Introduction. During the past 20-30 years there has been a growing public awareness of the role of corporations in society. Many of the firms which have been ...
Some determinants of social and environmental disclosures in New Zealand companies David Hackston
Determinants of disclosures in NZ companies 77
KPMG, Wellington, New Zealand, and
Markus J. Milne University of Otago, Dunedin, New Zealand Introduction During the past 20-30 years there has been a growing public awareness of the role of corporations in society. Many of the firms which have been credited with contributing to economic and technological progress have been criticized for creating social problems. Pollution, resource depletion, waste, product quality and safety, the rights and status of workers, and the power of large corporations are issues which have become the focus of increasing attention and concern (Gray et al., 1987, p. 1). Pressures from a variety of sources have come to bear on the private sector to accept responsibility for impacts on society from business activities. Companies are being urged to become accountable to a wider audience than shareholder and creditor groups. Friedman’s (1962) doctrine that the only social responsibility of business is to maximize profits is not universally accepted. Studies have documented a growing awareness on the part of business executives that business has an obligation to help society, even if it means less profit (Holmes, 1976; Ostlund, 1977). The growth in awareness of corporate social responsibility has added to the criticisms of the use of profit as an all-inclusive measure of corporate performance. In response, some major accounting institutions (AICPA, NAA, ICAEW) began to consider corporate social accounting in the mid 1970s (Ramanathan, 1976). Progress has been slow and sporadic at best, however. Accounting researchers have also begun to articulate different theoretical perspectives in support of corporate social accounting, including agency theory, legitimacy theory, political economy of accounting theory and stakeholder theory (see, for example, Belkaoui and Karpik, 1989; Gray et al., 1987, 1988, 1995a; Guthrie and Parker, 1990; Patten, 1991, 1992; Roberts, 1992). The authors would like to thank Kate Brown, Ralph Adler, Alan Macgregor and an anonymous reviewer from the First Asian Pacific Interdisciplinary Research in Accounting Conference, Sydney, 1995, for comments on earlier drafts. In addition, Carol Adams and two anonymous reviewers are expressly thanked for comments on later drafts. All errors remain the responsibility of the authors. Correspondence on this paper should be addressed to Markus J. Milne, Fax: 64 3 4798450.
Accounting, Auditing & Accountability Journal, Vol. 9 No. 1, 1996, pp. 77-108. © MCB University Press, 0951-3574
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To date, however, there still exists no universally accepted theoretical framework of corporate social accounting (Belkaoui and Karpik, 1989; Gray et al., 1995a; Guthrie and Mathews, 1985). Despite the lack of consensus in the accounting profession and the theoretical accounting literature about why companies disclose social responsibility information, an increasing number of companies are voluntarily disclosing their social responsibility activities in their annual reports. Corporate social disclosure (CSD) can be defined as the provision of financial and non-financial information relating to an organization’s interaction with its physical and social environment, as stated in corporate annual reports or separate social reports (Guthrie and Mathews, 1985). CSD includes details of the physical environment, energy, human resources, products and community involvement matters (see Appendix). The purposes of the present study are to provide an up-to-date description of New Zealand companies’ CSD practices in the light of documented overseas’ CSD practices; examine some potential determinants of social disclosures in New Zealand companies; and examine the research analysts’ choice of measurement technique of CSD on any relationships found. By replicating overseas studies using similar sampling and measurement techniques, this study provides a benchmark of New Zealand disclosure practices from which further work can proceed. Further, by using multiple measures for various variables, the robustness of any relationships found can be rigorously assessed. Before proceeding to test explanations for why companies make social disclosures, it is important that empirical research establish the existence and reliability of its measured evidence (Lindsay, 1995). Prior literature Patterns of CSD Most empirical studies to date provide a descriptive basis from which a number of disclosure patterns have emerged. Further studies have also found associations between several corporate characteristics and CSD. These studies are now reviewed before proceeding to an examination of New Zealand disclosure practices. Most empirical studies on CSD practices have focused on the USA, the UK, and Australia. A little work has also been done with other countries including Canada, Germany, Japan, New Zealand, Malaysia and Singapore[1]. Much of the empirical research into US practices has tended to utilize the extensive survey evidence of Ernst & Ernst (1978). This study is now somewhat out of date, and only Guthrie and Parker (1990) provide more recent survey evidence on US practices. Gray et al. (1987, 1995a) provide survey evidence on the UK, with the later study including every year from 1979 to 1991. Surveys of Australia include Trotman (1979) and Guthrie (1983). Two surveys by Davey (1982) and Ng (1985) have provided some descriptions of CSD in New Zealand. Table I provides a summary of the survey evidence. Results from the present study are shown for comparative purposes and discussed later. The Table
53 75 35 43 63
57
Human resources 47
33
59
33
24
Community
General/other
Notes:
e
d
c
b
a
Energy
Products
0
96
2
10
98
14
0.89
5
10
1
4
65
7
0.5
72
15
62
15
10
100
75
2.0
100
18
29
4
0
93
21
0.7
56
50
6
11
7
4
34
17
0.68
56
50
Australia Guthrie and Guthrie and Parker (1983) Parker (1980)
83 0.75
23 79 40 6 30 19
100 300d
13 88 28 3 19 3
84 270d
13
16
0
3
66
6
50
32
32
New Zealand Davey Ng Hackstone (1982) (1985) Milne (1992)
Percentage of total sample of companies that made at least one social disclosure Guthrie and Parker’s 98 per cent incidence rate includes both mandatory and voluntary disclosures. When voluntary disclosures only are considered, the UK incidence rate is 56 per cent Average amount of disclosure to the nearest 100th of an annual report page for those companies making at least one social disclosure Average number of words Percentage of companies making at least one disclosure in that theme of the total sample of companies
Themee: Environment
0
1.26
N/A
9856
100
85
100
90
Amountc
b
50
50
500
Incidencea
Sample
UK Guthrie and Gray et al. Gray et al. Parker (1983) (1983) (1991)
USA Ernst & Guthrie and Ernst (1977) Parker (1983)
Survey country, study and year of study
Determinants of disclosures in NZ companies 79
Table I. International comparison of social disclosure studies
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indicates the incidence, nature and amount of CSD in the respective countries. All the figures relating to the incidence and nature of CSD are percentages. Except for Davey (1982) and Ng (1985), the amount of CSD is measured in average number of pages of CSD per company. A number of patterns emerge from the data in Table I: first, the incidence of CSD appears much higher in the USA, The UK, and New Zealand than in Australia. Guthrie and Parker’s 1983 UK result of 98 per cent, however, includes both mandatory and voluntary disclosures. When adjusted for only voluntary disclosures, they reported an incidence rate of 56 per cent for the UK. Gray et al.’s (1995a) reported figures for the UK are for voluntary disclosures only and, consequently, there is some difference between the two surveys for the 1983 UK results. Interestingly, Trotman’s (1979) survey of 100 Australian companies in 1977 (not shown in Table I) reported a higher 69 per cent incidence rate than Guthrie and Parker’s later 1983 study which reported 56 per cent. As most of the surveys shown in Table I sample the “top” companies rather than draw random samples, it may be that sampling technique and sample size influences incidence rates. Second, the pattern of ranking of CSD by theme, for companies which make CSD, appears reasonably consistent across all countries, with human resources, environment, and community receiving most attention. Energy and product themes, however, receive much more attention in the USA than in the other countries surveyed. The particularly high rate for the product theme in our own study was not expected, and is discussed later in the results section. Third, the amount of CSD is also reasonably consistent between companies in the USA, UK, and Australia. Measured in average pages per company, US companies do disclose more information than their UK or Australian counterparts. From Guthrie and Parker’s comparative study, however, these differences are not statistically significant. Again, some care is required in making comparisons across studies to sort out voluntary disclosure from totals of both mandatory and voluntary disclosure. Gray et al.’s (1995a) UK page amounts are for voluntary disclosure and compare to the Australian and New Zealand studies, where very little, if any, CSD is mandated. Guthrie and Parker’s UK and US page amounts are for both mandated and voluntary disclosures, and this may explain the difference in the 1983 UK results. Prior to this study, comparison with New Zealand companies was difficult because both Davey (1982) and Ng (1985) measured the amount of disclosure in average number of words per company. Some caution needs to be exercised in claims relating to patterns in disclosure practices from these survey data, however. The surveys were conducted in different time periods, involve different sample sizes, different methods, and different researchers. Moreover, as discussed below, a number of additional variables now appear to be associated with CSD, and the surveys have not controlled for these, either directly or by drawing random samples. As such, the data are not strictly comparable.
