(ICMD) 2008, 2009, 2010, 2011, and registered in the website Indonesia Stock ..... indicators representing economic performance, however Rockness et al.
CSR Disclosure, Corporate Reputation, Environmental Performance and Effect on Corporate Financial Performance in Indonesia Perspective Agus Ismaya Hasanudin *, Elvin Bastian *, Munawar Muchlish* * Accounting Department, Economic Faculty Sultan Ageng Tirtayasa University Jl. Raya Jakarta Km 4, Pakupatan, Serang, Banten.42117. Indonesia
Abstract The purpose of this study was to investigate the disclosure of CSR, Corporate Reputation, Environmental Performance and its effect on the financial performance of the company The population in this study are listed manufacturing companies (Go public) Indonesia Stock Exchange as specified in Indonesian Capital Market Directory (ICMD) 2008, 2009, 2010, 2011, and registered in the website Indonesia Stock Exchange (www.idx.co.id). Then for a sample selected from companies manufacturing consumer goods industry sectors listed on the Stock Exchange, there are 50 companies that consistently deliver annual reports consistently. Path analysis testing the hypothesis by using SPSS version 19. The results of this study stated that the CSR had no effect on the Financial Performance and CSR affects the Environmental Performance Environmental Performance and Financial Performance to be more influenced. Furthermore, the Company's reputation and Environmental Performance able to mediate the effect of the CSR on Financial Performance. Keywords: CSR, Corporate Reputation, Environmental Performance and Financial Performance.
1. BACKGROUND Any company that has set the same goal, which is to obtain maximum profit to increase the prosperity of the owner. In economic decision making, business people need information about the company's improved financial performance. Therefore, each manager has a responsibility to maximize profits becomes the dominant indicator of the financial performance for the company's survival (Friedman, 1962). Financial performance information is useful for stock holders to classify or predict the prospects of the business. (Wang, 2008). Galbreath (2006) empirically proved that financial ratios can be used as predictors of progress or failure of the company, though not all ratios to predict the same level of success. Financial ratios are used as a prediction the company aims return (Rate of return) for investment firms to improve efficiency in the operations, so the ability to make a profit can be increased, which in turn can avoid the possibility of bankruptcy (liquidated) in the company (Neville, 2005). The results Freeman (1984) has extended the understanding of the company's focus on stockholder to stakeholder that have to be considered taking into account the interests of the company stakeholder from a strategic perspective. The stakeholder This includes stock holders, managers, employees, creditors, suppliers, retailers, consumers, government, and
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2 society. Model Freeman (1984) that became known as stakeholder theory. This theory explains that as an actor stakeholders that influence and are influenced by corporate companies. This theory is also strengthened by the leaders of organizational behavior theory (Lawrence and Lorsch, 1967), institutional theory (Di Maggio and Powell, 1983) and ecology (Hannan and Freeman, 1977) that investigated the impact of the external environment on the success of the company structure and continuity life. In return, the attention of the stakeholder more focused on the interests of companies that reduce the cost of opportunism behavior, incentives and oversight. These factors will help the company establish stable cooperation with stakeholders, which will reduce the risk of corporate decline. Moneva (2007) suggested that in order to build and improve communication with stakeholders, companies must be able to evaluate the effects of the company's operational activities such as social and environmental factors in which the global market competitiveness showed a new opportunity to enhance competitive advantage by demonstrating effective environmental management and the design of environmentally friendly products. One key to success lies in the development of market mechanisms to evaluate the environmental and social impacts, implementing performance improvement strategies and publishing the results in the management of the company report. Researchers in the field of accounting has been suggested there is a correlation between the performance of this with the external environment which has resulted in a separate stream of literature that Corporate Social Responsibility (CSR) (Carroll, 1979; Sethi, 1979). The direction of the research is based on the development of basic logic to identify the behavior of companies, namely CSR1 (responsibility), CSR2 (response) and CSR3 (honesty). CSR1 present management of the company, charity and philanthropy as an obligation for the members of the community (Frederick, 1994); CSR2 presents the company's response as a way to manage the demands of society (Frederick, 1994; Carroll, 1979; Sethi, 1979) and CSR3 suggests that normative or ethical component should guide corporate behavior (Frederick, 1998; Wood, 1991). This theoretical flow continues to focus on the nature of the relationship between business and the external environment. Frederick (1994) defines the concept of corporate social responsibility as the orientation of the action / response managerial social enterprises in other words of moral contemplation for responsive action (Litz, 1996). This argument is corroborated by Thorne (1993) which states