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Amran & Devi-Corporate Social Reporting PDF
Amran & Devi-Corporate Social Reporting PDF
Azlan Amran
School of Management
University Science Malaysia
Penang
E-mail: azlan_amran@usm.my
S. Susela Devi
Faculty of Business & Accountancy
University of Malaya
50603 Kuala Lumpur
Malaysia
E-mail: susela@um.edu.my
1
C0RPORATE SOCIAL REPORTING IN MALAYSIA:
A MIXED METHOD APPROACH
ABSTRACT
This paper advocates the use of ethnographical methodology (Puxty et.al. 1978) to reveal
the grounding of this phenomenon within the social, economic and political context of a
rapidly developing nation utilizing the Institutional perspective. The findings indicate that
the entire three mechanisms of isomorphism; the coercive, the normative and the
mimetic, do contribute to Malaysian company CSR. Several new variables were also
identified and statistically tested to larger samples.
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Corporate Social Reporting in Malaysia: A mixed method approach
INTRODUCTION
Significant research (Andrew et al.,1989; Che Zuriana et al., 2001; ACCA, 2002;
Thompson and Zakaria, 2004; Haron et al., 2006; Teoh and Thong, 1984; Mohamad
Zain, 1999; ACCA, 2002; Jaafar et al., 2002; Haniffa and Cooke, 2002) has been carried
out to investigate this phenomenon but none has provided conclusive findings. This paper
is an attempt at approaching the same phenomenon, albeit from a different approach. It
advocates the use of mixed methodology (Puxty et.al. 1978) to reveal the grounding of
this phenomenon within the social economic and political context of a rapidly developing
nation utilizing the Institutional perspective.
The crux of this study therefore, is to examine the reasons behind the disclosures made by
local companies by examining the determinants derived from an exploratory study in the
light of the Institutional Theory perspective. The determinants are subsequently tested on
larger samples using quantitative techniques.
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2006). Secondly are studies that try to identify the drivers or factors of CSR development
(Teoh and Thong, 1984; Mohamad Zain, 1999; ACCA, 2002; Jaafar et al., 2002; Haniffa
and Cooke, 2002; Chambers et al., 2003; Nik Ahmad and Sulaiman, 2004; Thompson
and Zakaria, 2004; Elijido-Ten, 2004). It is worth noting that a few studies combine both
the mentioned objectives (ACCA, 2002 and Thompson and Zakaria, 2004).
Extent of CSR
One of the earliest studies on the development of CSR in Malaysia was carried out by
Teoh and Thong (1984). This study examined various aspects of corporate social
performance including social reporting. The authors surmised that companies were
mainly involved in areas of human resource, product service, community work and the
physical environment. Human resource related activities topped the list of social
involvement by the companies surveyed.
An interesting finding from the 1984 study was the mismatch between the level of actual
corporate social involvement and the reporting of such activities. In the case of private
companies, this mismatch was attributed to the limited circulation of Annual Reports. For
public companies, disclosures of their social involvement were made in the form of
passing references in the Chairman’s Statements since Annual Reports were traditionally
kept very brief. Based on these revelations, the researchers concluded that Malaysian
companies were, on the whole, rather conservative in their attitudes towards CSR (Teoh
and Thong, 1984).
Later on, a more focused study was conducted by Andrew et al. (1989). This study
however, had the disadvantage of including Singaporean companies in the scope of its
investigation. It therefore did not faithfully represent the Malaysian scenario.
Nevertheless, the study by Andrew et al. (1989) on the corporate Annual Reports of 119
publicly listed Malaysian and Singaporean companies for the years ending in 1983,
revealed two interesting findings. Firstly, out of the 119 sampled companies, only 31 %
did any form of social reporting and a majority of these disclosures reported only on one
category (Andrew et al., 1989). Secondly, it appeared that the size of a company had a
bearing on disclosures.
It is pertinent to note that the studies by Teoh and Thong (1984) and Andrew et al (1989)
were conducted in the 80’s, at a time when the Malaysian economy was just beginning to
develop. Since then, there were no published studies on CSR in Malaysia until the year
2001. In 2001 a study was conducted by Che Zuriana et al.(2002) into the CSR practices
of Malaysian companies for the five-year period ending 1999 (1995 to 1999). The study
discovered that out of the sampled 100 companies from almost every industry in
Malaysia, less than 30 percent of the companies made social and environmental
disclosures. Most of the disclosures pertained to human resources information. Some of
the companies surveyed disclosed information both in terms of narrative and quantitative
formats; the majority were accustomed to use the Chairman’s Statement for such
disclosures. Surprisingly, these findings were basically consistent with the two prior
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studies (Andrew et al.,1989 and Teoh and Thong, 1984). This indicates that there had not
been any fundamental changes in corporate behavior towards CSR.