Corporate characteristics and CSD Determinants of Beyond the descriptive analyses, studies have begun to extend the empirical disclosures in CSD literature by focusing on a number of corporate characteristics which are NZ companies potential determinants of CSD practices. Studies have investigated the effects of company size, profitability, industry, country of ownership, reporting country, capital intensity, senior executive attitudes, company age, and the existence of 81 company social responsibility committees. In reviewing these studies, Gray et al. (1995a, pp. 49-50) tentatively conclude: • CSD is not related to profitability in the same period, but it may be related to lagged profits; • CSD does appear to be related to company size; • industry appears to affect CSD, but the studies are not clear or consistent enough to determine such effects precisely; • the country in which the company reports and the country of company ownership appear related to CSD. In addition, capital intensity, age, senior executive attitudes, and social responsibility committees may be related to CSD. Size An association between company size and CSD has been demonstrated in a number of empirical studies (see, for example, Belkaoui and Karpik, 1989; Cowen et al., 1987; Kelly, 1981; Pang, 1982; Patten, 1991, 1992; Trotman and Bradley, 1981). Both agency theory and legitimacy theory contain arguments for a size-disclosure relationship. In addition, larger companies undertake more activities, make a greater impact on society, have more shareholders who might be concerned with social programmes undertaken by the company, and the annual report provides an efficient means of communicating this information (Cowen et al., 1987). Not all CSD studies have supported a size-disclosure relationship, however. For example, Roberts (1992) found no relationship in a US sample. Similarly, in New Zealand, both Davey (1982) and Ng (1985) failed to support hypothesized associations between company size and CSD practices. Guthrie and Mathews (1985) suggest Davey’s and Ng’s results may have been due to the small sample used[2]. With sampling and analytical methods comparable to other studies, this study re-examines the impact of company size on CSD practices in New Zealand. Industry The nature of a company’s industry has been identified as a factor potentially affecting CSD practices. Dierkes and Preston (1977) contend that companies whose economic activities modify the environment, such as extractive industries, are more likely to disclose information about their environmental impacts than are companies in other industries. Consumer-oriented companies can be expected to exhibit greater concern with demonstrating their social responsibility to the community, since this is likely to enhance
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corporate image and influence sales (Cowen et al., 1987). Patten (1991), on the other hand, argues industry, similar to company size, influences political visibility and this drives disclosure to ward off undue pressure and criticism from social activists. Several empirical studies have found positive associations between industry classifications and CSD. In an Australian study, Kelly (1981) found that primary and secondary industry companies tended to disclose more environmental and energy-related information than corporations engaged in tertiary industries, while the opposite relationship was found for information relating to community interaction. In a study of US companies which was similar in design to Kelly’s, Cowen et al. (1987) found that industry category influenced energy and community involvement disclosures. Their results, however, clearly indicated that the incidence and total amount of CSD are not associated with industry category. Contrary to this finding, however, Patten (1991) and Roberts (1992) have found positive relationships between highprofile industries and the amount of corporate social responsibility disclosure. As for company size, both Davey (1982) and Ng (1985) failed to find an association between industry type and CSD for New Zealand companies. Again, industry type and CSD in New Zealand are re-examined. Corporate profitability The relationship between CSD and corporate profitability has been postulated to reflect the view that social responsiveness requires the same managerial style as that necessary to make a firm profitable (Bowman and Haire, 1976). CSD is believed to reflect an adaptive management approach to dealing with a dynamic, multidimensional environment and an ability to meet social pressure and respond to societal needs. Such management skills are considered necessary to survive in today’s corporate environment (Cowen et al., 1987). Heinze (1976), however, contends that profitability is the factor that allows management the freedom and flexibility to undertake and reveal to shareholders more extensive social responsibility programmes. Empirical research on the profitability-CSD relationship, however, has produced very mixed results. Both Bowman and Haire (1976) and Preston (1978) provide results which support a profitability-CSD relationship. Bowman and Haire (1976) report significant differences for a five-year average return on equity (ROE) between disclosing and non-disclosing companies. Preston reports a higher, single-year ROE for high disclosers than for other Fortune 500 companies. On the other hand, Cowen et al. (1987) failed to support any profitability-CSD relationship. Belkaoui and Karpik’s (1989) results for this relationship conflict and are difficult to interpret. They report a positive and significant pairwise correlation, and an insignificant, yet negative regression coefficient for ROA and disclosure. While Roberts (1992) has found evidence for a positive relationship between lagged profits and CSD, Patten (1991), using multiple measures of profitability including lagged measures, fails to find any relationship between profitability and CSD. Neither
Davey (1982) nor Ng (1985) could find evidence of a profitability-CSD relationship for New Zealand companies. Country of ownership and reporting country From Gray et al.’s (1995a) review, a number of studies seem to indicate that the country in which the company reports affects the theme of CSD, if not the amount of disclosure (see, for example, Guthrie and Parker, 1990). In addition, Andrews et al. (1989) report that the country of ownership may have some effect on CSD, although it is difficult to assess the reliability of this result since it appears to be confounded with company size. Since the study here is confined to New Zealand companies, the influence of country effects on CSD is not investigated. However, the study does offer some additional tentative insights into the ownership-CSD relationship. Although not an original intention of the study, companies with dual and multiple (overseas) stock exchange listings are investigated for their level of association with CSD amount. Whether any systematic relationships between CSD and the variables discussed above exist is open to question. Like the descriptive analyses, such relationships have been investigated in different time periods, employing different sampling and measurement techniques. Without systematic investigation using multiple measures and standardized techniques (replication studies), drawing firm conclusions about the existence of any such relationships is extremely difficult (Lindsay, 1995). Until such time as techniques are standardized, researchers need to be careful and explicit about what and how they make their measurements. In the light of such disparity, research studies in the CSD field would do well to establish the reliability of its evidence for any such relationships before moving on to tackle the issues of why such relationships occur. Method Sample design and data collection The annual reports from the largest 50 companies listed on the New Zealand Stock Exchange at 31 December 1992 were selected for this study. The “top” 50 is based on a size ranking of market capitalization as in Guthrie and Parker (1990), and therefore provides data for the international comparisons. Guthrie (1983) used a similar method for selecting his sample. The largest 50 companies comprised 92 per cent of the total market capitalization on this date. The 92 per cent figure is comparable with the amount of the Australian share market (90 per cent) included in Guthrie’s study. From the initial sample, two companies were removed as they had been listed on the exchange during the year and had not filed an annual report during the period. Another company was removed from the study as it was a foreign registered company and released its annual report to meet the reporting criteria of the UK. The UK reporting criteria make some CSDs compulsory. The final sample for this study comprised 47 companies.