that the publication of the report of 131 companies, 96 of which contain information treatment response drastically increased responsibility on financial performance. Successful implementation CSR getting v the expected result for the effort in the form of financial ratios are high (Sweeney, 2009). Research Pfeffer (1978) suggests that environmental conservation efforts and sensitivity to the social aspects of the company will bring a number of benefits in the form of interest of stakeholders or shareholders. Orlitzky et al (2003) added that based on 30 years of research from 52 previous studies using the technique of meta-analysis supports the proposition that corporate social performance and corporate financial performance is positively correlated and statistically significant. Interestingly, the meta-analysis found a high correlation between financial performance and corporate management of the performance impact of social and environmental performance. In addition to offering the success of the business and financial performance over the long term, treatment with the company's social responsibility efforts and the environment is suspected to boost brand image and reputation (Shiun Lai, 2010; Dowling, 2002). The company's reputation is a public view on companies that assessed whether or not that is seen globally over things like openness, and other qualities that can be regarded as the views over the steps the company. Reputation is a intangible asset or goodwill companies that have a positive effect on the market valuation of the company (Deephouse, 2000). Reputable
3 companies capable of causing the trust, confidence and support than companies with a bad reputation (Dowling, 2002). Resource based view (RBV) argues corporate reputation alerting stakeholders about the appeal of the company, which then are more willing to make a contract more (Litz, 1996; Deephouse, 2000). Therefore, not surprisingly in several studies that discuss the company's reputation with financial performance has shown a positive relationship, this is because the reputation of the company is considered as an important factor for growing its customer loyalty and strength for difficult to imitate by competitors (Brammer & Millington, 2005 ; Sweeney, 2009). According to Curran (2005), CSR is a key component of the company's reputation in achieving good financial performance. The company considered socially responsible can benefit from enhanced reputation with the publication, and its reputation in the business community enhance the company's ability to attract capital and trading partners. Neville et al (2005) which identifies a reputation as a variable (intervening) Intermediary between CSR and financial performance, stating that the reputation of successfully brokering relationships and reinforcing corporate evaluation with stakeholders in influencing the success of the company. Darnall et al (2005) in research on the evaluation of the relationship between environmental performance and financial performance control for endogeneity associated with improved environmental performance based on survey data from manufacturing operations in Canada, France, Germany, Hungary, Japan, Norway, and the United States by utilizing simultaneous equations techniques. Darnall (2005) states increase the environmental performance of facilities also increases the probability of the value of investment returns and vice versa strict environmental policy regime reduces the chance of corporate finance. Itemtem environmental disclosure and environmental performance continues to grow and each country has its own terms, so that the social and environmental accounting researchers suggest the need for further research and for the continuous development of CSR topics (Sweeney, 2009). In Indonesia, the success rate was evaluated by the management of the Ministry of Environment (MOE), which is an independent party between external management company and the agent so that the report presented KLH on agent performance more transparent and accountable (Daniri, 2007). To measure the financial performance of the company, KLH use environmental performance rating carried by the PROPER (Program Assessment Rating on Corporate Environmental Management), which is an instrument to measure the level of compliance was based regulations (MOE, 2010) PROPER is a routine activity conducted by the Ministry of Environment (MOE), which since 2002 in the field of environmental impact control to enhance the company's role in environmental conservation programs. PROPER Through a company's environmental performance is measured by using colors, ranging from the best gold, green, blue, black and red to worst. The results of this program was announced to the public on a regular basis so that the public can determine the level of compliance with environmental management in companies with just looking at the existing color (MOE, 2010). The results of empirical studies supports a contribution to some researchers the industry's environmental performance is positively related to financial performance can be concluded that the external recognition of the company in environmental performance can increase the interest of potential buyers (Moneva et al, 2007; Al Tuwaijri, 2003). Based on the facts described above, this study will investigate the relationship of CSR disclosure, corporate reputation, environmental performance and financial performance. This study will focus on the manufacturing industry have been listed on the Indonesia Stock Exchange (BEI=Bursa Efek Indonesia). He picked up the object on the manufacturing