A more complex or rather complete study was conducted by ACCA (2002). The survey
intended to examine the extent of environmental related disclosures by reporting
companies listed on the main board of the Kuala Lumpur Stock Exchange. The survey
covered 3 years of reporting from 1999 to 2001 and was significant in explaining the
status of CSR in Malaysia in terms of both the quantitative and qualitative aspects. The
survey findings showed that there has been an increase in the number of KLSE main
board listed companies disclosing some form of environmental reports. As revealed, the
trend grew from 25 in 1999, to 35 in 2000 and 40 in 2001 and the industrial product
sector emerged as the largest sector that engaged in environmental reporting. This was
followed by the plantation sector, consumer products, trading/services, construction,
infrastructure and properties and finance. The survey also discovered that no reports on
the environment were made by companies in the mining, technology and hotel sectors.
In terms of reporting, all the companies surveyed used the Annual Report as the means of
communicating their environmental disclosures. Quality wise, the findings showed that
there were an increasing number of pages allocated to environmental disclosures.
Companies were also increasingly addressing environmental concerns within the
Chairman’s Statement. However, none of the reporting companies had their
environmental information verified by a third party.
A more recent study of a similar kind was conducted by Haron et al. (2006). Haron et al.
(2006) compared the social disclosures done in three representative years of pre-recession
(1996), during recession (1998) and post recession (2000) in order to see if there were
any differences. The findings indicated that the highest number of recorded disclosures
was in the year 1998, which was during the recession period. Haron et al. (2006)
rationalized that this phenomenon could be due to a few factors. Firstly, it would appear
that the companies tried to legitimize their actions in order to boost public confidence in
their performances. Secondly, the government’s focus on social benefits during this time
could have prompted the greater number of disclosures. Thirdly, the companies could
have reacted positively to the calls by the government, in line with the development of
corporate governance, to be more transparent. In addition to the three factors, the
government, through the Finance Committee, issued the Report on Corporate Governance
which promoted greater disclosure and transparency. Consequently, Haron et al. (2006)
concluded that disclosures were highest during the financial crisis due to the active
involvement of the government.
The above discussion underscores the fact that there are not many changes in the pattern
of CSR in Malaysia despite the increasing number of practicing companies. There is also
evidence that the government has had a hand in encouraging more disclosures through its
promotion of greater transparency. In the following section, studies that look into the
factors that influence CSR are discussed.
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Identifying factors
Studies that identify the factors responsible for the development of CSR can be divided
into two sub-groups namely, studies that employ rigorous statistical techniques in
determining the factors or drivers and secondly, studies that use exploratory methods or
secondary information. Studies of the former kind normally employ a framework that is
attached with some theoretical explanation. This theory is used to rationalize the factors
which the researchers perceive as being able to explain the extent of CSR.
One of the earlier local studies that employed this method was the study by Jaafar et al.
(2002). Jaafar et al. (2002) applied the positive accounting theory to explain the extent of
environmental disclosures among the KLSE main board listed companies. At the outset,
the study postulated that companies that are exposed to potential wealth transfer due to
unfavorable social or environmental performances would employ counter measures in
order to prevent or minimize such transfer. The findings from the study supported this
argument and compelled it to conclude that the level of environmental disclosure was
largely influenced by the environmental performances of the companies. Companies
facing environmental related issues would provide more detailed environmental
information in the Annual Reports.
Another study that could be traced to the same year was the one conducted by Haniffa
and Cooke (2002). Haniffa and Cooke (2002) brought corporate governance and culture
dimension into the discussion of the possible factors that influence CSR. They tested a
few variables in order to elicit evidences to support the influence of corporate governance
and culture on CSR. In terms of corporate governance, two variables were found to have
a significant impact namely, the existence of family members in the board and the
existence of a non executive chairman. It appeared that more family members in the
board would result in better reporting and that having a non executive chairman would
also have a similar effect. In terms of the cultural dimension, their findings were
inconclusive. They however, found that a higher proportion of companies with Malay
directors tend to report more.
A more recent study by Thompson and Zakaria (2004) indicated that firm size, financial
leverage, industry membership and NACRA were statistically related to the quantity of
social disclosures. In addition, they observed that CSR was still at a low level and
attributed this malaise to three factors: public apathy, lack of government pressure, and
low awareness of companies on the benefits of CSR and the impact of their actions on the
environment.
Elijido-Ten (2004) employed the stakeholder theory in order to explain the determinants
of environmental disclosure in Malaysia. Specifically, Elijido-Ten (2004) used Ullman’s
(1985) three-dimensional framework which included stakeholder power, strategic posture
and economic performance in explaining the extent of CSR, which was represented by
two variables namely, quantity and quality. The findings of this study suggested that the
main determinants of environmental disclosure were the level of environmental concern
of the top management and the power of the government to sanction companies. This is
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yet another study that confirmed the government’s role in encouraging companies to
embark on CSR.
Studies that are of the second kind have similarly identified several determinants or
drivers. These are summarized and presented in the following Table 1.
Table 1 summarizes the drivers of Malaysian CSR. All of the above drivers are deduced
from observations and secondary information except for those proposed by Mohamad
Zain (1999) which are based on interviews with seven managers.