Determinants of disclosures in NZ companies 83
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Measurement of variables Dependent variable – corporate social disclosure. Content analysis is used to measure corporate social responsibility disclosures. Content analysis is a method of codifying the text (or content) of a piece of writing into various groups (or categories) depending on selected criteria (Weber, 1988). Following coding, quantitative scales are derived to permit further analysis. Krippendorff (1980, p. 21) states that “content analysis is a research technique for making replicable and valid inferences from data according to their context”. In one form or another, the method has been widely adopted in previous social responsibility disclosure studies (see, for example, Abbott and Monsen, 1979; Ernst & Ernst, 1978; Guthrie and Mathews, 1985; Guthrie and Parker, 1990). To enable content analysis to be performed in a replicable manner, an interrogation instrument, checklist, and decision rules were developed. The interrogation instrument is shown in Figure 1 and the checklist is included in the Appendix. The interrogation instrument is used to record the amount of CSD in different categories. The instrument categories are constructed based on the earlier work of Ernst & Ernst (1978), Guthrie and Parker (1990), and Gray et al. (1995a) and include the dimensions of disclosure theme (environment, energy, products/consumers, community, employee/human resources, general/other); evidence (monetary quantification, non-monetary quantification, declaration); news type (good news, bad news, neutral news); and amount (number of sentences). The instrument does contain some differences from earlier work, however, and these are now considered. • Location in report. The dimension of location in report is excluded. The literature is unclear as to why location in report is important and location data appears to have very little value beyond permitting description (Gray et al., 1995b, p. 83). • Amount of disclosure. The amount of disclosure per company and per content category is measured by the number of sentences. In many earlier studies, quantification for each of the disclosure categories consisted of recording whether or not a company made a disclosure in the category, and total amount per company was measured to the nearest tenth or quarter of a page. Ng (1985) is critical of portion of pages measurement because print sizes, column sizes and page sizes may differ from one annual report to another. To overcome these problems, Ng used number of words. Measuring CSD amount by the number of words, however, leaves the researcher pondering which individual word is a CSD and which is not. Consequently, the possibility remains that disagreement between different coders could be quite serious. Sentences, as a measurement unit, overcome the problems of portion of pages and remove the need to account for, or standardize, the number of words. On the other hand, one might concede that a difference does exist between two sentences which are identical but for different font sizes. As natural units of written English which clearly exist between two punctuation
Environment
Energy
Total amount of measured page disclosure to nearest 100th
Total (number of sentences)
Declarative/neutral
Declarative/bad news
Declarative/good news
Non-monetary/neutral
Non-monetary/bad news
Non-monetary/good news
Monetary/neutral
Monetary/bad news
Monetary/good news
Monetary/non-monetary/neutral
Monetary/non-monetary/bad news
Monetary/non-monetary/good news
Text disclosures Sentence characteristics
Social responsibility disclosure instrument
Product/ consumers
Name
Community
Employee (other)
Employee (health and safety)
Year
General
Totals
Determinants of disclosures in NZ companies 85
Figure 1. Social responsibility disclosure instrument
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marks, sentences are also likely to provide more reliable measures of inter-rater coding than words. Given the concern over page measurement versus sentences, we decided to construct an approximation to page measurement from the sentence-coded data. First, the average number of sentences per page of the chairman’s report for each annual report was calculated. The average for each report was then divided into the total number of social disclosure sentences for that report to produce a derived page measurement for each company. Later, it was decided to go back and measure the absolute amount of social disclosure per company (but not per content category) by proportions of annual report page to the nearest hundredth of a page[3]. In all three measures of social disclosure amount, no attempt is made to standardize for annual report length. There is no restriction on the number of pages an annual report can include and, if companies consider additional disclosure is sufficiently important, it is believed they will include extra pages in the report. The use of all three measures of social disclosure amount enables comparisons with other studies and permits comparative analysis to assess the importance of the choice of measure. • Theme of disclosure. To facilitate the completion of the interrogation instrument an extensive checklist of items to be included under each of the theme dimension categories was developed. Obtained from Ng (1985), but based on original work by Ernst & Ernst (1978), this checklist was subsequently revised as a result of pretesting. In addition, a number of decision rules were developed to facilitate a consistent interpretation of the checklist. The original checklist and its amendments are included in Appendix 1, and the decision rules are included in Appendix 2. As distinct from many of the earlier studies, the employee theme is divided into employee health and safety and employee other content categories. This division is consistent with the most recent work of Gray et al. (1995a). • Voluntary/mandated disclosure. Recent work by Guthrie and Parker (1990) and Gray et al. (1995a) draws an important distinction between voluntary disclosures and those disclosures mandated by legislation. In New Zealand, however, so little social disclosure is mandated by legislation that no provision for the voluntary/mandated distinction is made in the interrogation instrument. All the classified disclosures are treated as voluntary. Three rounds of pretesting were performed by the two authors and an additional academic staff member. These pretesting rounds produced increasingly convergent views as to what constituted a CSD sentence, and led to the formulation of several decision rules and amendments to the initial checklist (see Appendices 1 and 2). Although the three coders believed these
pretesting rounds had produced high levels of coding reliability, the final round Determinants of was formally assessed using content analytic reliability measures. disclosures in Scott’s (1955) π, and Krippendorff’s (1980) α were both used to assess the NZ companies levels of inter-coder agreement occurring above chance on the initial coding decision “is this sentence a social disclosure, yes? or no?” The reliability tests indicated Krippendorff’s (1980) α = 0.901 and Scott’s (1955) π = 0.873. As noted 87 in Guthrie and Mathews (1985), while no acceptable standards of reliability have been established for social disclosure content analysis, 0.80 (80 per cent agreement above chance) or better is suggested as an acceptable level of intercoder reliability (Guthrie and Mathews, 1985, p. 261). Similarly, Wimmer and Dominick (1991, pp. 171-5) suggest 0.75 or better is normally accepted within the content analysis literature for these tests. With the new guidelines and checklist established from the pretesting rounds, the remaining 47 annual reports were photocopied and spiral bound. Given the high levels of coder reliability from the pretesting phase, content analysis was performed on the final data by a single coder using the checklists and instruments developed during the pretesting process. Independent variables – company size. In previous studies, company size has been measured by either number of employees, total asset value, sales volume, or an index rank (e.g. Fortune 500). Belkaoui and Karpik (1989) employed the log of net sales in their study, whereas Trotman and Bradley (1981) used both sales and total assets. Cowen et al. (1987) used Fortune rank. Roberts (1992) used a four-year average of revenues. Patten (1991) used the log of sales, but also repeated the analysis with Fortune 500 rankings. Employee numbers, sales and total assets have been shown to be highly correlated (Kimberly, 1976). Nonetheless, given that no theoretical reasons exist for a particular measure of size in this and other disclosure studies, three measures of size will be used: market capitalization, sales, and total assets. Corporate profitability. Profitability is measured using the accounting-based return on equity (EBIT/total equity), and return on assets (EBIT/total assets). In addition to current (1992) measures of these variables, five-year (1988-1992) averages are also used in line with previous studies (Abbott and Monsen, 1979; Bowman and Haire, 1976; Cowen et al., 1987). Measuring return on equity, or return on assets, over an extended period is claimed to provide a more reliable measure of corporate performance than measurement of a single year. Where data are unavailable for the full five-year period, an average is calculated for those years that are available. Industry type. The industry variable in this study is measured as a dichotomous classification of industries into high-profile and low-profile industries. Roberts (1992, p. 605) defines high-profile industries as those with consumer visibility, a high level of political risk, or concentrated intense competition, and suggests prior studies which include industry may have captured a systematic relationship between such characteristics and social responsibility activities. Of course, all such classifications are to an extent subjective and ad hoc. Patten (1991), for example, identified petroleum,
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chemical, and forest and paper as high profile for one study. Dierkes and Preston (1977) suggest extractive industries are highly visible and, therefore, subject to greater legal constraints. Roberts (1992) included automobile, airline, and oil industries as high profile, and food, health and personal products, hotel, and appliance and household products as low profile. All those industries identified in the above studies as high profile are included as high-profile in this study. In addition, agriculture, liquor and tobacco, and media and communications are classified as high profile. While these industries might not be regarded universally as high profile, they are particularly dominant in New Zealand society, and are believed to meet the criteria outlined by Roberts (1992) for high profile[4]. Analysis, results and discussion The results of the descriptive analysis of the corporate social disclosure measures are presented in Tables II and III. In addition to the incidence figures, i.e. the number of disclosing companies as a percentage of the total sample of companies shown in the second column, Table II reports on issues of theme, evidence, and news by proportions of amount of disclosure as measured by number of sentences (fourth column). Nearly all previous studies have tended to report only the incidence rate, primarily because disclosure amount has not been recorded in a disaggregated manner by theme, evidence, and news. A problem with relying on incident rates is that they may be misleading in the Disclosing Disclosing Disclosed companies companies as a Number of sentences as a (making at least percentage of total disclosed percentage of all one disclosure) sample (incidence) sentences (amount) disclosed sentences
Theme Environment Human resources Products Energy Community General/other Total Evidence Monetary Non-monetary Declarative Total News Table II. Good Descriptives for social Bad disclosure measures in Neutral New Zealand companies Total
11 37 19 3 14 9
23 79 40 6 30 19
107 523 79 6 172 27 914
12 57 9 1 19 3 100
29 30 34
62 64 72
162 182 570 914
18 20 62 100
37 15 22
79 32 47
710 57 147 914
78 6 16 100
sense that they treat companies which make one or more disclosures as equal – Determinants of a company making one sentence disclosure on the environment is treated as disclosures in equal to a company which discloses 50 sentences on the environment. As can be NZ companies seen from Table II, measuring proportions by amount can make a difference. For example, while 40 per cent of companies make disclosures on aspects of products, most of those which do disclose only disclose a small amount since 89 the product theme only accounted for 9 per cent of the total disclosure for the sample. Although not shown in Table II, on average companies making product theme disclosures only disclosed four product-theme sentences each. In contrast, companies making human resource disclosures, disclosed an average of 14 human resource related sentences each.