4 industry due to the operation of the manufacturing sector is closely related to the environment and has the potential for a large environmental impact, in addition to selected industries in BEI due to both size and in terms of registered capital for an industry go public in BEI relatively large and have an obligation to express their CSR activities in the financial statements (Act 40 of 2007; MOE, 2010). 2. THEORETICAL DEVELOPMENT AND HYPOTHESES 2.1 Theory Stakeholders (Stakeholders Theory). Stakeholder theory has emerged as an alternative theory of ownership (shareholders) and an explicit comparison of the stakeholder theory which recognizes the fact that the company has a group of those who have the interests of the company's activities and is the company's obligation and responsibility to pay attention and respect the rights of they (Sweeney, 2009). In essence, the theory stakeholder is a rhetorical response to the financial theories assert that the company only focuses on maximizing the economic interests of shareholders (Orts and Schulder, 2002). Shareholders is just one of many stakeholders in the company, thereby realizing stakeholder theory of the need to balance the rights of shareholders and stakeholders. Jones (1995) in a study outlining stakeholders are divided into two categories, namely: Inside stakeholders (Made up of people who have an interest dantuntutan to resources inside the company as well as organization companies) and Outside stakeholders, composed of people and parties bukanpemilik company, not the leader of the company, nor the employees companies, but have a sense ofntingan the company and affected by the decisions and actions taken by the company. Freeman (1984) is the first academic researcher who proposed the theory of assessing the role of stakeholders in corporate environments. His research focuses on highlighting the flow of internal and external actors other companies affected by the company's activities in addition to the stock holders suggested in the economic model. A descriptive stakeholder theory is to explain the characteristics and behavior of a particular company (Cooper et al, 2001), so that the company describes as a constellation of cooperative and competitive power that has intrinsic value. Jones (1995) suggest that stakeholder management as a source of competitive advantage, as the contract between the organization and its stakeholders based on trust and cooperation and therefore cost less will be required to monitor and enforce such contracts. Clarkson (1995) argues that the failure to maintain the participation of major stakeholder groups will lead to failure of the system and the company's ability to continue business (going concern). 2.2 Legitimacy Theory In addition to stakeholder theory is used as the motivation of the treatment of corporate social responsibility, there is a general theory as a CSR-based research supporting the theory of legitimacy (Deegan 2002). Indeed, over the last decade it is likely that legitimacy theory is the most widely used theory to explain social and environmental disclosure (Campbell, Craven and Shrives, 2003). In view of Gray (1995), legitimacy theory has an advantage over other theories in this case provides disclosure strategy adopted by organizations to legitimize their existence were tested empirically. On the basis of these arguments, this study adopts the theory of legitimacy as a theoretical perspective for the purpose of explaining the variation in CSR than stakeholder theory. Legitimacy theory comes from the concept of organizational legitimacy, which argues that the organization continues to strive to ensure that they operate within the bounds and norms of society. In adopting a legitimacy theory perspective, firms will voluntarily report on activities if management felt that the event was expected by the society in which it operates (Deegan 2002; Cormier and Gordon 2001). Legitimacy theory relies on the idea that there is a
5 social contract between the company and the communities in which it operates (Deegan 2000). 2.3 Corporate Social Responsibility (Corporate Social Responsibility) Corporate social responsibility (CSR) recently became the subject of increasing academic attention. While social responsibility is thought to have figured in the commercial life for centuries, the pressure of the modern era has been placed on the companies play a more explicit role in the welfare of the community. 1971, Committee for Economic develeopment (CED) issue Social Responsibilities of Business Corporation and considered as Code of conduce Business. The basic objective of the business is to provide services to meet the needs constructive and community satisfaction. CED formulate CSR to describe in concentric circles (Elkington, 1977). Inner circle is the basic responsibility of the company to the implementation of effective policies on economic considerations, describes the center circle for more corporate responsibility towards social values and social priorities that apply in determining which policies will be taken, and the outer circle describes the social responsibility that might come up along with the increasing role of the company in relation to society and the environment (Sweeney, 2009). The era of the 90's decades marked by the implementation of earth summit in Rio De Janero (Brazil) in 1992, followed by 172 countries with the main theme of the discussion was the environment and sustainable development. The meeting resulted in Agenda 21, RIO Declaration and several other agreements. The end result of this meeting emphasized the importance of broadly eco-efficiency as the main principle of doing business and running a government (Sweeney, 2009). Corporate social responsibility or CSR is not just a charity, CSR requires a company's decision-making in order to seriously take into account the effect of all stakeholders in the company (stakeholder) As well as the surrounding environment. This requires the company to make a balance between desired by stakeholder in making a profit and providing adequate rewards to the stock holders (Sweeney, 2009). 