CSR. This evidence is contrary to Edwards 1999 who found a positive link between environmental and financial performance and also contrary to Belkaoui and Karpik 1989 who found leverage has a negative and significant relationship with CSR. The insignificant result of ROE could be due to firms not finding it necessary to engage in CSR activities, although profitable and consequently do not disclose it because they consider CSR activities only add cost without any direct benefits. Meanwhile, the insignificant result of DER probably results from using DER as a proxy for leverage. Minimum Maximum Mean SD Panel A: corporate social reporting CSDI Total 0.0250 0.4000 0.1374 Environment 0.0000 0.5714 0.0858 Energy 0.0000 0.3333 0.0144 Labour 0.0000 0.3846 0.1376 Product 0.0000 0.6364 0.2345 Society 0.0000 0.7500 0.1049 Others 0.0000 1.0000 0.3678 CSDL Total 3.0000 245.0000 39.0000 Environment 0.0000 21.0000 1.6437 Energy 0.0000 3.0000 0.1034 Labour 0.0000 56.0000 9.7931 Product 0.0000 214.0000 23.3908 Society 0.0000 54.0000 2.5862 Others 0.0000 14.0000 1.4828 Panel B: variables used CSDI 0.0250 0.4000 0.1374 0.0846 CSDL 3.0000 245.0000 39.0000 46.6820 BOARD_SZ 5.0000 20.0000 9.1149 3.3111 FOR 0.0000 0.8814 0.2043 0.1818 TASSET 21.0242 31.4633 27.354002 1.6546139 ROE 2 0.9763 2.2164 0.0857 0.3841 DER 2 28.9800 38.5700 2.1398 8.1523 ROE tþ 1 2 0.5169 1.6432 0.1167 0.2790 RET tþ 1 2 0.0029 0.8349 0.0130885 0.0943523 MCAP tþ 1 22.4028 31.8511 26.518983 2.0073281 Notes: CSDI, corporate social disclosure index; CSDL, corporate social disclosure length; BOARD_SZ, total board of commissioners and board of directors size; FOR, percentage of foreign investor ownership; TASSET, natural logarithm of total asset; ROE, return on equity; DER, debt-to-equity ratio; RET, stock return; MCAP, natural logarithm of market capitalization Table I. Descriptive statistics Corporate social reporting 247 DER may not be a good measure of the power of creditors to exercise monitoring of management. Different debt contracts have different covenants which entail different creditor’s monitoring abilities. We perform an additional test where board size is divided into board of commissioners’ size and board of directors’ size. The results not tabulated show that board of commissioners size has a positive and concave relationship with CSDI, while board of directors has a positive and concave relationship with CSDL. This may suggests that boards of directors are more concerned with the length of disclosure, while boards of commissioners are more concerned with items to be disclosed. 4.3 The impact of CSR future performance Regression result is presented in Tables III and IV. Panel A uses ROE as a measure of future performance, while Panel B uses stock return. The only significant F-statistic is in Panel A using CSDL to measure CSR. Both panels show consistent results regarding the impact of CSR on future performance, where only CSDI has positive and significant affect whereas CSDL does not. This result shows that it is not the length of disclosure that matters, but the variety of items disclosed. Positive affect of CSR on performance may be due to positive impact of disclosure on firm’s reputation; more social activities probably will increase customers’ loyalty and other stakeholders’ including investors’ support, which in turn increase Variable Hypothesis Coefficient t-statistics p-value Panel A: CSDI C 2 0.3817 2 2.2581 0.0269 BOARD_SZ H1. þ 0.0097 1.7752 0.0400 BOARD_SZ 2 H2. 2 2 0.0010 2 1.5985 0.0571 FOR H3. þ 2 0.0001 2 0.0012 0.4995 TASSET H4. þ 0.0161 2.4668 0.0080 ROE H5. þ 2 0.0056 2 0.2296 0.4095 DER H6. 2 0.0007 0.5606 0.2884 Adjusted R 2 0.1080 F-statistic 2.6338 p-value F-statistic 0.0226 Panel B: CSDL C 2 151.0442 2 1.6590 0.1013 BOARD_SZ H1. þ 5.3567 1.8182 0.0365 BOARD_SZ 2 H2. 2 2 0.6946 2 2.0590 0.0215 FOR H3. þ 2 19.1604 2 0.6817 0.2487 TASSET H4. þ 5.5410 1.5719 0.0601 ROE H5. þ 0.6513 0.9990 0.1605 DER H6. 2 2 5.8173 2 0.4443 0.3291 Adjusted R 2 0.0397 F-statistic 1.5574 p-value F-statistic 0.1715 Notes: Significance at 10, 5, and 1 percent, respectively; see equation 1; CSDI, corporate social disclosure index; CSDL, corporate social disclosure length; BOARD_SZ, total board of commissioners and board of directors size; FOR, percentage of foreign investor ownership; TASSET, natural logarithm of total asset; ROE, return on equity; DER, debt-to-equity ratio Table II. Factors affecting corporate social reporting IMEFM 3,3 248 firm’s performance. Positive valuation from the market may indicate that investors consider the firm’s CSR activities have net positive benefits in the future. We also try to investigate which disclosed items have significant affect on future performance results not tabulated. For accounting measure ROE, it is environmental Variable Hypothesis Coefficient t-statistics p-value Panel A: ROE CSDI C 2 0.3569 2 0.9481 0.3463 CSDI t H7. þ 0.6564 1.8012 0.0380 ROE t þ 0.3125 3.7106 0.0002 MCAP tþ 1 þ 0.0177 0.8786 0.1913 Adjusted R 2 0.0157 F-statistic 1.3500 p-value F-statistic 0.2663 CSDL C 2 0.5457 2 1.4521 0.1509 CSDL t H7. þ 0.0003 0.4526 0.3261 ROE t þ 0.2922 3.4311 0.0005 MCAP tþ 1 þ 0.0315 1.6168 0.0552 Adjusted R 2 0.1871 F-statistic 6.6782 p-value F-statistic 0.0005 Notes: Significance at 10, 5, and 1 percent, respectively; see equation 2a Table III. The impact of corporate social reporting on future performance Variable Hypothesis Coefficient t-statistics p-value Panel B: return CSDI C 0.1128 0.7220 0.4730 CSDI t H7. þ 0.3342 2.0083 0.0245 ROE tþ 1 þ 2 0.0210 2 0.4562 0.3249 MCAP tþ 1 þ 2 0.0073 2 0.8760 0.1922 Adjusted R 2 0.0157 F-statistic 1.3500 p-value F-statistic 0.2663 CSDL C 0.0760 0.4735 0.6375 CSDL t H7. þ 0.0003 1.0236 0.1550 ROE tþ 1 þ 2 0.0044 2 0.0960 0.4619 MCAP tþ 1 þ 2 0.0037 2 0.4400 0.3307 Adjusted R 2 2 0.0300 F-statistic 0.3546 p-value F-statistic 0.7859 Notes: Significance at 10, 5, and 1 percent, respectively; see equation 2b; ROE, return on equity; RET, stock return; CSDI, corporate social disclosure index; CSDL, corporate social disclosure length; MCAP, natural logarithm of market capitalization Table IV. Regresi CSR terhadap Kinerja Masa Depan Lanjutan Corporate social reporting 249 disclosure that has positive impact. While for market measure RET, energy disclosure has more consistent positive affect on stock return. 5. Conclusion Recently, community awareness has put more pressures on firms to engage in CSR. Eventually, this pressure will result in firms doing social activities which they disclose in the CSR report. Since the CSR reporting is still based on voluntary disclosure, it is interesting to observe factors that determine the level of CSR reporting within firms. This paper is intended to investigate the effect of board size, foreign ownership, firm size, profitability, and leverage on CSR reporting. Furthermore, since it is believed that social activities have negative impact on profitability, this paper is also intended to investigate the effect of CSR reporting on firm’s future performance. We find consistent evidence that board size has a positive and non-linear quadratic and concave relationship with CSR. These results confirm our prediction that larger boards will be able to exercise better monitoring including monitoring of CSR in the annual report, but boards which are too large will make the monitoring process ineffective negative impact. Firm size, measured by total assets, has a positive and significant effect on CSR. This suggests that larger firms have more resources to devote to social activities and a larger asset base over which to spread the costs of social responsibility. Larger firms also face more pressure to disclose their social activities from various groups in society. We also find little evidence of positive impact of CSR on future performance, where only CSDI has a positive and significant affect whereas CSDL does not. This result could encourage public firms to disclose their CSR activities because there seems to be a positive affect of this disclosure on future performance. There are several limitations of this study. First, because of limited availability of annual reports, this study does not examine all public firms. Second, this study uses length of disclosure to measure CSR. Firms often use pictures, tables and diagrams to disclose some information. For simplicity, all this kind of disclosures only counted as one sentence. Third, we only examined the factors affecting CSR limited to board size, firm size, profitability, foreign ownership, and leverage. Fourth, some regression results show insignificant F-statistics which suggest the model use here is not yet the best model. References Adams, C.A., Hill, W.-Y. and Roberts, C.B. 1998, “Corporate social reporting practices in Western Europe: legitimating corporate behavior”, British Accounting Review, Vol. 30, pp. 1-21. 