Total Average Minimum Maximum
Sentences
Measured pages
Derived pages
914 23.4 1 137
29.29 0.75 0.02 3.8
52.84 1.35 0.04 7.75
Note: Total sample of companies = 47; all disclosing companies = 39
Table III. Total amount of disclosure
Similarly, while it might appear from the incidence rates shown in the second column that monetary (62 per cent), non-monetary (64 per cent), and declarative (72 per cent) evidence are fairly equally represented, the proportion by amounts measure (fourth column) provides a very different picture. Clearly, while many companies do make monetary and non-monetary social disclosures, the vast bulk of their social disclosures are declarative statements (62 per cent of total disclosure). Companies making declarative disclosures, on average, disclose about 17 declarative sentences each. In contrast, companies making monetary disclosures average about six monetary sentences each. Likewise, and not surprising, good news statements clearly dominate (78 per cent of total disclosure) with only a very small proportion of statements being bad news (6 per cent of total disclosure). Of the companies making good news disclosures, they each average about 19 good news sentences, while bad news disclosers each average about four bad news sentences. In terms of the total amount disclosed, 39 companies (out of 47) disclosed a total 914 sentences, representing an average of 23 sentences. The maximum disclosed by any single company was 137 sentences. In terms of page amount, a total of 29.29 actual measured pages was disclosed, representing an average of 0.75 pages, with the most disclosed by a single company being 3.8 pages. Clearly, the derived page measurement grossly overestimates the amount of disclosure. Nonetheless, as discussed later, the measure appears to overestimate each company systematically and holds up very well as a relative measure of disclosure.
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Table IV provides the descriptive statistics for the continuous independent measures of size, profitability, and the three dependent measures of CSD amount. The three measures of size have been transformed by their natural log due to non-normality, while the four profitability measures, being ratios, met the K-S tests of normality without adjustment. The three measures of CSD amount have been left unadjusted. Note that the means (and the minimums) reported in Table IV do not tally with those in Table III because Table IV is based on the total sample of 47 companies, and not the 39 disclosing companies.
Independent variables Size: Nat log of 1992 sales Nat log of 1992 total assets Nat log of 1992 market capitalization Profitability: Return on assets 1992 Average return on assets 1988-1992 Return on equity 1992 Average return on equity 1988-1992 Dependent variable CSD amount: Measured pages Derived pages Number of sentences Table IV. Descriptive statistics for continuous variables
Mean
SD
Min.
Max.
19.10
1.55
16.21
23.25
19.36
1.58
17.13
19.20
1.18
17.90
0.112
0.05
–0.03
0.108 0.237
0.04 0.12
0.221
0.623 1.124 19.44
Kurtosis
K-S stats
0.431
0.114
0.653 0.786
23.77
0.994
0.535
1.054 0.216
22.47
1.335
1.080
1.125 0.158
0.250
0.121
0.062
0.440 0.990
0.03 –0.03
0.210 0.730
0.358 1.365
–0.08 5.028
0.663 0.771 0.619 0.837
0.09
0.06
0.630
1.750
6.300
0.691 0.725
0.81 1.60 28.86
0.00 0.00 0.00
2.535 2.588 2.971
7.611 7.836 9.985
1.512* 0.020 1.653**0.008 1.865**0.009
3.80 7.75 137.0
Skewness
Notes: *Significant at the 5% level. **Significant at the 1% level. The sources of data for all the variables (except market capitalization) are each company’s 19881992 annual reports. The source for market capitalization is the NZSE 1992 annual report
Table V presents the dichotomous high- and low-profile industry classification. Collapsing the New Zealand Stock Exchange (NZSE) industry classifications into high- and low-profile on the basis of Roberts’ (1992) criteria results in 21 high-profile cases, and 26 low-profile cases as shown in Table V. To test the levels of association between the different continuous dependent and independent variables (size, profitability, and disclosure amount), pair-wise Pearson’s and Spearman’s rank correlations were performed. The correlation coefficients are reported in Tables VI and VII. In Table VI the correlation coefficients are reported in the top of each cell, with the probability value reported underneath in each cell.
Market capitalization rank
Company name
NZSE industrial class
Low-profile industries Milburn New Zealand Ltd BLD PLD Holdings Ltd ELE Fischer & Paykel Industries Ltd ELE BNZ Finance Ltd FIN Huttons Kiwi Ltd FOD Progressive Enterprises Ltd FOD Best Corporation Ltd FOD Sanford Ltd FOD Mainzeal Group Ltd INV Brierley Investments Ltd INV Ceramco Corporation Ltd INV Corporate Investments Ltd INV Fay Richwhite and Company Ltd INV Salmond Smith Biolab Ltd MED Fortex Group Ltd MET Mair Astley Ltd MET U-Bix Business Machines Ltd MIS Rank Group Ltd MIS Waste Management NZ Ltd MIS Shortland Properties Ltd PRO Robt Jones Investments Ltd PRO Gulf Resources Pacific Ltd PRO Michael Hill International Ltd RET Hallenstein Glasson Holdings Ltd RET Cavalier Corporation Ltd TEX Donaghys Ltd TEX High profile industries 47 Regal Salmon Ltd AGS 50 Apple Fields Ltd AGS 49 Reid Farmers Ltd AGS 40 Nuplex Industries Ltd CHM 8 Fernz Corporation Ltd CHM 9 The New Zealand Refining Company Ltd ENE 18 Steel & Tube Holdings ENG 3 Fletcher Challange Ltd FOR 2 Carter Holt Harvey Ltd FOR 14 DB Group Ltd LIQ 5 Lion Nathan Ltd LIQ 7 Wilson and Horton Ltd MCM 10 Independent Newspapers Ltd MCM 1 Telecom Corporation of New Zealand Ltd MCM 25 New Zealand Oil and Gas Ltd MIN 22 Southern Petroleum NL MIN 21 Macraes Mining Company Ltd MIN 6 Air New Zealand Ltd TRN 31 Port of Tauranga Ltd TRN 35 The Helicopter Line Ltd TRN 33 Owens Group Ltd TRN Notes: BLD = Building; ELE = Electrical; FIN = Finance and banks; FOD = Food; INV = Investment; MED = Medical supplies; MET = Meat and by-products; MIS = Miscellaneous services; PRO = Property; RET = Retailers; TEX = Textiles and apparel; AGS = Agricultural and associated services; CHM = Chemicals; ENE = Energy and fuel; ENG = Engineering; FOR = Forestry; LIQ = Liquor and tabacco; MCM = Media and communications; MIN = Mining; TRN = Transport and Tourism 30 20 12 19 34 15 44 11 45 4 13 48 16 42 28 29 41 17 38 46 32 36 43 23 27 24
Determinants of disclosures in NZ companies 91
Table V. Classification of companies by industry
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Table VI. Pearson correlation coefficients for continuous variables
Return on Measured equity pages 1992 Return on equity 1992 Return on assets 1992 Nat log of sales 1992 Nat log of market market capitalization 1992 Nat log of total assets 1992 Average return on assets 1988-1992 Average return on equity 1988-1992
Return on assets 1992
–0.079 0.595 –0.191 0.198 0.638 0.000
0.628 0.000 0.048 0.747
–0.156 0.293
0.757 0.000 0.679 0.000 –0.136 0.361 0.102 0.493
–0.154 0.298 –0.277 0.059 0.364 0.012 0.744 0.000
–0.197 0.183 –0.524 0.000 0.562 0.000 0.349 0.016
Nat log Nat log Nat log Average of of market of return sales capitalization assets on assets 1992 1992 1992 1988-1992
0.784 0.000 0.788 0.000 –0.181 0.222 0.176 0.235
0.848 0.000 –0.070 0.639 0.069 0.645
–0.359 0.013 –0.059 0.692
0.628 0.000
From Table VI, it is clear that all the size measures (Nat log of sales 1992, Nat log of market capitalization 1992, and Nat log of total assets 1992) are highly positively correlated with the actual measured page amount of social disclosure. Consistent with studies from the USA (Cowen et al., 1987; Belkaoui and Karpik, 1989; Patten, 1991, 1992) and Australia (Kelly, 1981; Trotman and Bradley, 1981), the results indicate that the larger listed New Zealand firms (of relatively large firms) disclose more social and environmental information. Although these results are in contrast to the earlier New Zealand studies of Davey (1982) and Ng (1985), such differences may be due to the different sampling and analytical methods used in their studies. From Table VI none of the four profitability measures is significantly associated with the social disclosure measure, and these findings are consistent with Davey (1982), Ng (1985), Cowen et al., (1987), Patten (1991), and Roberts (1992). Also consistent with Patten (1991), but in contrast to Roberts (1992), various measures of lagged profits (not shown in Table VI) were not significantly correlated with disclosure amount. The profitability of large New Zealand companies (both current and lagged), therefore, appears unrelated to the amount of social and environmental information they disclose. In addition to firm size and amount of disclosure, the only other significant correlations between measures of the independent variables occurs, perhaps not surprisingly, between the return on assets measures and the natural log of total assets. Also, as expected, for both the size and the profitability variables, the different measures of the same variable are all significantly correlated.