2.4 Hypothesis Development A. CSR and Reputation Relationships In a highly competitive market environment, many companies have used CSR as a strategic tool to respond to the expectations of various stakeholders such as the media, public opinion, NGOs and even consumers, to thereby create a good corporate image (Jones, 2005). According to Sweeney (2009) CSR is a key component of achieving the company's reputation. A company is considered to have or hold the reputation of the results of the CSR activities to benefit from that reputation in the business community, enhance the company's ability to attract capital and trading partners (Shiun Lai, 2010). McWilliams et al. (2000) suggests that CSR should be considered as a form of strategic investments that can be seen as a form of building or maintaining a reputation. On the other hand, Fombrun (2005) proposed an increase in the company's reputation as an extrinsic motivation for companies to engage in CSR activities. CSR News published the company has a positive effect on the recognition of the company's reputation and it would appear that a reputation for socially responsible behavior can be one of the values that differentiate the company from its competitors (McWilliams, 2001; Shiun Lai, 2010). By giving a signal to consumers about the quality of the product, favorable reputation can allow a company to be a superior product in the market (Sweeney, 2009). Shiun Lai (2010) has found in his research results in the application of CSR commitments positive influence on the creation of the company's brand reputation, in addition to Sweeney (2009) also have found CSR activities have a positive impact on business and social reputation. Therefore, the relationship of CSR and reputation hypothesized in this study:
6 H1 :Corporate Social Responsibility (CSR) a significant effect on the reputation of Company B. Relations CSR and Environmental Performance Building relationships between CSR disclosure of environmental performance is very important given the company's obligation to the external stakeholders that preserve the environment which is the habitat for the surrounding community. The study of Al-Tuwaijri (2003) is find a significant positive relationship between environmental disclosure with environmental performance reinforce the notion that CSR disclosure in line with the performance of the resulting particularly in terms of the environment. Freedman (1990) using the method of Wiseman to evaluate emerging environmental disclosures in the annual report also recognizes that there is a significant relationship between environmental disclosure and environmental performance, as measured by performance evaluation of CEP. Ingram and Frazier (1980) which compared the rating analysis of environmental disclosures appearing in the company's annual report, known as the CEP, found no significant relationship between environmental disclosure and environmental performance. The relationship between CSR disclosure and environmental performance Top of Formbeen analyzed by VerrecShiun Laia (1983) which states that good environmental performance will reduce the company's exposure to future environmental costs, the disclosure of this information should be considered as a signal of good news by investors who act as internal stakeholders. In summary, previous studies have not found a consistent significant association between CSR disclosure and environmental performance. H2 :Corporate Social Responsibility (CSR) a significant effect on performance Environment C. Relations Corporate Reputation and Financial Performance Many large companies, especially in the consumer sector, highly dependent on the brand name and reputation for their long-term (Murray, 2003). Hollender and Fenichell (2004) reported on a survey of 132 leading global companies that found 77% believe reputation have become important in recent years. Roberts and Dowling (2002) found that firms with a relatively good reputation will be better able to maintain profit superior from time to time. Deephouse (2000) in Sweeney (2009) defines as an evaluation of the company's reputation with stakeholders in terms of their influence, self-esteem and knowledge essential to the success of the company's reputation (Roberts et al, 2002; Jayne and Skerratt, 2003). Research Brammer and Millington (2005) showed a positive and significant relationship between corporate reputation and financial performance of the company, other than that Neville et al (2005) also suggested that a reputation as an intermediary variable between CSR and financial performance. H3 :Reputation firms significantly influence the financial performance of the company D. Relations Environmental Performance and Financial Performance of the company Research Bragdon & Marlin (1972) the starting point for the flow of literature that highlights the pollution reduction and profitability, that found a positive relationship between profitability, measured denngan earnings per share (EPS) and return on equity with a rating of environmental performance evaluation using the Counsel on Economic Priorities (CEP) in the paper and pulp companies. The results showed that all the signs are in the hypothesized direction in research, but only the correlation coefficient for the size, systematic risk, and the ratio of stock prices is statistically significant.