Unlike the developed countries like the US, UK and Australia where the impetus for the
development of CSR are, in great part, driven by the human rights and consumerism
movement and later by the serious involvement of the government, Malaysia has had a
very different experience. Based on the limited studies conducted in Malaysia, none of
the studies had successfully highlighted the influence of the consumer, community or
employee. For instance, despite including the consumer factor as one of the suggested
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reasons for disclosure, the study by Nik Ahmad and Sulaiman (2004) found that it was
ranked last by the respondents of the questionnaire. As a matter of fact, the influence of
environmental lobby groups was placed second last and the community factor, third last.
This finding indicated that the local managers perceived pressure from these groups of
stakeholders as being of no consequence. This was supported by the low level of CSR
awareness among the local Malaysian people. Further study needs to be carried out in
order to find the real motives for the Malaysian CSR development.
The above analyses lead to one main conclusion, that is, Malaysian CSR literature lacks
exploratory studies that are ethnocentric (Puxty et al., 1987) in nature to really understand
the motives of Malaysian CSR.
THEORETICAL FRAMEWORK
The discussion on local studies thus far reveals that various theoretical explanations have
been employed to explain the Malaysian CSR phenomenon. Haniffa and Cooke (2002)
and Zakaria (2002) for example, employed the legitimacy theory while Mohamad Zain
(1999), suggested the viability of the stakeholder theory. Despite the many postulations
put forth, none has been able to satisfactorily explain the conundrum. A theory can only
provide a partial explanation and it depends on the scope and the variables that the
researcher intends to investigate.
Given this backdrop, this study is an attempt at an explanation of the phenomenon from
the lenses of the Institutional Theory. This theory has been highlighted as having a great
potential to explain corporate social reporting (Rowe and Wehrmeyer, 2001, Milne and
Patten ,2002) partly due to the empirical failure of current popular theory (Dillard et al,
2004). Miller (1994) highlights the need to refocus and gain a better understanding of
how accounting influences and is influenced by a multiplicity of agents, agencies,
institutions and processes.
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This paper addresses the subject of whether the Malaysian corporate sector is being
institutionalized into social reporting. Hence there is a need to look at how the relevant
actors, through the Institutional mechanisms, are able to institutionalize local company
practices by way of understanding what influences them to adopt CSR practice.
The Institutionalists believe that institutional environments obtain their power from
“rationalization” and from accompanying state elaboration (Zucker, 1987). Zucker
explains that this environment is a result of a much wider “state project” that comes
under state jurisdiction. This wider “state project” may be generated from the collective
normative order, including the professions and widespread agreements shared by
members of organizational fields. The conformity with this collective order increases the
flow of societal resources and enhances “long run survival prospects” (Zucker, 1987).
The institutional elements that influence the firm may also come from external factors.
Zucker (1987), adds that organizations are pressured to become similar, sometimes
because of environmental constraints and sometimes because of network ties with other
organizations. Townley (2002), highlights the importance of powerful carriers or agents
and how their interpretations shape the implementation of the new system.
Mechanism of
Sources of Institutionalization:
Institutional -Cohesive Adoption of CSR.
factors -Mimetic
-Normative
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RESEARCH METHODOLOGY
This paper employs an exploratory sequential mixed method. Creswell (2003) states that
sequential procedures are suitable for studies that seek to elaborate on or expand the
findings of one method with another method. This is the contribution from this study in
that it incorporates an ethnocentric approach that affords a grounded understanding of the
phenomenon in the local context. It provides a mixture of advantages of qualitative and
quantitative methods in order to achieve the above objectives. Furthermore, the
ethnographic methods can give shape to new constructs or paradigms, and new variables,
for further empirical testing in the field or through traditional, quantitative social science
methods (Genzuk, 2003). This study begins with an exploratory research using a
qualitative approach and followed by a quantitative approach on a larger sample in order
to generalize results to a population.
Qualitative approach
In the first phase, this study explores and identifies the relevant factors and themes that
explain the practice of CSR in Malaysia by employing all of the three mentioned
methods. Face-to-face interviews with top managers of selected listed companies are
conducted for this purpose. The companies are selected based on their reporting. Only
companies that show a significant amount of reporting and had achieved recognition in
terms of winning awards for corporate reporting are chosen. In all, 11 companies are
interviewed. The questions used are open-ended and the conversations taped and
transcribed ad-verbatim.
The post interview analysis commences immediately after the data collection process is
completed. The average transcription is 6-7 pages for each respondent on an A4 sized
paper and using single spacing and font 12 of Times New Roman characters. The
transcripts of each respondent are then read more than once. This act is done during the
process of getting the big picture and admittedly, there is some element of biasness by
doing this― a point that is well explained by the constructivists, who postulate that a
researcher normally looks at certain phenomenon through certain perspective.
The data is analyzed by the analytic methods proposed by Miles and Huberman (1994).