Measured pages Number of sentences
Derived pages
Return on equity 1992
Return on assets 1992
Nat log of sales 1992
Nat log of market capitalization 1992 Nat log of total assets 1992
Average return on assets 1988-1992 Average return on equity 1988-1992
0.981 0.000 0.963a 0.979 0.000 0.964a –0.079 0.595 –0.041a –0.191 0.198 –0.187a 0.638 0.000 0.532a 0.757 0.000 0.596a 0.679 0.000 0.488a –0.136 0.361 –0.110a 0.102 0.493 0.157a
Number of sentences
0.980 0.000 0.969a –0.117 0.434 –0.071a –0.169 0.254 –0.198a 0.576 0.000 0.532a 0.697 0.000 0.551a 0.612 0.000 0.436a –0.130 0.381 –0.151a 0.075 0.617 0.120a
Derived pages
Determinants of disclosures in NZ companies 93
–0.097 0.513 –0.065a –0.178 0.229 –0.195a 0.605 0.000 0.528a 0.734 0.000 0.554a 0.648 0.000 0.437a –0.153 0.303 –0.149a 0.075 0.616 0.129a
Note: aSpearman rank correlation coefficients
To examine the possible effects of measuring the amount of social disclosure in different ways, the correlation analysis reported in Table VI was re-run using measured pages, derived pages, and number of sentences. Table VII reports the pair-wise correlations for the independent variables and the three measures of the dependent variable. Pearson’s correlation coefficients are shown in the top of each cell, with the probability value below. To alleviate any concerns over the non-normality of the dependent variable measures, Spearman’s rank correlations are also reported. Again, and confirming the results in Table VI, all the measures of size are significantly correlated with the different measures of the dependent variable, while none of the profitability measures is even close to significance. Given the earlier discussion over how to measure the amount of social disclosure, a particularly important result from Table VII is the extremely high correlations between the three measures of disclosure amount (measured pages, derived pages, and number of sentences). In some respects this is quite
Table VII. Pearson correlation coefficients for continuous dependent variables
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Table VIII. t-tests for independent samples of industry
Independent variables Size Nat log of sales 1992 Nat log of total assets 1992 Nat log of market capitalization 1992 Profitability Return on assets 1992 Average return on assets 1988-1992 Return on equity 1992 Average return on equity 1988-1992 Dependent variable CSD amount Measured pages Derived pages Number of sentences
Mean highprofile
Mean lowprofile
Mean diff
SE of diff
t-value
Two-tailed p
19.32
18.93
–0.388
0.456
–0.85
0.400
19.77
19.09
–0.676
0.460
–1.47
0.149
19.64
18.85
–0.789
0.332
–2.38
0.022
0.098
0.124
0.026
0.017
1.58
0.122
0.101 0.200
0.113 0.267
0.012 0.066
0.013 0.035
1.00 1.91
0.323 0.063
0.202
0.236
0.033
0.028
1.19
0.241
0.965 1.770 10.57
0.346 0.599 30.42
–0.619 –1.173 –19.85
0.222 0.441 8.032
–2.80 –2.66 –2.47
0.008 0.011 0.017
Note: Industry is partitioned into high-profile (21 cases) and low-profile (26 cases)
surprising, especially given what appeared to be the crudity of the derived page measurement. In addition to examining the association between the continuous variables, two-tailed t-tests for independent samples of industry were performed. The purpose of these tests is to assess whether any significant differences exist between the mean amounts of size, profitability, and disclosure amount between the high- and low-profile industry groups. From Table VIII, significant differences exist between high- and low-profile industries for all of the measures of social disclosure amount (measured pages, derived pages, and number of sentences). High-profile industry companies disclose significantly more social and environmental information than low-profile industry companies. This finding is similar to those of Patten (1991) and Roberts (1992), against whose work the more relevant comparisons can be made due to similarities in the construction of the industry classification in this and their studies. In terms of the relationship between industry and the other independent variables, none of the profitability measures show significant differences, although the single-year return on equity ratio for 1992 is marginal. For the measures of size, neither sales nor assets show significant differences by industry. The market capitalization measure, however, does differ by industry partition. As measured by market capitalization, the average company size of the high-profile industry group is significantly larger than the average company
size of the low-profile industry group. Further, although not shown, this Determinants of association between market capitalization and industry (as measured in this disclosures in sample) also exists for the previous two years (1990, 1991). Why these particular NZ companies industries should dominate the New Zealand stock market is not clear. Moreover, whether this relationship is peculiar to New Zealand, and whether it continues to exist outside of the top 50 companies, needs further investigation. 95 To examine the multiple effect of the independent variables on the amount of social disclosure in New Zealand companies, the following OLS multiple regression equation was run: Measured pages = a 1 + b 1 Nat log of sales 1992 + b 2 Industry + b3 Return on assets 1992 where: Measured pages = amount of social disclosure measured in actual pages to nearest one-hundredth of a page. Nat log of sales 1992 = natural logarithm of sales turnover for 1992. Industry = industry classification, dummy variable with 1= high-profile, 0= low-profile. Return on assets for 1992 = earnings before interest and tax over total assets The equation is a direct replication of that found in Patten (1991), and the results shown in Table IX are entirely consistent with Patten’s, both size and industry are significant variables, while profitability is not. A minor difference with the study here is that social disclosure is measured as a continuous variable, whereas Patten partitioned his sample into high and low disclosers. The model would also appear to fit the New Zealand sample better since it explains 46 per cent of the variation (Adjusted R2 = 0.467), while Patten (p. 303) reports 25 per cent (Adjusted R2 = 0.256). Although not shown in Table IX,
Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Return on assets 1992 B SE B Beta t Nat log of sales 1992 Industry Return on assets 1992 Constant Regression measures Multiple R = 0.70842 R2 = 0.50185 Adjusted R2 = 0.46710 Standard error = 0.59056
0.31048 0.48806 –0.40655 –5.48203 ANovA Regression Residual
0.05709 0.17876 1.57392 1.12964 DF 3 43
0.59527 0.30318 –0.02881 Sum of squares 15.10821 14.99661 F = 14.44000
5.4380 2.7300 –0.2580 –4.8530
Sig t 0.0000 0.0091 0.7974 0.0000
Mean squares 5.03507 0.34876 Sig F = 0.000
Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized regression coefficient; Industry = industry classification – dummy variable with 1 = high profile, 0 = low profile, n = 47
Table IX. Regression results: Nat log of sales 1992 + Return on assets 1992
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dropping the insignificant profitability measure of return on assets 1992 from the regression model marginally improves the adjusted R2 measure to 0.478 (48 per cent). Following Patten (1991), various runs of this model were carried out using the different measures of profitability (return on equity 1992, average return on equity 1988-1992, and average return on assets 1988-1992) and, consistent with his findings, none of the profitability measures even approaches significance. For brevity, these results are not reported. In addition, various runs were also made using the different measures of the dependent variable (measured pages, derived pages and number of sentences) and the different measures of size (Nat log of sales 1992, Nat log of total assets 1992 and Nat log of market capitalization 1992). Not surprisingly, given their very high correlation, the measures of the dependent variable made no significant difference to the regression results (not shown), although the model best fits measured pages, then derived pages, and finally number of sentences. Substituting assets for sales makes little difference to the regression results, but the results do change with the market capitalization measure. As shown in Table X, the effect of market capitalization is to reduce the significance of the industry variable, yet the model explains considerably more of the variation (a total of 57 per cent) than when using the other size measures. Market capitalization, alone, appears to capture more of both size and industry. Why this should be is not clear. Given the multiple significance of size and industry (excepting when size is measured using market capitalization) in the above regression model, further insights into the size-industry-disclosure relationship can be gained by reexamining the size-disclosure correlations shown in Table VII. As shown in
Measured pages = a1 + b1Nat log of market capitalization 1992 + b2 Industry + b3 Return on assets 1992 B SE B Beta t Sig t Nat log of market capitalization 1992 Industry Return on assets 1992 Constant
Table X. Regression results Nat log of market capitalization 1992 + Return on assets 1992
Regression measures Multiple R = 0.77399 R2 = 0.59906 Adjusted R2 = 0.57109 Standard error = 0.52981
0.47356 0.26898 –0.70016 –8.74723
ANovA Regression Residual
0.07044 0.16866 0.82856 1.31960 DF 3 43
0.69529 0.16709 –0.08366 Sum of squares 18.03461 12.07021 F = 21.41603