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Corresponding author Sylvia Veronica Siregar can be contacted at: sylvia.veronicaui.ac.id IMEFM 3,3 252 To purchase reprints of this article please e-mail: reprintsemeraldinsight.com Or visit our web site for further details: www.emeraldinsight.comreprints Multinational corporations’ corporate social and environmental disclosures CSED on web sites Prem Lal Joshi Department of Accounting, University of Bahrain, Manama, Bahrain, and Simon S. Gao School of Accounting, Economics and Statistics, Napier University, Edinburgh, UK Abstract Purpose – The purpose of this paper is to investigate multinational corporations’ MNCs voluntary practice of including corporate social and environmental disclosure CSED on their web sites and characteristics that inspire MNCs to be more accountable in this regard. Designmethodologyapproach – This study adopts discrimination analysis to test six hypotheses to determine which variables influence the MNCs to post their CSED on the web sites. Data from a sample of 49 MNCs were analyzed with STATISTICA. The independent variables tested include log of total assets size and log of total equity size, return on assets profitability, debt ratio risk, auditor Big4 and non-Big4, country effect origin the USA or non-USA and industry effect manufacturing versus services. Findings – The results show that companies with a strong equity base and in a good financial condition have a propensity to voluntarily disclose more environmental information. For social disclosure, company size and the profitability discriminate the most. MNCs disclose a number of items pertaining to the two areas. These results are in line with evidence found in some prior studies. Research limitationsimplications – This study has its limitations. First, the results would be more conclusive if more companies had been included in the sample. Second, only six variables are tested and there may be scope for explaining the extent of the internet disclosure using other variables. Third, this research does not look into the quality of CSRD. Practical implications – This study provides an empirical analysis of practices and characteristics of MNCs relating to CSRD on their web sites. The findings from this study help understand MNCs’ corporate behavior in terms of CSED. Originalityvalue – This study has, for the first time, included three more variables financial risk, profitability, and country effect to investigate the disclosure of social and environmental information by MNCs through their web sites, on which there is limited evidence. Keywords Information disclosure, Financial reporting, Multinational companies, Internet, Corporate governance Paper type Research paper 1. Introduction In the last decade, corporate social and environmental responsibilities have risen to prominence as corporate social interests are increasingly recognized, and the importance of environmental protection is globally accepted. Under the pressure of various stakeholders and the public, multinational corporations MNCs have begun to www.emeraldinsight.com1056-9219.htm Multinational corporations’ CSED 27 International Journal of Commerce and Management Vol. 19 No. 1, 2009 pp. 27-44 q Emerald Group Publishing Limited 1056-9219 DOI 10.110810569210910939654 deal with social and environmental issues firmly, which is evidenced by an increase in the communication of social and environmental issues, in addition to, the customary financial disclosure Gray and Bebbington, 2001. Several companies have already established a corporate responsibility promotion department to ensure that they uphold all their economic, environmental and social responsibilities as a corporation. Through communication, companies are attempting to ensure the public that they have managed their activities also in the interest beyond the shareholders e.g. in areas of environmental conservatism, corporate compliance, and social contribution. Several giant organizations like Coca Cola, Pepsi, Colgate, Unilever, ABB, etc. have established citizenship programs in this direction. Many corporations have learned that consumers and business customers often seek to align themselves with firms that have a reputation for social responsibility. Many corporations now realize that the benefits of a strong reputation for corporate citizenship can include greater access to capital, reduced operating costs, improved financial performance, and enhanced brand image Williams et al., 1993. The internet facilitates rapid communication of information at very low cost Gowthorpe, 2004. The internet reporting is a recent but fast-growing phenomenon Oyelere et al., 2003. Many companies around the world have launched internet reporting, which is used to communicate financial and non-financial information to anyone who is interested and who possesses the technological resources to access it. A number of studies have well-documented the practices of internet financial reporting Debreceny et al., 2002; Deller et al., 1999; Marston and Polei, 2004; Oyelere et al., 2003; Xiao et al., 2004. The FASB 2000 found that 99 percent of the top 100 companies in the Fortune 500 have established web sites. While the literature has given a considerable attention to internet financial reporting over the last few years, a limited number of studies have emerged to explain and predict corporate behavior relating to corporate social and environmental reporting CSER on web sites. This study attempts to fill the gap by investigating the disclosure of social and environmental information by MNCs through their web sites and examining the characteristics that are inspiring these MNCs to be more accountable in this regard. This study, however, does not intend to analyze the content of environmental disclosures on the internet and their relevance and consequence. In the present study, we contribute to the literature in an important sense by analyzing corporate social and environmental data from MNCs on which there is limited evidence. While previous studies test for company size, industry type and auditor size, we add three more variables, namely risk financial, profitability, and country effect. The results are analyzed by using discriminant analysis which is a technique for classifying a set of observations into predefined classes. The purpose of discriminant analysis is to determine the class of an observation based on a set of variables known as predictors or input variables. 2. Corporate reporting and the internet Corporate use of the internet for a variety of business purposes is now commonplace Oyelere et al., 2003. The majority of the largest listed companies in developed countries now have an internet web site on which they publish financial information Ettredge et al., 2001. Owning and occupying internet space is almost essential for publicly traded companies, either as a place to do business or as a place to exchange IJCOMA 19,1 28 information about business Jones and Xiao, 2004. It has also been documented that the internet provides a global meeting ground for those interested in social and environmental communication Scott and Jackson, 2002; Adams and Frost, 2004. The two ideas are now combining, leading to a situation in which corporations are increasingly using their web sites to provide social and environmental information relating to their activities as part of their corporate governance strategy Williams and Ho, 1999; Shepherd et al., 2001; Adams and Frost, 2004. In 2005, 52 percent of the world’s 250 biggest companies issued separate reports on corporate social information, compared to 45 percent in 2002 KPMG, 2005. A few studies have examined the state-of-the-art in the disclosure of CSER in hard copy format Deegan and Gordon, 1996; Gamble et al., 1995; Wiseman, 1982. Indeed, using a media such as the internet allows a bigger flexibility, ability and availability for disclosure of social and environmental information. This has been demonstrated by studies such as UNEP 1999, the Environmental Resources Management 2000 and Adams and Frost 2004. Allam and Lymer 2002 examined the type of information available on the internets of 50 companies from five countries, namely, the USA, UK, Canada, Australia and Hong Kong. Of particular relevance to this study are the findings of the USA and Australian companies’ web sites. Of the 50 companies surveyed, only 23 46 per cent of the US companies’ web sites had environmental information, despite Debreceny et al. 2002 noting that there are more internet users in the USA. Other international comparative studies specifically on corporate social reporting are documented by Williams 1999 and Williams and Ho 1999. KPMG’s 2002 survey, which looks at the reporting practices of the top 100 companies in 19 countries, found that 72 percent of Japanese companies, 49 percent of UK companies and 36 percent of US companies issue environmental, social, or sustainability reports, in addition to, their financial reports. The voluntary reporting of environmental impacts and initiatives in company’s annual reports has become widespread among organizations accepting an obligation to extend their environmental responsibilities beyond regulatory compliance Brophy and Starkey, 1996. A number of studies Moneva and Llena, 2000; Deegan and Gordon, 1996; Hackston and Milne, 1996; Adams et al., 1995 reported that environmental data provided are more or less qualitative or narrative in character. Such disclosures are made to link the companies’ image. At the same time, level of disclosure and nature of the environmental reporting were largely depending on the company’s country-of-origin Moneva and Llena, 2000 or ownership Adams et al., 1995; Guthrie and Parker, 1990. Owing to social consciousness, countries like Sweden and Canada provide more information Gamble et al., 1995. Bullough and Johnston 1995 reported that the US resource companies, on average, disclose low levels of environmental information either in hard-copy or internet-based annual reports. Their study attributes the conservative levels of environmental disclosure on different motivations that US resource companies have in disclosing in different mediums. 3. Theories CSER has attracted considerable interests in the literature for reviews, see, Mathews, 1997. A number of theories regarding corporate social and environmental disclosure CSED emerged during the 1970s including legitimacy theory, stakeholder theory, and Multinational corporations’ CSED 29 accountability theory. Legitimacy theory and stakeholder theory have developed from the broader political economy perspective Gray et al., 1996; Deegan, 2002. While there are differences between stakeholder and legitimacy theory, they both focus attention on the nexus between the organisation and its operating environment Neu et al., 1998. 