According to Miles and Huberman (1994), even though there are diverse methodologies
in approaching the qualitative research, still, some analytic practices may be used across
different qualitative research types. They propose that qualitative analysis consists of
three linked sub processes namely, data reduction, data display and data conclusion
drawing/verification. Miles and Huberman (1994) state that these sub processes happen
concurrently. Overall the analysis process loosely followed these three sub processes.
The transcribed data are analyzed for any underlying themes and in doing this, the initial
proposed model is used. Clearly, some aspects of the proposed preliminary framework
are supported by the evidences. Solely relying on the preliminary framework however,
10
may obscure the true picture gained from all the evidences. As such, the next stage of the
data analysis process calls for the comparing and cross analyzing of the coded and
summarized data with the profile of the respondents. The simplified data are compared
with the respondent’s nature of business, stakeholders and the products or services
offered by them.
The outcome is a detail matrix table that is akin to the data display as described by Miles
and Huberman (1994). The table displays an organized, compressed assembly of
information that permits conclusion drawing and action. The data display helps the
researcher to understand what is happening (Miles and Huberman, 1994), as well as to
see the regularities, patterns and the causal relationship. The Institutional Theory is
concurrently used to interpret the evidences since this perspective encapsulates the core
issues emanating from the evidences.
Before the above mentioned matrix table is constructed, the simplified coded motivations
are first listed. The following are the motivations identified from the interview data.
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analysis. The motivations identified via the qualitative approach are than brought forward
for triangulation with those acquired via the quantitative approach.
Quantitative approach
The quantitative approach starts with a discussion on the hypotheses development and
followed by the research design used to test the hypotheses.
Hypotheses development
Coercive isomorphism comes from the political influence and the problem of legitimacy.
It results from both formal and informal pressures exerted by other stakeholders on which
the company is dependent. The pressure may come in the form of orders, persuasions or
invitations to join the collusion. The findings from the exploratory study indicate that
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companies adopt CSR with the purpose of promoting their image and as an investor
relations strategy. Two stakeholders that are seen to impose coercive influence are the
government and foreign organizations.
The state
The Malaysian government is taking social and environmental issues seriously. This is
seen in the incorporation of elements of Agenda 21 in its own development planning and
monitoring systems, namely the five yearly Malaysia Development Plans and the longer
term Outline Perspective Plans (Hasan and Adnan, 2002). The vision 2020 thrust aims to
make Malaysia a fully developed country with emphasis on prudent environmental
exploitation and sustainability (Mahyuddin and Rao, 2003).
Foreign organisation
Evidence from the interview data indicates that foreign investors are concerned about
CSR. This is due to the higher level of environmental and corporate responsibility
13
awareness among the stakeholders in developed countries (Teoh and Thong, 1984). For
example C2, which recently received a grant from the European Union, mentioned the
stipulation imposed by the union that the grant be used only for the purchase of
environmentally friendly equipments.
The above scenario indicates that companies, which are exposed to oversea partners or
investors, may have been institutionalized by their foreign counterparts as they compete
for the resources. From the Institutional Theory perspective, these companies will follow
the same environmental and social perceptions of their investors in order to gain more
investments as well as to make the investors stay. This is to ensure their long run
survival. Malaysian companies practice CSR with the purpose of communicating to their
investors how they feel about environmental and social issues and also to inform the
extent of their involvement. Even though the information in the Annual Reports may not
be current, nevertheless they tell the investors of the history of the companies’ activities
throughout the years. This yearly information would attract new foreign investors as well
as please the current ones which are holding shares in the companies.
In the case of companies that are dealing with overseas business associates, such as from
the US and Japan where the awareness on CSR are high, it is expected that they will be
institutionalized by the reporting culture of these associates. This can happen since these
business partners are in a powerful position to exert their influence by virtue of
investments and business dealings in and with these companies. Thompson’s (2003)
explanation for the high number of Malaysian companies possessing ISO14001
certifications lends support to the above mentioned influence of foreign business
associates. Due to the heavy dependence of Malaysian companies on their overseas
counterparts, it is a wise strategy to strike mutual understanding in all aspects of business
operation including the practice of CSR. However to date, no empirical studies have been
done to support this proposition. Based on the above arguments the following alternative
hypothesis is developed:
The emphasis on normative isomorphism introduces how the prescriptive, evaluative and
obligatory dimensions influence the adoption of CSR. These dimensions encompass both
values and norms. Scott (2001) explains that values are conceptions of the preferred or
desirable and norms specify how things should be (p.55). These values and norms
prescribe how the specified actors should behave. Normative systems can be used to
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explain how award, association membership, management commitment, mission and
goals, parent reporting and managing director’s background influence company to adopt
CSR.
Award factor
Respondents of the exploratory study perceive that by disclosing CSR this would help
them enhance their image. This perception is shared by all companies irrespective of size
or industry. From the Institutional Theory perspective, this attitude is a result of the
isomorphic pressure posed by the relevant actors in the environment. One strategy that is
really obvious for the furtherance of company image is by winning the NACRA awards.