7 Rockness et al. (1986) examined the disposal of hazardous waste in the chemical industry's environmental performance using data from a special survey submitted to the U.S. Congress in 1979. Testing the link between the two variables sewage and 12 financial indicators representing economic performance, however Rockness et al. (1986) failed to document a statistically significant association. Freedman and Jaggi (1992) also investigated the long-term relationship between environmental performance and economic performance, which uses the percentage change in three measures of pollution as an empirical proxy for environmental performance and other accounting ratios for economic performance, each failed to reject the null hypothesis of no significant relationship. In short, the relationship between environmental performance and economic performance established theoretical support showed inconsistent relationships. H4 :Significant effect on the environmental performance of the company's financial performance E. Relations CSR and Corporate Financial Performance Jorgensen (2005) expressed the opinion that the area of the relationship between CSR and financial performance is the most questionable of CSR expectations. While many studies support a positive point light (Orlizky et al, 2003), this relationship has not been fully recognized and the mechanisms through which financial performance is enhanced by CSR is not well understood (Doh et al, 2009). Several studies regarding the financial impact of CSR continues to roll and the task of identifying the relationship between CSR and financial performance has been proven to be a very important and very difficult (McGuire et al, 1988). Business leaders are always questioning and often instructs spending programs that can not be shown to have a positive effect on the bottom line, which is especially prominent in the current economic environment. In short, they found a positive or negative relationship between CSR and financial performance showed inconsistent so as to provide more insight into the relationship between CSR and financial performance following hypothetical: H5 : Corporate Social Responsibility (CSR) a significant effect on financial performance 3. METHODS A. Sampling The population in this study are listed manufacturing companies (Go public) Indonesia Stock Exchange as specified in Indonesian Capital Market Directory (ICMD) 2008, 2009, 2010, 2011, and registered in the website Indonesia Stock Exchange (www.idx.co.id). Then for a sample selected from companies manufacturing consumer goods industry sectors listed on the Stock Exchange. The reason is because the company manufacturing consumer goods industries have the greatest contribution in bringing about social problems such as pollution, safety, products and labor. The number of companies manufacturing consumer goods industry sectors listed on the Stock Exchange from 2008 to 2011 is 50 companies. Then based penyampaikan annual report by industrial firms according ICMD consumer goods sector from 2008 to 2011 found only 50 companies submitting annual reports consistently. That the sample used for the research object is 50 companies divided into 5 sub categories of consumer goods industry, the Food and Beverages, Cigarettes, Drugs, Cosmetics, and Home Appliances. B. Measurement of Variables 1) Corporate Social Responsibility (CSR)
8 This variable is measured by GRI (Global Reporting Initiative), Which consists of three focal disclosure, namely economic, environmental and social as sustainability reporting. Researchers used the 30 items with a maximum value of disclosure 1. Researchers used the GRI because more comprehensive in assessing a company's CSR activities by using focused disclosure, namely the environment. Since at least the company in Indonesia, which reported its environment activities in the form of sustainability reporting, So in this study is limited to data contained in the company's annual report CSDI calculation is done using dichotomous approach, ie each item in CSR research instrument was given a value of 1 if disclosed, and the value 0 otherwise disclosed. Furthermore, the score of each item are summed to obtain the overall score for each company Sayekti and Wondabio (2007). CSDI calculation formula is as follows:
Where: CSDIj: Corporate Social Responsibility Disclosure Index firm j nj: number of items for firm j, nj = 79 Xij: 1 = if the item I disclosed; 0 = if the item I was not disclosed Thus, 0