3.1 Legitimacy theory Legitimacy theory has become one of the most cited theories within the CSER area Preston and Post, 1975; Guthrie and Parker, 1989. It offers researchers a way to critically unpack corporate disclosures. “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” Suchman, 1995, p. 574. There are two major types of legitimacy theory: institutional legitimacy theory dealing with how organisational structures as a whole have gained acceptance from society at large and strategic legitimacy theory which is a process by which an organization seeks approval or avoidance of sanction from groups in society Kaplan and Ruland, 1991, p. 370. Mathews 1993, p. 350 defines legitimacy at the strategic level as: [ . . . ] organisations seek to establish congruence between the social values associated with or implied by their activities and the norms of acceptable behaviour in the larger social system in which they are a part. Legitimacy is also considered as an operational resource that organizations extract – often competitively – from their cultural environments in order to pursue their goals Suchman, 1995. Certain corporate actions and events increase that legitimacy and others decrease it. Low legitimacy will have particularly disastrous consequences for a corporation, which could ultimately lead to the forfeiture of their right to operate. High legitimacy will enable corporations to attract resources Hearit, 1995; Hybels, 1995; Patten, 2002; Deegan et al., 2002. However, legitimacy is a dynamic construct. This is because community expectations are not considered static, but rather, change across time thereby requiring corporations to be responsive to the environment in which they operate Deegan et al., 2002. Indeed, companies try to manage their legitimacy as it: [ . . . ] helps to ensure the continued inflow of capital, labour and customers necessary for viability [ . . . ] It also forestalls regulatory activities by the state that might occur in the absence of legitimacy [ . . . ] and pre-empts product boycotts or other disruptive actions by external parties Neu et al., 1998, p. 265. Corporations’ voluntary disclosure of social and environmental information is a way to manage its legitimacy. Deegan et al. 2000 finds that companies do appear to change their disclosure policies around the time of major company- and industry-related social events. Legitimacy theory claims that corporations disclose social and environmental information with the intention to enhance the public respect or to legitimize their activities in social, political, and environmental areas. Legitimacy theory suggests that companies with high-public profiles like MNCs will likely to be seen as cognizant and acting to support the wider interests of the society. A number of studies have utilized legitimacy theory to explain the extent of disclosure of environmental andor social performance Deegan and Gordon, 1996; Patten, 1991, 1992. Hogner 1982 and Guthrie and Parker 1989 test the applicability of legitimacy theory to CSER with IJCOMA 19,1 30 inconsistent results. However, neither is inconclusive as each was confined to one single company and the annual report. 3.2 Stakeholder theory Stakeholder theory is closely aligned with legitimacy theory and the two are often used to complement each other Deegan, 2002. Stakeholder theory is concerned with the way that an “organisation manages its stakeholders” Gray et al., 1997, p. 333. Freeman 1984 defines a stakeholder as any group or individual who can affect or is affected by the achievement of a firm’s objectives. He further develops the stakeholder concept into a corporate social responsibility model of stakeholder management. The focus of stakeholder theory is articulated in two perspectives concerning the purpose of the firm and the responsibility of managers to stakeholders Freeman, 1984; Freeman et al., 2004. The second perspective pushes managers to articulate how they want to do business, specifically what kinds of relationships they want and need to create with their stakeholders to deliver on their purpose. Managers must develop relationships, inspire their stakeholders, and create communities where everyone strives to give their best to deliver the value the firm promises Freeman et al., 2004. Stakeholder theory claims that whatever the ultimate aim of the corporation or other form of business activity, managers must take into account the legitimate interests of those groups and individuals who can affect or be affected by their activities Donaldson and Preston, 1995; Freeman, 1984. The corporation’s continued existence requires the support of the stakeholders and their approval must be sought and the activities of the corporation adjusted to gain that approval. The more powerful the stakeholders, the more the company must adapt Gray et al., 1995. Based on Freeman’s model, Ullmann 1985 develops a 3D model to analyze the relationships among corporate social performance, social disclosure, and economic performance. The 3D are stakeholder power, the corporation strategic posture toward corporate social activities, and the company’s past and current economic performance. Ullmann 1985 argues that the power of stakeholders is related to the strategic posture adopted by the corporation and an organisation’s strategic posture “describes the mode of response of an organization’s key decision makers towards social demands” Ullmann, 1985, p. 552. The way a corporation manages its stakeholders is dependent upon the strategic posture adopted by the corporation. Organisations may adopt an “active” or “passive” strategic posture. Corporations that adopt an “active” posture “seek to influence their organization’s relationship with important stakeholders” Ullmann, 1985, p. 552. In contrast, the corporation with a “passive” posture is “neither involved in continuous monitoring activities [of stakeholders] nor deliberately searching for an optimal stakeholder strategy” Ullmann, 1985, pp. 552-3. The lack of stakeholder engagement inherent in a “passive” strategic posture is expected to result in “low levels of social disclosure” and “low levels of social performance” Ullmann, 1985, p. 554. CSER is seen, under stakeholder theory, as part of the dialogue between the corporate and its stakeholders Roberts, 1992; Gray et al., 1995, 1997. Roberts 1992 provides evidence that stakeholder theory is an appropriate foundation for further empirical analysis of CSER. 3.3 Accountability theory Under accountability theory, the organization is held accountable by society for maintaining acceptable social including environmental outputs, methods and goals, Multinational corporations’ CSED 31 and organizations use CSED to discharge their social and environmental accountability Gray et al., 1987. In essence, accountability theory is based upon economic agency theory. Jensen and Meckling 1976 define an agency relationship as a contract under which one or more persons principals engage another person the agent to perform some service on their behalf, which involves delegating some decision-making authority to agent. Accountability is about the provision of information between two parties where the one who is accountable, explains or justifies actions to the one to whom the account is owed Gray et al., 1997. It is concerned with the rights of stakeholders and the society to information. The informationdisclosure flowing through such a relationship is determined by the power of the parties to demand it andor the willingnessdesire of the organization to provide it Gray et al., 1997. Such rights to information can be either legal positive or normal normative rights Likierman and Creasey, 1985. Accountability theory dictates that managers disclosure social and environmental information only if they are required to do so because of the “statutory enforcement – power,” and only if there is willingnessdesire from managers because of clear benefits to the organization such as raising corporate image and PR promotion. Under accountability theory, it appears that there will be different patterns of disclosure between industries. For example, environment-sensitive companies are expected to provide more environment-related disclosure than other sectors. During the past 30 years, empirical researchers investigating CSER have explained the results within the above theoretical perspectives. By and large, many researchers believe that social contract theory and legitimacy theory as well as stakeholder theory provide a more comprehensive perspective on CSER because they recognize that organizations evolve within a society that encompasses many political, social, and institutional framework Patten, 1991; Gray et al., 1995; Deegan et al., 2002; Cormier et al., 2005. It is further argued by Neu et al. 1998 that CSER is considered a constructed image in which a firm is conveying to the outside world to control its political or economic position. A survey by KPMG 2005 reported that economic considerations, ethical considerations, and innovation and learning are the main business forces for MNCs to disclose corporate social information. Disclosure of social and environmental information may also be considered useful for determining the managerial compensation Lanen, 1999. 4. Data and hypothesis 4.1 Data and variables This study examines the disclosure of social and environmental information by MNCs on their web sites. Data on a number of variables such as total assets, profits, equity, total debts, auditors, country-of-origin, and disclosure of social- and environmental-related information were collected from the web sites of 49 MNCs www.geneva.chmultinationals.htm. This web site provides links to the web sites of 128 MNCs. From this population, we dropped companies which were engaged in financial operations, like banks, as such companies are less prone to environmental activities. Also, a total of 15 companies’ web sites could not be accessed because of error messages. Other companies which did not provide any information on social and environmental activities were also dropped. Finally, a total of 49 companies were IJCOMA 19,1 32 selected for the analysis. The data were collected during April-June 2005. Data were analyzed on STATISTICA. STATISTICA is a statistics and analytics software package developed by StatSoft, Inc. It provides a selection of data analysis, data management, data mining, and data visualization procedures. Corporate variables are defined and measured resembling most of the earlier studies in the literature Deegan et al., 2000; Debreceny et al., 2002; Chappal and Moon, 2005; Xiao et al., 2004. Company size[1] was measured using the natural log of total assets and log of total equity of each selected company and converted to US dollars using FXconveter www.oanda.comconvertclassic. Profitability was calculated using returned on total assets. Debt ratio financial risk was measured using the ratio of long-term debt to the book value of equity. Industry type was partitioned into industrial versus service organization. Auditor size Big4 versus non-Big4 was dichotomous variables. Country effect was a dummy variable. If the origin of the firm was in the USA, a score of one was assigned; otherwise zero. 4.2 Hypothesis This section provides the hypotheses and their developments. 