The awards confer recognition to the winners and attest to their compliance to the award
criteria. This factor induces companies to make better reporting. The survey by ACCA
(2002) highlights that the NACRA Reporting Award is one of the drivers of Malaysian
CSR development. Based on the above argument this study proposes the following
hypothesis.
Oliver (1991) suggests that if the internal goals of the firm is compatible with the external
pressure, then the firm is more willing to acquiesce. In this study, the respondents
identify the goals and mission of the company with the direction, philosophy and
commitment of the management. The goals and mission influence the future and as well
as the short term planning of the company. As pointed by Oliver (1991), there is a high
possibility for the company to conform to external normative pressures when these
pressures are compatible with its own internal goals. In addition, having an internal goal
that is related to social and environmental matters is by itself a form of normative
pressure on the company since it prescribes the way the company should behave. As
such, the following hypothesis is developed.
Another significant point from the qualitative finding suggests that a company which is a
subsidiary of a good reporter of social and environmental data tends to follow the
reporting culture of the parent. In this regard, the Institutionalists argue that the
subsidiary normally adopts the compatible accounting practice of the parent company
since they are sharing the same policy (DiMaggio and Powell, 1983). Therefore, the
following hypothesis is developed.
15
Hypothesis 7: Ceteris paribus, there is positive association between a subsidiary
of a parent company that is seriously engaged in CSR and Corporate Social
Reporting.
Association factor
The Institutionalists (Di Maggio and Powell, 1983) argue that the density of interactions
can institutionalize a company. For instance, a company that is bound by some kind of
ties with other companies within the same association normally shares the characteristics
of the others since all of these companies are institutionalized by the same association
philosophy or rule. In a nutshell, a particular company is expected to follow the goals and
objectives of the association. In the case of Malaysia, BCSDM is one association that is
responsible in promoting sustainable development among the business community in the
country. There are fifty six members in this business council for the year of 2002/2003
and thirty of them are public companies. This study believes that a company which is a
member of such an association would have been institutionalized by the objectives of the
association and thus will be influenced to adopt CSR.
Management factors
In her framework, Oliver (1997) applies normative rationality in accessing the individual
level motivation and postulates that the choice of motivation is induced by historical
precedent and social justification. Historical precedent, in this context, refers to the
corporate norms or corporate routines. Normative pressure as discussed by Di Maggio
and Powell (1983) stems from a collective struggle of members of an occupation to
define the conditions and methods of their work, known as professionalization. Some
aspects of professionalization are important sources of isomorphism. For the accounting
profession, the first aspect is the formal accounting education and cognitive base
produced by the university. The second is the growth and elaboration of the professional
network. According to Di Maggio and Powell (1983), the university and professional
training institutions are important centers for the development of organizational norms.
The study by Bebbington et al. (1994) on the attitudes of top UK companies’ Finance
Directors reveals that memberships in certain professional accountancy bodies may have
some slight influence on their perceptions of environmental accounting. The study also
finds that pre-university training education may also impact the attitudes of accountants.
Based on the cross analysis of the responses to the profiles of the respondents, this study
finds that companies with top managers who have had prior experiences in CSR while
working with other multinational companies, normally have high awareness of the CSR
issue. This is consistent with the proposition of the Institutionalists that the employee can
be a diffusion agent. Another pattern that emerged in the analysis is that respondents who
are educated overseas tend to have higher awareness of CSR.
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Hypothesis 9: Ceteris paribus, there is positive association between a Managing
Director who has had prior working experience with a foreign company and
Corporate Social Reporting.
Industry
Foreign activities
The mimetic and the modeling concepts are again applicable in describing the
relationship between companies that are involved in international trade and the practices
of foreign MNCs. As confirmed by the exploratory data, Malaysian companies are
influenced by the practices of these MNCs since they also want to be recognized as
MNCs. The Institutionalists argue that a company tends to follow another successful
company when the environment is uncertain (Di Maggio and Powell, 1983). Thus, in the
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case of a company operating in countries that do not have any law regarding the
disclosure of environmental and social impact, it will tend to follow the practice other
MNCs. However, in the reverse case of a company operating in a country where the
awareness is high and where there exists laws regarding the issue, the company will tend
to follow the normative and cohesive pressures created by the culture and the law. In both
instances, the modeling concept comes into play. This postulation of the Institutionalists
however, is not empirically proven by Haniffa and Cooke (2002). Thus, the following
hypothesis is developed.
Size factor
Another factor identified by this study as having an influence on the extent of CSR is
size. Many of the big companies interviewed state that, as big companies they have to
provide leadership. This is in fact a form of mimetic action whereby, upon realizing that
big MNCs have already practiced CSR, these big local companies are now forced to
follow suit. Thus the following hypothesis is developed.
Hypothesis 13: Ceteris paribus, there is positive association between size and
Corporate Social Reporting.