6.7230 1.5950 –0.8450 –6.6290
0.0000 0.1181 0.4028 0.0000
Mean squares 6.01154 0.28070 Sig F = 0.000
Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized regression coefficient; Industry = industry classification – dummy variable with 1 = high profile, 0 = low profile, n = 47
Table XI, when the correlations are recalculated on the separate sub-samples of Determinants of industry rather than the entire sample, in all cases the size-disclosure disclosures in correlations are much higher for the high-profile industry sub-sample. NZ companies Similarly, the size-disclosure correlations for the low-profile industry subsample are in all cases lower, and in many cases insignificant. An interpretation to be drawn from these sub-sample correlation analyses is that industry 97 appears to moderate the size-disclosure relationship. Being a larger company (in terms of assets or sales) is likely to indicate a larger discloser of social and environmental information, if the company is in a high-profile industry. For lowprofile industry companies, relative size is not such a good indicator of disclosure amount. High-profile industry companies (n = 21) Low-profile industry companies (n = 26) Measured Number of Derived Measured Number of Derived pages sentences pages pages sentences pages Number of sentences Derived pages
Nat log of sales 1992 Nat log of total assets 1992
0.984 0.000 0.971a 0.983 0.000 0.949a 0.736 0.000 0.752a 0.811 0.000 0.823a
0.986 0.000 0.982a 0.667 0.000 0.673a 0.733 0.000 0.718a
0.683 0.000 0.658a 0.752 0.000 0.721a
0.934 0.000 0.956a 0.935 0.000 0.971a 0.379 0.056 0.321a 0.251 0.261 –0.004a
0.929 0.000 0.951a 0.285 0.158 0.379a 0.169 0.407 0.019a
0.392 0.047 0.345a 0.303 0.132 –0.042a
Notes: aSpearman rank correlation coefficients Due to the significant interdependence between Nat log of market capitalization 1992 and the industry classification, the correlations for Nat log of market capitalization 1992 and measures of disclosure not reported
In addition to the possible association of size and industry with disclosure amount, this study also examined the possible association of overseas (multiple) stock exchange listings on disclosure amount. In an attempt to suggest an indicator for the largest companies in the sample, which are extremely high disclosers, overseas stock exchange listings was introduced as a dummy variable in the size-industry-disclosure regression models previously shown in Tables IX and X. An explicit rationale for the use of the overseas listing variable cannot be found in the existing social disclosure literature. However, as noted earlier, Gray et al. (1995a) suggest country of ownership and reporting country do appear to be associated with social disclosure. Either because they are mandated by regulation, both legislation and the stock exchange (see, for example, Gray et
Table XI. Correlation coefficients for size and disclosure variables by industry group
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al., 1995a; Guthrie and Parker, 1990) or because the reporting culture demands it, companies make more social disclosures in such regulated countries, particularly the USA, Canada and the UK. Now, although companies dually listed on overseas stock exchanges are not required to make the extra social disclosures in their New Zealand annual reports, they may do so anyway, if only because the information is readily accessible and already in the public arena. A shown in Table XII, the sample was partitioned in three different ways. First, companies with dual listings on North American (USA or Canada) stock exchanges were partitioned from the others. This dummy variable is labelled “overseas listing”. Second, companies with dual listings on North American or UK stock exchanges were partitioned from the others (labelled “overseas listing” 1). Finally, companies with dual listings on North American, UK or Australian stock exchanges were partitioned from the others (labelled “overseas listing” 2). The thinking behind the various partitions is that North American social reporting requirements, followed by UK and then Australia are more demanding than those in New Zealand. From the regression results reported in Tables XIII-XV it appears that overseas listings may be additionally associated with the amount of social disclosures made by New Zealand companies. Comparing the results in Table XIII with those in Table IX shows that the addition of overseas listing, the strongest partition of overseas listings in terms of social reporting requirements, increases the explained variation from 46 per cent (Adjusted R2 = 0.467) to 76 per cent (Adjusted R2 = 0.767). Similar, but smaller, increases in the adjusted R2 figures are shown in Tables XIV and XV when the other (weaker) partitions of overseas listings are used. The t-statistics in Tables XIII-XV show that the size and industry variables, in addition to the overseas listing variable, remain significantly associated with the amount of social disclosure. In the “overseas listing” 2 model (shown in Table XV), however, the industry variable does become marginal. As for the earlier regression model, various runs of the later model were made using the three different measures of social disclosure amount, the four measures of profitability, and the three measures of size. In all cases for the disclosure measures the models remained highly significant and the t-statistics largely unchanged from those in Table XIII. As with the earlier model none of the profitability measures approached significance and are not reported. Again, substituting the market capitalization size measure produces a highly significant model in which industry is no longer significantly associated with disclosure amount. This time, however, comparing Tables XIII and XVI shows the extra explanation gained from using the market capitalization measure in place of the sales measure is quite marginal. Conclusions This paper has presented an empirical investigation into the social and environmental disclosure practices of a sample of listed New Zealand companies. In doing so, the paper provides a more up-to-date description of
New Zealand, Australia, UK and North America 1 Telecom Corporation of New Zealand Ltd 3 Fletcher Challange Ltd 4
Determinants of disclosures in NZ companies
New Zealand, Australia and UK Brierley Investments Ltd
2 5 8 21 25
New Zealand and Australia Carter Holt Harvey Ltd Lion Nathan Ltd Fernz Corporation Ltd Macraes Mining Company Ltd New Zealand Oil and Gas Ltd
6 7 9 10 11 12 13 14 15 16 17 18 19 20 22 23 24 27 28 29 30 31 32 33 34 35 36 38 40 41 42 43 44 45 46 47 48 49 50
New Zealand only Air New Zealand Ltd Wilson and Horton Ltd The New Zealand Refining Company Ltd Independent Newspapers Ltd Sanford Ltd Fischer & Paykel Industries Ltd Ceramco Corporation Ltd DB Group Ltd Progressive Enterprises Ltd Fay Richwhite and Company Ltd Rank Group Ltd Steel & Tube Holdings BNZ Finance Ltd PDL Holdings Ltd Southern Petroleum NL Hallenstein Glasson Holdings Ltd Donaghys Ltd Cavalier Corporation Ltd Fortex Group Ltd Mair Astley Ltd Milburn New Zealand Ltd Port of Tauranga Ltd Robt Jones Investments Ltd Owens Group Ltd Huttons Kiwi Ltd The Helicopter Line Ltd Gulf Resource Pacifics Ltd Waste Management NZ Ltd Nuplex Industries Ltd U-Bix Business Machines Ltd Salmond Smith Biolab Ltd Michael Hill International Ltd Best Corporation Ltd Mainzeal Group Ltd Shortland Properties Ltd Regal Salmon Ltd Corporate Investments Ltd Reid Farmers Ltd Apple Fields Ltd
99
Table XII. Overseas stock exchange listings
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100
Nat log of sales 1992 Industry Overseas listing Constant Regression measures Multiple R = 0.88617 R2 = 0.78530 Adjusted R2 = 0.77032 Standard error = 0.38771
Table XIII. Regression results: Nat log of sales 1992 + Overseas listing
0.17266 0.32074 2.42985 2.92290 ANovA Regression Residual
0.04151 0.11704 0.32206 0.78974 DF 3 43
0.33104 0.19924 0.61282 Sum of squares 18.03461 12.07021 F = 52.42504
4.1590 2.7400 7.5450 –3.7010
Sig t 0.0000 0.0089 0.0000 0.0006
Mean squares 6.01154 0.28070 Sig F = 0.000
Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized regression coefficient; Industry = industry classification – dummy variable with 1 = high profile, 0 = low profile; Overseas listing = overseas listing classification – dummy variable with 1 = US or Canadian listing, 0 = others; n = 47
Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Overseas listing 1 t Sig t Nat log of sales 1992 Industry Overseas listing Regression measures Multiple R = 0.83188 R2 = 0.60203 Adjusted R2 = 0.67054 Standard error = 0.43434 Table XIV. Regression results: Nat log of sales 1992 + Overseas listing 1
3.0470 3.3340 5.1630 ANovA Regression Residual
0.0039 0.0018 0.0000 DF 3 43
Sum of squares 20.83335 9.27147 F = 32.20755
Mean squares 6.94445 0.21562 Sig F = 0.000
Notes: Industry = industry classification – dummy variable with 1 = high profile, 0 = low profile; Overseas listing 1 = overseas listing classification – dummy variable with 1 = US, Canada or UK listings, 0 = others; n = 47
such practices. In addition, by using sampling and measurement techniques more consistent with those used in other studies, the paper allows some comparisons with surveys from other countries. Consistent with companies from the USA, UK and Australia, New Zealand companies make most social disclosures on human resources, with environment and community themes also receiving significant attention. The vast majority of the disclosures made by New Zealand companies tend to be declarative (narrative) and good news. The amount of social disclosure made by New Zealand companies averaged about three-quarters of an annual report page. Compared with US and UK companies’ voluntary disclosures, New Zealand