4.2.1 Firm size. The agency, signaling, legitimacy theory, and cost-benefit analysis, all indicate that there may be a positive relationship between size and disclosure of information. For example, researchers argue that larger firms tend to have a more dispersed shareholding which resulted in higher information asymmetry between managers and shareholders and in turn this could lead to a higher cost of capital Watts and Zimmermann, 1978. These higher costs e.g. monitoring costs can be reduced by voluntary disclosure of social and environmental information. Both Chow and Wong-Boren 1987 and Bujaki and McConomy 2002 find that large firms tend to disclose more in their annual reports than smaller firms. Signalling theory suggests that companies with superior performance or good companies use information to send signals to the market Ross, 1979; Morris, 1987. Employing signaling theory, Inchausti 1997 finds that management with high profits, or “good news,” disclose more information than that with “bad news.” Signaling theory has been adopted to explain motivation for voluntary disclosures of social and environmental information. It is argued that managers can be motivated to disclose social and environmental information voluntarily. This is because they expect this to provide and to be interpreted as a good signal about their company’s social and environmental performance to the outside market and as reducing information asymmetry. Also, the empirical evidence has supported the political cost theory predication that larger companies have a stronger incentive to enhance their corporate reputation and public image, as they are more publicly visible Watts and Zimmermann, 1978. Larger companies tend to receive more attention from the public and are under greater public pressure to exhibit social responsibility Cowen et al., 1987. Larger companies also attract the attention of governmental bodies. Increased disclosure generally reduces government intervention. Larger companies can be expected to disclose more social and environmental information to prove their corporate citizenship, thereby legitimizing their existence. That is because additional disclosure may influence society’s perceptions about the company Neu et al., 1998. Moreover, large firms are also likely to have lower proprietary costs associated with disclosure as their activities are exposed by other sources of information Multinational corporations’ CSED 33 Hossain et al., 1995. Further, larger firms are also more complex and more information disclosure is necessary to allow existing and potential investors to make investment decisions. On the one hand, these firms have a greater need for capital and can therefore be expected to disclose at a higher level. On the other hand, nondisclosure would be interpreted as bad news that could, in turn, have an adverse effect on the company’s share price Verrecchia, 1983. Furthermore, it can be argued that the relative costs of information production are lower for larger firms than for smaller ones that might not have the resources to collect and provide extensive disclosures, for example, via the internet. Given the need for greater disclosure by larger firms, it is expected that larger firms will be inclined to adopt various disclosure manners including web sites, which allows large amounts of disclosures at low-incremental costs and in user-friendly ways. Disclosure through web site is particularly effective for MNCs, as information can be efficiently disseminated to a large dispersed audience at no geographical boundary. Firm size has frequently been assumed as a factor determining CSER Cormier et al., 2005; Oyelere et al., 2003; Richardson and Welker, 2001; Craven and Otsmani, 1999; Hackston and Milne, 1996. It is expected that larger companies will disclose more social and environmental information on their web sites. Hence, we hypothesize: H1. There is a significant association between company size and the extent of social- and environmental-related disclosure on the internet. 4.2.2 Profitability. Signaling theory suggests that profitable firms have the incentive to distinguish themselves from less successful firms to raise capital at the lowest possible cost. Voluntary disclosures of corporate social and environmental information can be one way to achieve this. Investors are generally thought to perceive the absence of voluntary disclosure as an indication of “bad news” about a firm. This provides average-or-better performing firms with an adverse selection incentive to disclose Lev and Penman, 1990; Lang and Lundholm, 1993; Clarkson et al., 1994. While Belkaoui and Karpik 1989, Patten 1991, Hackston and Milne 1996 and Richardson and Welker 2001 documented a weak association between corporate social disclosure and profitability, Balabanis et al. 1998 found some statistically significant evidence of a positive association between corporate social disclosure and profitability. Given the inconclusiveness of the findings in the literature, in this study we will test the following hypothesis: H2. There is no significant association between profitability and the extent of social- and environmental-related disclosure on the internet. 4.2.3 Industry type. The influence of industry variable is suggested by political cost theory and signalling theory Inchausti, 1997; Oyelere et al., 2003. Whilst some studies reported mixed results Marston and Shrives, 1996, others indicated that industry-related factors have an influence on social and environmental reporting Craven and Otsmani, 1999. A few other studies Halme and Huse, 1997; Jaggi and Zhao, 1996; Gamble et al., 1995 also reported significant differences between industries in respect of quality and quantity of disclosure of environmental information in annual reports. Oyelere et al. 2003 and Craven and Otsmani 1999 found that there is a statistically significant association between companies disclosing social and environmental information on their web sites and their industry group. Following the literature, thus, we hypothesize: IJCOMA 19,1 34 H3. There is no significant association between industry type and the extent of social- and environmental-related disclosure in the internet. 4.2.4 Debt ratio risk. Agency theory predicts that restrictive covenants may be incorporated in the debt contracts in order to protect the bondholder’s economic interest Schipper, 1981. Consequently, management may attempt to increase the extent of disclosure of accounting information for monitoring purposes. As MNCs also face debt covenant restrictions, debt ratio is also included in this study. However, the empirical evidence on debt-ratio and its association with disclosure level is mixed Wallace and Naser, 1995; Tai et al., 1990; Robbins and Austin, 1986. Therefore, we would like to test the following hypothesis: H4. There is no significant association between risk and the extent of social- and environmental-related disclosure on the internet. 4.2.5 Auditor size. Under agency theory, auditing contributes to alleviating the agency problem. It is generally held that larger audit firms maintain more independent auditing service and abide by audit standards more strictly than smaller audit firms in view of the fact that larger auditors suffer more serious damage to their reputation DeAngelo, 1981; Malone et al., 1993. For that reason, firms with greater potential gains from external monitoring would be more likely to employ larger audit firms. Signaling theory also explains this expectation. As larger auditors have greater incentives to demand higher quality disclosure, the appointment of larger auditors for external monitoring by a company would provide a signal of their acceptance of demand of higher quality disclosure Datar et al., 1991; Healy and Palepu, 2001. Also, Healy and Palepu 1993 assert that managers can improve their communication with investors by developing disclosure strategies. To reinforce its credibility, a firm has greater motivation to choose appropriate reporting strategies to act as quality signal to the market. It is proposed that such a signal would include the use of a Big4 audit firm. This proposition is based on some evidence in the literature that suggests Big5 firms providing higher quality audits than non-Big5 firms. Furthermore, empirical evidence of Craswell and Taylor 1992 and Inchausti 1997 confirms the expectation that the level of disclosure is positively related to firms employing larger auditors. Therefore, we test the following hypothesis: H5. There is no significant association between auditor size and the extent of social- and environmental-related disclosure on the internet. 4.2.6 Country effect. Empirical evidence indicates that the country in which a company reports affects the voluntary financial reporting system of that company Samantha and Tower, 1999; Guthrie and Parker, 1990. While Chappal and Moon 2005 concluded that MNCs are more likely to adopt corporate social reporting than those operating solely in their home country, the profile of their social reporting tends to reflect the profile of the country of operation rather than the country-of-origin. Furthermore, Radebaugh et al. 2006 argue that the country-of-origin effect would include culture, economic development, legal system, taxation, and political and civil systems. Similarly, as Gray and Robert 1989 suggest, when considering voluntary information disclosure, variations among countries have been observed because financial executives have different perceptions of costs and benefits when they make disclosure decisions. Therefore, our hypothesis is: Multinational corporations’ CSED 35 H6. There is no significant association between country effect and the extent of social- and environmental-related disclosure on the internet. 