RESEARCH DESIGN
Unit of analysis
The unit of analysis of this study is the annual report of the company that is listed in the
Bursa Malaysia. The prime source is the annual report of the company itself. This is
consistent with the previous researches done in this area (Hackston and Milne, 1996,
Haron et al., 2006, Zakaria, 2002 ). The Annual report is chosen as the main document
because it is conveniently available and is produced every year. It is also regarded as the
main form of company communication (Zeghal & Ahmed, 1990, Haron et. al, 2006).
According to Gray et. al., (2001), there are three reasons only Annual Report is used in
many CSR researches. First, the practical matter of identifying the full range of other
disclosure is not irrelevant. Second, the annual report s a central corporate document
which speaks about the organization as a whole. Third, much of the interest in social and
environmental reporting lies in the construction of accounts of the organization’s social
and environmental activities.
The population of the sample is all of the listed companies since they are required to
publish their annual reports annually, per the KLSE listing requirement. In Malaysia, a
18
private limited company is not required to publish its annual report. As such, private
limited companies are omitted from the sample. Companies from the unit trust sector are
also excluded from the population sample as they are subjected to additional requirement.
(Appendixes 9C-06 of KLSE listing requirement as at January 2001).
This study applies the stratified random sampling method on the sectors of the listed
companies in the Bursa Malaysia. Each sector then has its representative selected
randomly. This study does not focus on the top companies like the previous research
(Hackston and Milne, 1996) but includes small and medium companies as well. This is
driven by the preliminary observation that many of these companies are exposed to the
external institutional factors as well. Furthermore, a mixed group of samples would be
useful in order to see the relationships of the institutional factors and ensure that all
industries are included.
Samples are also drawn from both boards in the Bursa Malaysia. In Malaysia, big
companies are normally listed in the first board and small ones in the second board.
Companies in the second board are also drawn based on the sectors. In order to see the
relationship of membership of BCSDM and CSR, companies that are members of
BCSDM and listed on either of the two boards are also taken into the sample. Altogether
there are 21 companies that are members of BCSDM. A letter requesting for their latest
annual reports is sent to them. The final sample chosen for this study amounts to 201
companies.
Table 3: Demography of the respondents
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Dependent variable
This study uses content analysis to measure the quantity of corporate social responsibility
disclosures. Content analysis has been a popular method in assessing CSR disclosures
(Gray et al., 1995b). Prior studies on CSR (Ernst and Ernst (1978), Guthrie and Parker
(1990), Hackston and Milne (1996), Haniffa and Cooke (2002), Raar (2002) and Zakaria
(2002) had used content analysis in measuring CSR. Weber (1990) defines content
analysis as a research method that uses a set of procedures to make valid inferences from
text. Weber adds that the rule of this inferential process varies based on the interest of the
investigator. This research technique is supposed to be able to make a replicable and
valid inference from data according to the context (Krippendorff, 1980). In order to
ensure the replicable manner of inference, a set of interrogation instrument, checklist and
decision rules should be developed. This study decides to adopt the Hackston and Milne
(1996) instrument in order to provide a reliable set of procedures to measure the
disclosure of CSR and also allow comparability with other researchers.
Gray et al. (1995b), raise a big concern on the unit of analysis for the amount of
disclosure. Milne and Adler (1999) state that in social and environmental disclosure
studies much of the discussion on the unit analysis confuses the issues of what should
form the basis for coding with what should form the basis for measuring or counting the
amount of disclosure. They add that these two are not same. Many of the researchers
focus on how they count or measure but not many really understand what unit of analysis
forms the basis for their coding decisions. Milne and Adler (1999) propose sentence as a
more reliable basis for coding than other units of analysis. As such, this study uses the
sentence as the basis to code and count the content of CSR. This method has the
advantage of enabling clear classifications since sentences carry explicit meanings. It also
makes the task of the researcher easier in following the decision rule.
Independent variables
For independent variables, the study mainly depends on secondary data that are available
from published documents and web sites.
DATA ANALYSIS
This study uses multiple regressions in assessing the variability in the extent of CSR.
This statistical method has been widely used in previous researches (Hackston and Milne
(1998), Cooke (1998), and Haniffa and Cooke 2002). The majority of the variables in
this study are measured using dummy variables since most of the variables are qualitative
in nature. Gujarati (2003) states that dummy variables can be incorporated in the
regression models just as other quantitative variables. Gujarati (2003) emphasizes that a
regression model may contain variables that are all exclusively dummy, or qualitative in
nature.
20
Based on the above discussion of dependent and independent variables, the following
regression model is developed:
CSR =
Where
The correlation matrix is reviewed and the variance inflation factors (VIF) computed to
detect whether there is multicollinearity problem. Further analysis to see whether the
multiple regressions assumptions have been violated is also carried out. The normality,
linearity and homoscedasticity assumptions are determined based on the analysis of
residuals, plots of the studentized residuals against predicted values, and Q-Q plot.