Determinants of disclosures in NZ companies
Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Overseas listing 2 t Sig t Nat log of sales 1992 Industry Overseas listing 2 Regression measures Multiple R = 0.75579 R2 = 0.57121 Adjusted R2 = 0.54130 Standard error = 0.54790
4.3330 1.8560 2.6520 ANovA Regression Residual
0.0001 0.0703 0.0112 DF 3 43
Sum of squares 17.19625 12.90852 F = 19.09425
Mean squares 5.73208 0.30020 Sig F = 0.000
Notes: Industry = industry classification – dummy variable with 1 = high profile, 0 = low profile; Overseas listing 2 = overseas listing classification – dummy variable with 1 = US, UK or Australian listings, 0 = others; n = 47
Measured pages = a1 + b1Nat log of market capitalization 1992 + b2Overseas listing B SE B Beta t Nat log of market capitalization 1992 Overseas listing Constant Regression measures Multiple R = 0.89371 R2 = 0.79873 Adjusted R2 = 0.78958 Standard error = 0.37110
0.30406 2.25089 –5.31251
ANovA Regression Residual
0.05502 0.32029 1.05069 DF 2 44
0.44643 0.56769 Sum of squares 24.04550 5.05932 F = 87.30362
5.5270 7.0280 –5.0560
101
Table XV. Regression results: Nat log of sales 1992 + Overseas listing 2
Sig t 0.0000 0.0000 0.0000
Mean squares 12.02275 0.13771 Sig F = 0.000
Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized regression coefficient; Overseas listing = overseas listing classification – dummy variable with 1 = US or Canadian listing, 0 = others; n = 47
companies make much lower social disclosures on average, but it should be remembered they are also much smaller companies. Moreover, although interesting, such comparisons should always be made with extreme caution until such time as a standardized set of sampling and measurement techniques are universally adopted. As well as investigating the disclosure practices, the study also examined some potential relationships between corporate characteristics and disclosure identified in other studies. Results are reported which, consistent with other studies, show both size and industry are significantly associated with amount of disclosure, while profitability is not. In addition, the results indicate that the
Table XVI. Regression results: Nat log of market capitalization 1992 + Overseas listing
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size-disclosure relationship is much stronger for the high-profile industry companies than for the low-profile industry companies. The interaction between size and industry is interesting because it suggests relative size alone is not a sufficient indicator of disclosure amount. It may be, for example, that the size-industry-disclosure relationships support the argument that New Zealand companies are responding to the information needs of investors who wish to know about the companies’ potentially risky activities. While size may be a good proxy for the relative (perceived) magnitude and frequency of such activities, it may not be such a good proxy for the relative (perceived) risk of such activities. Industry type, however, may be capturing this relative risk. For example, because some industries face much more stringent regulatory environments than others, firms in such industries may consider it necessary to reassure existing and potential investors that all is well. Alternatively, or perhaps in addition, and equally as plausible, the sizeindustry-disclosure relationships could support the argument that New Zealand companies are attempting to mitigate the effects of large and noticeable impacts on the environment and society. In doing so, they attempt to ward off either perceived or real pressure from social and environmental activists. Again, industry type may be an indicator of the relative pressure (real or potential) which companies face from social and environmental activists, and the constituencies within the New Zealand population from which such activists derive their support. In addition to the size and industry relationships, this study also provides some tentative evidence that dual and multiple overseas listings may be associated with greater social disclosure. Whether this relationship is particular to New Zealand is a matter for further investigation. It may be that dual and multiple overseas listings only have an impact when the countries in which the companies are listed have largely different social reporting requirements. Moreover, it would be interesting to know whether any impact worked in both directions. For example, would overseas companies also listed on the New Zealand stock exchange report differently in New Zealand from New Zealand companies listed on those same overseas stock exchanges? Using various measures of size, profitability and disclosure demonstrated the relative robustness of the relationships reported in this study, and also provided some answers to questions surrounding the methods of measuring disclosure amount. Finding that market capitalization appears significantly related to industry classification (at least for the sample in this study), however, illustrates that an arbitrary choice of measure for a variable may have an impact on the results. Further work is required to see if the market capitalization measure and industry relationship is an aberration peculiar to large New Zealand companies or whether it is more widespread. This study establishes an important benchmark in that the size-industrydisclosure relationships found in other overseas studies (in particular, the USA) also hold for New Zealand companies when comparative sampling and measurement techniques are used. Further, this study also demonstrates that
the relationships found are relatively robust to different measurement choices. Determinants of From such a starting point, social disclosure research in New Zealand can move disclosures in on to more specific explanations for the relationships found in this study. NZ companies Notes 1. See Gray et al. (1995a, fn 8) for a full list of references to CSRD studies in these and other countries. 2. An alternative explanation, but one not tested in this study, is that the size-disclosure relationship only holds for the largest of companies and does not exist for relatively smaller companies. All those studies reporting positive relationships either sample the “top” companies in various countries or do not draw random samples. Davey’s (1982) study, and Ng’s (1985) replication using the same sample, were based on a random sample. 3. Page measurement is undertaken using a clear plastic A4 sheet divided into a grid of 100 rectangles (each side of the A4 sheet is divided into 10). The grid is laid over each highlighted sentence in the annual report and the number of hundredths assessed (rounding up). These hundredths were finally summed to produce a total for each annual report. 4. The liquor and communication industries in New Zealand, for example, are both dominated by major players. At times, the intense competition has resulted in cases been taken to the New Zealand Commerce Commission – a body responsible for policing anticompetitive behaviour. The meat and by-products industry, although classified along with the food industry as low-profile, could have been classified along with agriculture as highprofile. In the event, the results are not significantly affected by either treatment. References Abbott, W.F. and Monsen, R.J. (1979), “On the measurement of corporate social responsibility: self-reported disclosures as a method of measuring corporate social involvement”, Academy of Management Journal, Vol. 22 No. 3, pp. 501-15. Andrews, B.H., Gul, F.A., Guthrie, J.E. and Teoh, H.Y. (1989), “A note on corporate social disclosure practices in developing countries: the case of Malaysia and Singapore”, British Accounting Review, Vol. 21 No. 4, pp. 371-6. Belkaoui, A. and Karpik, P.G. (1989), “Determinants of the corporate decision to disclose social information”, Accounting, Auditing & Accountability Journal, Vol. 2 No. 1, pp. 36-51. Bowman, E.H. and Haire, M. (1976), “Social impact disclosure and corporate annual reports”, Accounting, Organisations and Society, Vol. 1 No. 1, pp. 11-21. Cowen, S.S., Ferreri, L.B. and Parker, L.D. (1987), “The impact of corporate characteristics on social responsibility disclosure: a typology and frequency-based analysis”, Accounting, Organisations and Society, Vol. 12 No. 2, pp. 111-22. Davey, H.B. (1982), “Corporate social responsibility disclosure in New Zealand: an empirical investigation”, unpublished working paper, Massey University, Palmerston North. Dierkes, M. and Preston, L.E. (1977), “Corporate social accounting and reporting for the physical environment: a critical review and implementation proposal”, Accounting, Organisations and Society, Vol. 2 No. 1, pp. 3-22. Ernst & Ernst (1978), Social Responsibility Disclosure, 1978 Survey, Ernst & Ernst, Cleveland, OH. Friedman, M. (1962), Capitalism and Freedom, The University of Chicago Press, Chicago, IL. Gray, R., Kouhy, R. and Lavers, S. (1995a), “Corporate social and environmental reporting: a review of the literature and a longitudinal study of UK disclosure”, Accounting, Auditing & Accountability Journal, Vol. 8 No. 2, pp. 47-77.