5. Results and discussions 5.1 Overall results In the sample, 68.83 percent of the companies were audited by Big4 audit firms and the rest by non-Big4. The study classifies the amount of disclosure both for social and environmental as detailed, summarized and none. A numeric value of 3 detailed, 2 summarized and 1 none were assigned to the data. Results are presented in Tables I and II, respectively. Table I shows that 30 61.2 percent of total sampled companies disclosed detailed socially related information, while 13 26.5 percent of companies disclosed only summarized information. About 27 55.1 percent of total sampled companies disclosed detailed environmental information on their web sites and 10 24.5 percent disclosed summarized information. Analyses of the above data apparently indicate that MNCs tend to disclose detailed social and environmental information on their web sites. Companies have been following this practice because they might believe that if investors think that managers are withholding information, they will view the undisclosed information as negative and will lower their estimation of the firm’s value. Hence, to gain public trust, managers have started disclosing detailed information on social- and environmental-related issues. Table II presents the type of social and environmental activities in which MNCs make contributions. More than 60 percent of companies provided information relating to health care, medical scholarships and funding rising and charity activities. In terms of environmental information, 67 percent of companies reported their expenditures on water and energy conservation and air pollution prevention. Social information Environmental information Degree of disclosure No. of companies Percentage No. of companies Percentage Detailed 30 61.2 27 55.1 Summarized 13 26.5 12 24.5 None 6 12.3 10 20.4 Total 49 100.0 49 100.0 Table I. Number of companies disclosing social and environmental information in their web sites No. Social-related information Environmental-related information 1 Health care activities Water and energy conservation 2 Medical research programs Air pollution prevention 3 Education scholarship Waste reduction and recycling 4 Helping handicapped and orphans Land management protection and enhancement 5 Supporting children Greenhouse campaigns 6 Red cross Animal welfare 7 Fund raising campaigns and charity 8 Sponsoring sports teams Table II. Type of information disclosed by the sampled companies IJCOMA 19,1 36 5.2 Discrimination analysis Discrimination analysis was performed on the collected data to determine which variables influence the MNCs in such disclosures. The dependent variable was measured by using 1 if disclosed and 0 not disclosed. The independent variables tested are: log of total assets size, or log of total equity size, return on assets profitability, debt ratio risk, auditor Big4 and non-Big4, country effect origin the USA or non-USA and industry effect manufacturing versus services. Results for social disclosure are presented in Tables III and IV, while Tables V and VI contain the information about environmental disclosure. Table III shows the classification matrix for social disclosure. The percentage of groups classified is 89.13 percent. Table IV reveals that there is a strong bond of relationship between disclosure of social information and the company size as well as the profitability of the company. Log of assets p , 0.05 and profitability p , 0.05 are significant variables in the discrimination model for the disclosure of socially related information. The explanation is that as the size of the company increases and is more profitable, the more amount of information is disclosed, and there is greater ability of such a firm to engage in social activities. This is in line with the prior evidence shown in the literature Roberts, 1992 that CSER was positively associated with corporate profitability. In this regard, Parsa and Kouhy 2001 state that profitable companies can use social disclosure to deviate attention from their weaknesses and to project the image of a company with future prospects. Classification matrix Percentage of correct G 1.0 G 2.0 Group 1.0 40.0 2 3 Group 2.0 95.12 2 39 Total 89.13 4 42 Table III. Classification matrix for social disclosure Variables Wilks’ l Significance Log of assets size 0.952 0.010 Log of return of assets profitability 0.902 0.039 Log of debt ratio risk 0.847 0.190 Notes: Eigen value ¼ 0.228; Canonical R ¼ 0.43; Wilks’ l ¼ 0.814; x 2 ¼ 8.734; df 3; p , 0.05 Table IV. Discrimination function analysis social model Classification matrix Percentage of correct G 1.0 G 2.0 Group 1.0 20.0 2 8 Group 2.0 94.7 2 36 Total 79.2 4 44 Table V. Classification matrix for environment disclosure Multinational corporations’ CSED 37 Table V presents the classification matrix for environmental disclosure. Results show that the percentage of groups classified is 79.2 percent. The environmental model Table VI shows that log of equity size discriminates the most and the predictive power of the model is 79.2 percent. The model is also significant at 0.05 level x 2 ¼ 8.27; df 3; p , 0.05. This is explained by the fact that companies with a strong equity base and in a good financial condition have a propensity to voluntarily disclose more environmental information since the potential costs to be incurred following the release of such information is likely to be less. A company is more likely to release information on environmental incidents when it lessens outside stakeholders’ uncertainty. Hence, large size companies disclose more environmental-related information. 6. Conclusion This study was carried out to determine the extent of disclosure of social and environmental information by MNCs on their web sites and also to establish the variables that mostly influence such decisions. Discrimination analysis shows that companies with a strong equity base and in a good financial condition have a propensity to voluntarily disclose more environmental information. For social disclosure, company size and the profitability discriminate the most. MNCs disclose a number of items pertaining to the two areas. These results are in line with evidence found in some prior studies. It has been argued that adopting corporate social responsibility allows companies to build brand values and costs of building brand value through social responsibility initiatives are usually cheaper than trying the same effect through advertising and public relations. A conference of the Center for Corporate Citizenship, Boston College, in 2004, cited the reasons that pressures for greater transparency and disclosure about environmental and social practices aimed at long-term ecological, social, and business sustainability have been growing in the wake of the growth of power of MNCs as the array of scandals have plagued business institutions since the collapse of Enron and Arthur Anderson. MNCs are generally much ahead in disclosing social- and environmental-related information because of their size advantage. Our findings support the empirical evidence that size and profitability are important variables in voluntary disclosure of information related to social and environmental activities. In this regard, the PriceWaterhouseCoopers survey of 2001 reported that the increasing level quality and quantity of voluntary public disclosure by industry and the finance sector has resulted in environmental and social performance becoming a competitive business issue as well as increased analysis of environmental and social business risks by financial sector institutions. Variables Wilks’ l Significance Log of equity size 0.943 0.036 Country effect 0.863 0.150 Log of debt ratio risk 0.858 0.161 Notes: Eigen value ¼ 0.22; Canonical R ¼ 0.425; Wilks’ l ¼ 0.819; x 2 ¼ 8.27; df 3; p , 0.05 Table VI. Discrimination function analysis environmental model IJCOMA 19,1 38 This study has, for the first time, included three more variables, namely risk financial, profitability and country effect in determining the level of CSER by MNCs. However, this study also has its limitations. For example, the results would be more conclusive if companies from other countries had been included in the sample. Additionally, only six variables were tested and there may be scope for explaining the extent of the internet disclosure using other variables, such as corporate management attitudes towards adopting of newer technology, corporate governance, etc. The social and environmental reporting by MNCs on the internet could also be examined in terms of their contents, timeliness, technology, and user support. Despite these limitations, the findings from this study contribute to our understanding of CSER by MNCs. As the growth in the internet continues, we expect more companies will be creating web sites within next few years. Therefore, it would be interesting to update this study to see if an increase in the use of the internet has occurred not only in developed countries but also in emerging economies. Audit implications and extent of the use of web-based social and environmental information by investors may need to be examined. Further research should also focus on the quality of CSER. Note 1. The size of a company can be measured in a number of ways, such as capital employed, turnover, and number of employees, company’s market value, and equity. For example, Firth 1979 used sales turnover and capital employed to measure the company size, and Cooke 1991 used number of shareholders, total assets, and turnover to measure the size of the company. 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Corresponding author Prem Lal Joshi can be contacted at: joshibuss.uob.bh IJCOMA 19,1 44 To purchase reprints of this article please e-mail: reprintsemeraldinsight.com Or visit our web site for further details: www.emeraldinsight.comreprints Jurnal akuntansi usu 19, 2009 FAKTOR-FAKTOR YANG MEMPENGARUHI PENGUNGKAPAN INFORMASI SOSIAL DALAM LAPORAN TAHUNAN PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK JAKARTA ANDRE CHRISTIAN SITEPU Fakultas Ekonomi Universitas Sumatera Utara HASAN SAKTI SIREGAR Fakultas Ekonomi Universitas Sumatera Utara Abstract The purpose of this research is to examine the effect of corporate characteristics, consist of size of board of commisioner, leverage, company size and profitability to corporate social responsibility disclosure. This research can explain the decision making about the corporate social responsibility disclosure done by manufacturing companies listed in JSX for the year 2007. The data used are in form of annual reports from 33 companies used as sample for the year 2007. The statistical methods use in this research is multiple regressions. The result of this research shows that size of board of commisioner and profitability have significant effect to corporate social responsibility disclosure , while leverage and company size have insignificant efect to corporate social responsibility disclosure. Keywords : Corporate Characteristics, Corporate Social Responsibility Disclosure