The above analyses show that the untransformed data violates the multiple regression
assumption on normality, linearity and homoscedasticity assumptions and none on
multicollinearity effects. Refer to Table 4 for a descriptive analysis of the violation. The
issue of identifying appropriate techniques in dealing with accounting disclosure has been
discussed in Cooke (1998), Haniffa and Cooke (2002) and Tilling (2004). Cooke (1998)
21
suggests that whoever undertakes research on disclosure issue should pay attention to the
structure of data and consider the appropriateness of transformations, wherever
necessary. In addressing the above violation and in order to ensure the rigorousness of the
regression test, the data is then transformed into rank and normal data and re-checked for
violation. The problem is found to have ceased.
DESCRIPTIVE ANALYSIS
Table 4 shows information for each independent variable and dependent variable, the
mean, standard deviation, minimum, maximum value, skewness and also kurtosis. It also
provides Kolmogorov-Smirnov statistics and its significant value. For CSR, the mean
score is 27.299, the minimum score is zero and the maximum is 342. This indicates the
existence of an outlier, since the maximum quantity of reporting is of an extreme value as
compared to the mean. The data is positively skewed indicating that scores are clustered
at the low values. The kurtosis values are also highly positive which indicate that the data
is highly peaked in the centre. These results imply that the data is not normally
distributed. Test of normality using Kolmogorov Smirnov statistics supports the results
(K-S Stat= 0.299, p value = 0.00).
The foreign shareholding variable indicates a 2.752 for skewness and 6.769 for kurtosis.
This implies that the distributions for foreign shareholding are slightly skewed to the left,
indicating scores are clustered at the low values. In contrast, the kurtosis score indicates a
cluster in the centre. This shows that the data for foreign shareholding variable is not
normal in the sense that it is represented more by companies that have low percentages of
foreign shareholding. The Kolmogorov–Smirnov test of normality supports this
conclusion by indicating a significant value at p = 0.00 (K-S stats= 6.769).
The skewness and kurtosis scores for government shareholdings also indicate the same
pattern. The data is positively skewed, implying a cluster to the left at the low percentage
of shareholding. The kurtosis score is much bigger than that of foreign shareholding, at
16.208. This says that the data is not normal and confirmed so by the test of normality
using Kolmogorov Smirnov statistic (K-S Stats=0.291, p value= 0.00).
22
The size variable is also not normally distributed and the pattern is similar to the last two
variables. The skewness and kurtosis scores are slightly bigger than the above two
variables. This implies that the data for size is not normal with the scores clustered to the
left and peaked at the centre. This is supported by the test of normality using
Kolmogorov-Smirnov statistic.(K-S stats= 0.201, p value= 0.00).
The descriptive result for CSR is presented in Table 5, which is a replica of the format
used by Hackston and Milne (1996).
Table 5 indicates that the most common themes disclosed by the Malaysian companies
are employee (62.7 percent), community (32.3 percent) and products (31.8 percent).
These findings are in line with those of recent studies by Haniffa & Cooke (2002) and
Thompson and Zakaria (2004). Both of these studies however, indicate products
disclosure at second place and employee at third place. This implies that there is a slight
increase in community disclosure that may have resulted from the increase in social
awareness among the Malaysian companies. Environmental reporting is at fourth placing
and followed by health and safety, and energy disclosures― the latter with only two
23
companies reporting this type of information. These findings indicate that the trend of
themes reported is relatively consistent through out the years and support the Institutional
Theory.
As for the evidence dimension, the monetary and declarative types of disclosure share the
same percentage at 72 percent while the non monetary disclosure is slightly less, at 60
percent. In term of the news dimension, the analysis reveals that most of the companies
disclose CSR in the form of good news. This is consistent with the findings of studies by
Zakaria (2002) and Hackston and Milne (1996). The fact that there are companies that do
disclose bad news (8 companies or 4 percent) augurs well for the development of CSR in
Malaysia. Zakaria (2002) also reports evidence of company reporting bad news in their
CSR.
The fourth and fifth columns carry the most meaningful data as these convey the
information on total sentences disclosed in each type of disclosure reported. This is
because relying on the incidence rates alone may not be sufficient in getting a clear
picture. Hackston and Milne (1996) states that relying on the incidence rates alone may
provide misleading information since all the firms are treated as the same, thereby
ignoring the quantity of the amount reported. Based on the total sentences disclosed,
employee information still ranks at first place with 2157 sentences or 39.31 percent of the
total sentences disclosed. The community disclosure is at second place and product
disclosure at third.
REGRESSION ANALYSIS
The regression result is statistically significant and produces an adjusted R2 of 0.559. This
imply that amount of variability in CSR disclosure explained by the variable derived
from the exploratory phase was quit large. However there are also some unexpected
results from the regression test.