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Appendix 1: Checklist of categories of social disclosure The following is a taxonomy of the types of corporate social disclosure that form the substance of the content analysis of annual reports. The list is intended to represent an exhaustive itemization of information with social importance. Adaptations to the original list used by Ng (1985) are shown in italics. Environment (1) Environmental pollution • pollution control in the conduct of the business operations; capital, operating and research and development expenditures for pollution abatement; • statements indicating that the company’s operations are non-polluting or that they are in compliance with pollution laws and regulations; • statements indicating that pollution from operations has been or will be reduced; • prevention or repair of damage to the environment resulting from processing or natural resources, e.g. land reclamation or reforestation; • conservation of natural resources, e.g. recycling glass, metals, oil, water and paper; • using recycled materials; • efficiently using materials resources in the manufacturing process; • supporting anti-litter campaigns; • receiving an award relating to the company’s environmental programmes or policies; • preventing waste. (2) Aesthetics • designing facilities harmonious with the environment; • contributions in terms of cash or art/sculptures to beautify the environment; • restoring historical buildings/structures. (3) Other • undertaking environmental impact studies to monitor the company’s impact on the environment; • wildlife conservation; • protection of the environment, e.g. pest control. Energy • conservation of energy in the conduct of business operations; • using energy more efficiently during the manufacturing process; • utilizing waste materials for energy production; • disclosing energy savings resulting from product recycling; • discussing the company’s efforts to reduce energy consumption; • disclosing increased energy efficiency of products; • research aimed at improving energy efficiency of products; • receiving an award for an energy conservation programme; • voicing the company’s concern about the energy shortage; • disclosing the company’s energy policies. Employee health and safety • reducing or eliminating pollutants, irritants, or hazards in the work environment; • promoting employee safety and physical or mental health; • disclosing accident statistics;
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• • • • •
complying with health and safety standards and regulations; receiving a safety award; establishing a safety department/committee/policy; conducting research to improve work safety; providing low cost health care for employees.
Employee other (1) Employment of minorities or women • recruiting or employing racial minorities and/or women; • disclosing percentage or number of minority and/or women employees in the workforce and/or in the various managerial levels; • establishing goals for minority representation in the workforce; • programme for the advancement or minorities in the workplace; • employment of other special interest groups, e.g. the handicapped, ex-convicts or former drug addicts; • disclosures about internal advancement statistics. (2) Employee training • training employees through in-house programmes; • giving financial assistance to employees in educational institutions or continuing education courses; • establishment of trainee centres. (3) Employee assistance/benefits • providing assistance or guidance to employees who are in the process of retiring or who have been made redundant; • providing staff accommodation/staff home ownership schemes; • providing recreational activities/facilities. (4) Employee remuneration • providing amount and/or percentage figures for salaries, wages, PAYE taxes, superannuation; • any policies/objectives/reasons for the company’s remuneration package/schemes. (5) Employee profiles • providing the number of employees in the company and/or at each branch/ subsidiary; • providing the occupations/managerial levels involved; • providing the disposition of staff – where the staff are stationed and the number involved; • providing statistics on the number of staff, the length of service in the company and their age groups; • providing per employee statistics, e.g. assets per employee and sales per employee; • providing information on the qualifications of employees recruited. (6) Employee share purchase schemes • providing information on the existence of or amount and value of shares offered to employees under a share purchase scheme or pension programme; • providing any other profit sharing schemes. (7) Employee morale • providing information on the company/management’s relationships with the employees in an effort to improve job satisfaction and employee motivation;
•
providing information on the stability of the workers’ jobs and the company’s future; • providing information on the availability of a separate employee report; • providing information about any awards for effective communication with employees; • providing information about communication with employees on management styles and management programmes which may directly affect the employees. (8) Industrial relations • reporting on the company’s relationship with trade unions and/or workers; • reporting on any strikes, industrial actions/activities and the resultant losses in terms of time and productivity; • providing information on how industrial action was reduced/negotiated. (9) Other • improvements to the general working conditions – both in the factories and for the office staff; • information on the re-organization of the company/discussions/branches which affect the staff in any way; • the closing down of any part of the organization, the resultant redundancies created, and any relocation/retraining efforts made by the company to retain staff; • information and statistics on employee turnover; • information about support for day-care, maternity and paternity leave. Products (1) Product development • information on developments related to the company’s products, including its packaging, eg. making containers reusable; • the amount/percentage figures of research and development expenditure and/or its benefits; • information on any research projects set up by the company to improve its product in any way. (2) Product safety • disclosing that products meet applicable safety standards; • making products safer for consumers; • conducting safety research on the company’s products; • disclosing improved or more sanitary procedures in the processing and preparation of products; • information on the safety of the firm’s product. (3) Product quality • information on the quality of the firm’s products as reflected in prizes/awards received; • verifiable information that the quality of the firm’s product has increased (e.g. ISO 9000). Community involvement • donations of cash, products or employee services to support established community activities, events, organizations, education and the arts; • summer or part-time employment of students; • sponsoring public health projects; • aiding medical research; • sponsoring educational conferences, seminars or art exhibits;
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funding scholarship programmes or activities; other special community related activities, e.g. opening the company’s facilities to the public; supporting national pride/government sponsored campaigns; supporting the development or local industries or community programmes and activities.
(1)
Corporate objectives/policies: general disclosure of corporate objectives/policies relating to the social responsibility of the company to the various segments of society.
(2)
Other: disclosing/reporting to groups in society other than shareholders and employees, e.g. consumers; any other information that relates to the social responsibility of the company.
Appendix 2: Decision rules for social disclosures • Discussion of directors’ activities are not to be included as a discussion on employees. • All sponsorship activity is to be included no matter how much it is advertising. • All disclosures must be specifically stated, they cannot be implied. • Good/neutral/bad classifications to be determined from perspective of the stakeholder group involved. • If any sentence has more than one possible classification, the sentence should be classified as to the activity most emphasized in the sentence. • Tables (monetary and non-monetary) which provide information which is on the checklist should be interpreted as one line equals one sentence and classified accordingly. • Innovations in products or services should not be included unless they are beyond what is necessary to compete in the marketplace or attract business. • Any discussion of the pension funds or employee share schemes would be classified as good news unless it was clearly to the contrary, e.g. that the scheme had been scrapped. • Any disclosure which is repeated shall be recorded as a CSD sentence each time it is discussed. • Discussions relating to the quality of goods and services will not be a CSD unless it contains notice of a verifiable change in quality, e.g. accreditation to the International Standards Organisation ISO 9000 quality series standard.