1. Pendahuluan

Sejarah perkembangan akuntansi, yang berkembang pesat setelah terjadi revolusi industri, menyebabkan pelaporan akuntansi lebih banyak digunakan sebagai alat pertanggungjawaban kepada pemilik modal kaum kapitalis sehingga mengakibatkan orientasi perusahaan lebih berpihak kepada pemilik modal. Dengan keberpihakan perusahaan kepada pemilik modal mengakibatkan perusahaan melakukan eksploitasi sumber-sumber alam dan masyarakat sosial secara tidak terkendali sehingga mengakibatkan kerusakan lingkungan alam dan pada akhirnya mengganggu kehidupan manusia. Di dalam akuntansi konvensional mainstream accounting, pusat perhatian yang dilayani perusahaan adalah stockholders dan bondholders sedangkan pihak yang lain sering diabaikan. Dewasa ini tuntutan terhadap perusahaan semakin besar. Perusahaan diharapkan tidak hanya mementingkan kepentingan manajemen dan pemilik modal investor dan kreditor tetapi juga karyawan, konsumen serta masyarakat. Akuntansi konvensional telah banyak dikritik karena tidak dapat mengakomodir kepentingan masyarakat secara luas, sehingga kemudian muncul konsep akuntansi baru yang disebut sebagai Social Responsibility Accounting SRA atau Akuntansi Pertanggungjawaban Sosial, yang menuntut diungkapkannya informasi pertanggungjawaban sosial oleh perusahaan. Standar akuntansi keuangan di Indonesia belum mewajibkan perusahaan untuk mengungkapkan informasi sosial terutama informasi mengenai tanggung jawab perusahaan terhadap lingkungan. Perusahaan akan mempertimbangkan biaya dan manfaat yang akan diperoleh ketika mereka memutuskan untuk mengungkapkan informasi sosial. Bila manfaat yang akan diperoleh dengan pengungkapan informasi tersebut lebih besar dibandingkan biaya yang dikeluarkan untuk mengungkapkannya maka perusahaan akan dengan sukarela mengungkapkan informasi tersebut. Berdasarkan penelitian Hackston Milne 1996 ukuran perusahaan dan tipe industri memiliki hubungan signifikan dengan pengungkapan informasi sosial, sebaliknya tidak ditemukan hubungan antara laba dengan pengungkapan informasi sosial. Fitriani 2001 menemukan bahwa pengungkapan informasi sosial dipengaruhi oleh size perusahaan, status perusahaan, profitabilitas dan KAP. Penelitian Sembiring 2005 menemukan bahwa ukuran perusahaan, profile dan ukuran dewan komisaris berpengaruh positif terhadap pengungkapan informasi sosial perusahaan, namun tidak menemukan hubungan signifikan antara profitabilitas dan leverage dengan pengungkapan informasi sosial. Anggraini 2006 menemukan hubungan signifikan antara persentase kepemilikan manajemen dengan pengungkapan informasi sosial, namun tidak berhasil membuktikan pengaruh ukuran perusahaan, leverage dan profitabilitas terhadap kebijakan pengungkapan informasi sosial oleh perusahaan. Berdasarkan latar belakang di atas, maka rumusan masalah dalam penelitian ini adalah apakah ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas memiliki pengaruh terhadap jumlah informasi sosial yang diungkapkan baik secara simultan maupun secara parsial? Berdasarkan rumusan masalah penelitiannya, maka tujuan dari penelitian ini adalah untuk mengetahui apakah ukuran dewan komisaris, tingkat leverage, ukuran perusahaan, dan tingkat profitabilitas perusahaan berpengaruh terhadap jumlah informasi sosial yang diungkapkan baik secara simultan maupun secara parsial.

2. Tinjauan Pustaka

2.1. Akuntansi Pertanggungjawaban Sosial

Pertanggungjawaban Sosial Perusahaan atau Corporate Social Responsibility CSR adalah mekanisme bagi suatu organisasi untuk secara sukarela mengintegrasikan perhatian terhadap lingkungan dan sosial ke dalam operasinya dan interaksinya dengan stakeholders yang melebihi tanggung jawab organisasi di bidang hukum Darwin, 2004. Pertanggungjawaban sosial perusahaan diungkapkan di dalam laporan yang disebut Sustainability Reporting. Darwin 2004 mengatakan bahwa Corporate Sustainability Reporting terbagi menjadi 3 kategori yaitu kinerja ekonomi, kinerja lingkungan dan kinerja sosial. Selanjutnya tiga kinerja utama ini dibagi dalam beberapa subkategori. Pembagian Corporate Sustainability Reporting menurut Darwin dapat dilihat pada lampiran 1.

2.2. Tujuan Akuntansi Pertanggungjawaban Sosial Perusahaan

Pada dasarnya tujuan akuntansi pertanggungjawaban sosial perusahaan adalah menyediakan informasi yang memungkinkan dilakukan evaluasi pengaruh kegiatan perusahaan kepada masyarakat. Pengaruh kegiatan perusahaan ini bisa negatif, yang berarti menimbulkan biaya sosial pada masyarakat, atau positif, yang berarti menimbulkan manfaat sosial pada masyarakat.

2.3. Pengungkapan Dalam Laporan Tahunan

Pengungkapan disclosure didefinisikan sebagai penyediaan sejumlah informasi yang dibutuhkan untuk pengoperasian optimal pasar modal secara efisien Hendriksen, 1996. Dalam interpretasi yang lebih luas, pengungkapan terkait dengan informasi baik yang terdapat dalam laporan keuangan maupun komunikasi tambahan supplementary communication yang terdiri dari catatan kaki, informasi tentang kejadian setelah tanggal laporan, analisis manajemen atas operasi perusahaan di masa datang, prakiraan keuangan operasi, serta informasi lainnya Wolk dan Tearney dalam Widiastuti, 2000. Selain itu tujuan pengungkapan dalam hal ini yang berkaitan dengan akuntansi pertanggungjawaban sosial adalah menyediakan informasi yang memungkinkan dilakukan evaluasi pengaruh perusahaan terhadap masyarakat. Pengaruh kegiatan ini bisa bersifat negatif, yang berarti menimbulkan biaya sosial pada masyarakat. Sebaliknya pengungkapan dapat bersifat positif, yang berarti menimbulkan manfaat sosial bagi masyarakat Yuningsih, 2001.

2.4. Pelaporan Informasi Sosial dan Pemilihan Kebijakan Akuntansi

Pengungkapan sosial perusahaan bersifat sukarela voluntary disclosure, yaitu diungkapkan oleh perusahaan secara sukarela tanpa diharuskan oleh standar yang ada. Standar pelaporan pertanggungjawaban sosial masih belum memiliki standar yang baku, sehingga jumlah dan cara pengungkapan informasi sosial bergantung kepada kebijakan dari pihak manajemen perusahaan. Hal ini mengakibatkan timbulnya variasi luas pengungkapan informasi sosial dalam laporan tahunan masing-masing perusahaan. Karakteristik perusahaan dapat menjelaskan variasi luas pengungkapan sukarela dalam laporan tahunan, karakteristik perusahaan merupakan prediktor luas pengungkapan [Lang and Lundholm 1993 dalam Anggraini 2006]. Dalam penelitian ini, karakteristik perusahaan yang mempengaruhi pengungkapan informasi sosial diproksikan dalam ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas.  Ukuran Dewan Komisaris Ukuran dewan komisaris adalah jumlah anggota dewan komisaris. Berkaitan dengan ukuran dewan komisaris, Coller dan Gregory 1999 dalam Sembiring 2005 menyatakan bahwa semakin besar jumlah anggota dewan komisaris, maka akan semakin mudah untuk mengendalikan CEO dan monitoring yang dilakukan akan semakin efektif. Dikaitkan dengan pengungkapan tanggung jawab sosial, maka tekanan terhadap manajemen juga akan semakin besar untuk mengungkapkannya.  Financial Leverage Rasio leverage merupakan proporsi total hutang terhadap ekuitas pemegang saham. Rasio tersebut digunakan untuk memberikan gambaran mengenai struktur modal yang dimiliki perusahaan, sehingga dapat dilihat tingkat resiko tak tertagihnya suatu utang. Tambahan informasi diperlukan untuk menghilangkan keraguan pemegang obligasi terhadap dipenuhinya hak-hak mereka sebagai kreditur [Schipper 1981 dalam Marwata 2001 dan Meek, et al 1995 dalam Fitriany 2001] Oleh karena itu perusahaan dengan rasio leverage yang tinggi memiliki kewajiban untuk melakukan ungkapan yang lebih luas daripada perusahaan dengan rasio leverage yang rendah.  Ukuran Perusahaan Bukti bahwa pengungkapan tanggung jawab sosial dipengaruhi oleh ukuran perusahaan telah ditemukan dalam penelitian sebelumnya. Menurut Meek, Roberts dan Gray 1995 dalam Fitriani 2001 perusahaan besar mempunyai kemampuan untuk merekrut karyawan yang ahli, serta adanya tuntutan dari pemegang saham dan analis, sehingga perusahaan besar memiliki insentif untuk melakukan pengungkapan yang lebih luas dari perusahaan kecil. Selain itu, perusahaan besar merupakan emiten yang banyak disoroti, pengungkapan yang lebih besar merupakan pengurangan biaya politis sebagai wujud tanggung jawab sosial perusahaan.  Profitabilitas Profitabilitas merupakan faktor yang membuat manajemen menjadi bebas dan fleksibel untuk mengungkapkan pertanggungjawaban sosial kepada pemegang saham [Heinze 1976 dalam Hackston Milne 1996]. Sehingga semakin tinggi tingkat profitabilitas perusahaan maka semakin besar pengungkapan informasi sosial. Hackston Milne 1996 menemukan tidak ada hubungan yang signifikan antara tingkat profitabilitas dengan pengungkapan informasi sosial.

2.5. Kerangka Konseptual

Berdasarkan latar belakang masalah dan tinjauan pustaka diatas maka kerangka konseptual penelitian adalah sebagai berikut: Variabel Independen Variabel Dependen Ukuran Dewan Komisaris KOM Tingkat Leverage LEV Ukuran Perusahaan SIZE Profitabilitas PM Jumlah Informasi Sosial yang Diungkapkan IS Menurut Coller dan Gregory dalam Sembiring 2005, ada hubungan positif antara ukuran dewan komisaris dengan jumlah informasi sosial yang diungkapkan perusahaan. Tekanan terhadap manajemen untuk mengungkapkan informasi sosial akan bertambah besar dengan semakin besarnya ukuran dewan komisaris. Berbagai penelitian seperti Belkaoui dan Karpik 1989, Hackston dan Milne 1996, dan Sembiring 2005 menemukan hubungan positif antara ukuran perusahaan dengan pengungkapan informasi sosial. Hal ini dikaitkan dengan pendapat bahwa perusahaan besar merupakan emiten yang banyak disoroti, pengungkapan yang lebih besar merupakan wujud tanggung jawab sosial perusahaan. Jensen dan Meckling 1976 serta Schipper 1981 menyatakan adanya hubungan positif antara tingkat leverage dan junlah informasi sosial. Schipper 1981 berpendapat bahwa tambahan informasi diperlukan untuk menghilangkan keraguan pemegang obligasi terhadap dipenuhinya hak-hak mereka sebagai kreditur. Belkaoui dan Karpik 1989 menyatakan sebaliknya, bahwa semakin tinggi tingkat leverage rasio utangekuitas semakin besar kemungkinan perusahaan akan melanggar perjanjian kredit sehingga perusahaan akan berusaha untuk melaporkan laba sekarang lebih tinggi, salah satunya dengan mengurangi biaya yang dibutuhkan untuk pengungkapan informasi sosial. Secara teoritis, menurut Heinze 1976 dalam Hackston Milne 1996 terdapat hubungan positif antara kinerja ekonomi suatu perusahaan dengan pengungkapan tanggung jawab sosial. Sebaliknya, seperti dinyatakan oleh Donovan dan Gibson 2000 dalam Sembiring 2005, profitabilitas berpengaruh negatif terhadap pengungkapan tanggung jawab sosial perusahaan.

2.6. Hipotesis

Berdasarkan perumusan masalah dan kerangka konseptual di atas, maka hipotesis penelitian ini adalah: ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas memiliki pengaruh terhadap jumlah informasi sosial yang diungkapkan baik secara simultan maupun secara parsial.

3. Metode Penelitian

Jenis penelitian yang dilakukan adalah penelitian asosiatif kausal. Menurut Sugiyono 2006:11 penelitian asosiatif kausal adalah “penelitian yang bertujuan untuk menganalisis hubungan antara satu variabel dengan variabel lainnya atau bagaimana suatu variabel mempengaruhi variabel lain”. Populasi penelitian ini adalah seluruh perusahaan sektor manufaktur yang telah terdaftar listing di Bursa Efek Jakarta pada tahun 2007. Sampel dipilih dengan metode purposive sampling, yaitu mengambil sampel yang telah ditentukan sebelumnya berdasarkan maksud dan tujuan penelitian. Peneliti menetapkan dua kriteria pengambilan sampel, yaitu: 1. perusahaan-perusahaan yang menjadi sampel adalah perusahaan yang mempublikasikan laporan keuangan lengkap termasuk catatan atas laporan keuangan dan laporan tahunan melalui situs Bursa Efek Indonesia, 2. perusahaan-perusahaan yang menjadi sampel adalah perusahaan yang mengungkapkan informasi sosial melalui laporan tahunannya. Data yang dikumpulkan berupa data kuantitatif, yaitu data yang diukur dalam suatu skala numerik. Sumber data penelitian ini merupakan data sekunder, berupa laporan keuangan dan laporan tahunan yang dipublikasikan di Pusat Referensi Pasar Modal Bursa Efek Indonesia untuk tahun 2007. Variabel dependen dalam penelitian ini adalah jumlah pengungkapan informasi sosial, yang dinyatakan dalam indeks pengungkapan informasi sosial yang diungkapkan oleh perusahaan dalam laporan tahunannya. Penghitungan indeks pengungkapan informasi sosial akan dilakukan sesuai dengan kategori informasi sosial menurut Darwin 2004. Variabel- variabel independen, yaitu faktor-faktor yang akan diuji pengaruhnya terhadap kebijakan perusahaan dalam melakukan pengungkapan informasi sosial adalah ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas.

4. Metode Analisis Data

4.1. Pengujian Asumsi Klasik

Metode analisis data yang digunakan adalah model analisis regresi berganda dengan bantuan software SPSS for Windows. Penggunaan metode analisis regresi dalam pengujian hipotesis, terlebih dahulu diuji apakah model tersebut memenuhi asumsi klasik atau tidak. Pengujian meliputi uji normalitas, uji multikolinearitas, uji heteroskesdastisitas dan uji autokorelasi.

4.1.1. Uji Normalitas

Uji Pengujian ini dimaksudkan untuk mengetahui apakah dalam model regresi, variabel pengganggu atau residual mempunyai distribusi normal. Berdasarkan hasil uji statistik dengan model Kolmogorov-Smirnov seperti yang terdapat dalam lampiran 2 dapat disimpulkan bahwa data berdistribusi normal. Hal ini dapat dilihat dari nilai Asymp.Sig 2- tailed adalah 0.7140.05.

4.1.2. Uji Multikolinearitas

Pengujian bertujuan mengetahui ada tidaknya multikolinearitas antar variabel-variabel independen. Model regresi yang baik seharusnya tidak terjadi korelasi antara variabel independen. Deteksi dilakukan dengan melihat nilai VIF Variable Inflation Factor dan toleransi. Semua variabel independen memiliki VIF sekitar 1, atau VIF10. Selain itu nilai toleransi untuk setiap variabel independen lebih besar dari 0,1 tolerance0,1 Dengan demikian disimpulkan tidak ada multikolinearitas dalam model regresi ini.

4.1.3. Uji Heteroskesdastisitas

Uji heteroskedastisitas bertujuan menguji terjadinya perbedaan variance residual suatu periode pengamatan ke periode yang lain. Setelah diuji dengan grafik scatterplot dapat dilihat bahwa tidak ada pola yang jelas, serta titik-titik menyebar di atas dan di bawah 0 pada sumbu Y, maka dapat disimpulkan tidak terjadi heteroskedastisitas pada model regresi ini.

4.1.4. Uji Autokorelasi

Uji ini bertujuan untuk melihat apakah dalam suatu model linear ada korelasi antar kesalahan pengganggu pada periode t dengan kesalahan periode t-1 sebelumnya. Dari tabel Durbin-Watson dapat dilihat bahwa untuk jumlah sampel sebanyak 33 dan variabel bebas sebanyak 4 maka D l = 1.19 dan D u = 1.73. Maka nilai D-W berada di antara 4- D u dan D l 2,271,8581,19. Hal ini bermakna bahwa tidak terjadi autokorelasi dalam model regresi.

4.2. Koefisien Korelasi dan Koefisien Determinasi Goodness of Fit

Nilai koefisien korelasi R menunjukkan seberapa besar korelasi atau hubungan antara variabel-variabel independen dengan variabel dependen. Koefisien korelasi dikatakan kuat jika nilai R berada di atas 0,5 dan mendekati 1. Adapun koefisien determinasi goodness of fit, yang dinotasikan dengan merupakan suatu ukuran yang penting dalam regresi. Determinasi mencerminkan kemampuan model dalam menjelaskan variabel dependen. Nilai koefisien korelasi R sebesar 0,626 berarti bahwa korelasi antara variabel dependen dengan variabel-variabel independennya adalah kuat dengan didasarkan pada nilai R yang berada di atas 0,5. Nilai Adjusted R Square menunjukkan nilai 0,305, artinya keempat variabel independen dalam penelitian yaitu ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas dapat menjelaskan 30,5 dari jumlah informasi sosial yang diungkapkan. Adapun sisanya dijelaskan oleh sebab-sebab lain di luar model.

4.3. Pengujian Hipotesis

Dari hasil analisis regresi, didapat F-hitung adalah 4,513 dengan signifikansi sebesar 0,006 p = 0,006; p 0,05. Adapun nilai F tabel untuk α = 0,05 dengan pembilang sebesar 4 dan penyebut sebesar 32 adalah 2,67. Maka diperoleh bahwa F hitung F tabel 4,513 2,67. Dengan demikian dapat disimpulkan bahwa jumlah informasi sosial yang diungkapkan dalam laporan tahunan dipengaruhi secara simultan atau bersama-sama oleh ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas. Dari hasil uji t dapat diperoleh model persamaan regresi berganda sebagai berikut: IS= -0,335 + 0,034KOM + 0,051 LEV + 2,480 PM + 0,025 Ln_SIZE Setelah diuji melalui uji t, dapat diketahui pengaruh masing-masing variabel independen terhadap variabel dependen. a. Ukuran dewan komisaris memiliki nilai signifikansi sebesar 0,045 yang berarti nilai ini lebih kecil dari 0,05, sedangkan nilai t hitung diperoleh sebesar 2,104. Nilai t hitung ini lebih besar dari nilai t tabel sebesar 2,0395 2,104 2,0395. Maka disimpulkan bahwa ukuran dewan komisaris memiliki pengaruh signifikan terhadap jumlah informasi sosial yang diungkapkan. b. Tingkat leverage memiliki nilai signifikansi sebesar 0,205 yang berarti nilai ini lebih besar dari 0,05, sedangkan nilai t hitung diperoleh sebesar 1,296. Nilai t hitung ini lebih kecil dari nilai t tabel sebesar 2,0395 1,296 2,0395. Maka disimpulkan bahwa tingkat leverage tidak memiliki pengaruh signifikan terhadap jumlah informasi sosial yang diungkapkan. c. Ukuran perusahaan memiliki nilai signifikansi sebesar 0,307 yang berarti nilai ini lebih besar dari 0,05, sedangkan nilai t hitung diperoleh sebesar 1,040. Nilai t hitung ini lebih kecil dari nilai t tabel sebesar 2,0395 1,040 2,0395. Maka disimpulkan bahwa ukuran perusahaan tidak memiliki pengaruh signifikan terhadap jumlah informasi sosial yang diungkapkan. d. Profitabilitas memiliki nilai signifikansi sebesar 0,026 yang berarti nilai ini lebih kecil dari 0,05, sedangkan nilai t hitung diperoleh sebesar 2,355. Nilai t hitung ini lebih besar dari nilai t tabel sebesar 2,0395 2,355 2,0395. Maka disimpulkan bahwa profitabilitas memiliki pengaruh signifikan terhadap jumlah informasi sosial yang diungkapkan.

4.4. Pembahasan Hasil Analisis

Hasil analisa statistik menunujukkan bahwa secara simultan, variabel ukuran dewan komisaris, tingkat leverage, ukuran perusahaan dan profitabilitas secara bersama-sama memiliki pengaruh terhadap jumlah informasi sosial yang diungkapkan sebesar 30,5 Adjusted =0,305. Sisanya sebesar 69,5 dipengaruhi oleh variabel lain di luar variabel yang digunakan. Tingkat Adjusted yang rendah ini menunjukkan perlunya dilakukan penelitian lanjutan dengan menambahkan variabel lain sebagai penduga pengungkapan tanggung jawab sosial perusahaan. Walaupun demikian, apabila dilihat dari signifikansinya, secara simultan variabel yang digunakan berpengaruh secara signifikan dengan nilai F hitung sebesar 4,513 yang lebih besar dari F tabel 4,513 2,67 dan p = 0,006 p 0,05. Dalam pengujian secara parsial ditemukan bahwa dua variabel independen yaitu ukuran dewan komisaris dan tingkat profitabilitas memiliki pengaruh signifikan terhadap jumlah informasi sosial yang diungkapkan, sedangkan dua variabel independen lainnya yaitu tingkat leverage dan ukuran perusahaan memiliki pengaruh yang tidak signifikan.

5. Kesimpulan dan Saran

5.1. Kesimpulan