The proposition that foreign companies are influential stakeholders is not supported by
the regression test. As mentioned previously, foreign companies are expected to pose
coercive pressure on local companies to engage in CSR in order to get more investments
from them. Surprisingly however, the result from the multiple regressions indicates that
this is not the case. A brief glance at the foreign companies in the sample shows that
these companies are active in CSR. For example, British American Tobacco (M) Berhad,
Ajinomoto (M) Berhad and Nestle (M) Berhad are active in CSR. Further investigation
into this anomaly indicates that these companies do not really disclose CSR in the Annual
Report but via independent reports that are not considered by this study. This finding
suggests that the practice of MNC in reporting CSR is different or rather more advance
compared to local companies. Kolk (2005) study’s investigating the differences in
patterns and trends in reporting by companies in three different region indicates the
increase of differences between three regions. This is explained due to differences in
Institutional factors (Kolk, 2005).
24
Table 6: Regression analysis on sources of Institutional factors
Coercive isomorphism
25
Companies that have goals and missions related to CSR are expected to disclose more.
The result from the regressions suggests that this contention is supportable and in line
with the finding of Elijido-Ten (2004). Conversely, Parent company and association
influences are found not to significantly impact CSR. This contradicts the earlier
propositions.
This study hypothesized that managing directors with prior working experience in
multinational companies will influence their new companies’ reporting. However, this is
not borne by the finding of the regression analysis. The second proposition on managing
director qualification similarly fails to be proven.
Consistent with previous findings done in the Malaysian context (Thompsosn and
Zakaria, 2004, Jaafar et al. 2004), size factor is proven to significantly contribute to CSR
(less than 0.01). This is also true for the industry factor. The factor of foreign activities
however, is not supported. Refer to Table 6 for the regression result.
The main objective of this study is to explore the plausible explanation for the CSR in
Malaysia. This study starts with exploratory study to identify possible factors from the
preparer themselves and later on proceed with the regression test in order to examine the
variability CSR explained by the factors. The whole processes were explained based on a
single theory namely Institutional theory. Such methodology was adopted in order to
overcome the problem of a lack of grounded study in CSR in identifying local context
variables. Findings from the exploratory study are significant as it provide some insight
as to the real phenomenon of Malaysian CSR. Different country might have different
institutional factors that shape the CSR practices (Kolk, 2005). Factors derived from the
exploratory study were segregated into three mechanisms of Institutional theory.
The above findings indicate that the entire three mechanisms of isomorphism; the
coercive, the normative and the mimetic, do contribute to Malaysian company CSR. This
is evident in a number of cases. Most of the CSR reporters, for example, are
institutionalized by the government through their dependency on the government for
contracts. In line with the government commitment on privatization that was officially
announced in 1983, many government projects are tendered to private companies. This is
done in order to relieve the financial and administrative burden of the government and to
reduce the size of the public sector in the economy. Sun and Tong (2002), states that this
policy is also aimed at promoting completion, improving efficiency and increasing
productivity. Some of the companies like Plus Highway Bhd, DRB- Hicom Bhd and
Pharmaniaga Bhd thrive on government concessions and tenders. As a democratic
country, the tenders are open to companies that are capable of fulfilling all the
government criteria. This may include social and environmental requirement. By
complying with the minimum requirement through the promotion or sponsorship of
26
activities related to the community, these companies hope to project their image in the
eyes of the government. To underscore this effort, it is also a common practice to invite
top government personnel or ministers to launch their activities. By promoting
themselves as socially responsible, these companies hope to be seen as toeing
government aspirations and ultimately, in the long run, become favorite companies.
Following the heels of the privatization effort, the government now demands that the
companies become more transparent (ACCA, 2002). From the institutional perspective,
the adoption by companies of the policies and requirements of the government stem from
a need to appear legitimate in order to maintain their long term survival. As such, the
government can continue to play a major role in promoting CSR. They can even expand
it by making certain disclosures mandatory.
As expected, one of the strong drivers of CSR is the NACRA Reporting award. This is
acknowledged by most of the respondents. According to one, winning the award is akin
to endorsing their CSR effort and therefore promotes their image. This again, is in line
with the Institutional Theory proposition. As a result of the pressure exerted by the three
institutional mechanisms, the company will employ external or ceremonial assessment
criteria to define the value of structural elements. Similarly, other factors such as the
industry, internal goals and size will, through the institutional mechanisms, impact the
companies and eventually reflected in CSR. The coercive, normative and mimetic
pressures propel companies to be more transparent and socially and environmentally
responsible.
The use of external and ceremonial criteria assessments, such the NACRA criteria, uplifts
the companies’ status, enables them to remain successful and buffers them from failure
(Meyer and Rowan, 1983). By winning the award or adopting the NACRA criteria, the
affected companies intend to demonstrate to the government or foreign business
associates that they are socially and environmentally responsible. Eventually, they hope
that the award or the use of the criteria will confer legitimacy to their actions on social
responsibility. This legitimacy will entitle them to economic benefits that will ensure
their survival (Di Maggio and Powell, 1983, Meyer and Rowan, 1983). Hybels (1995)
argues that economic exchange is identical with legitimacy. Companies that are
dependent on contracts will perhaps be given other contracts by virtue of their legitimacy.
Hybels (1995), advocates that this kind of legitimacy will exist as long as the companies
expect something to be gained from their appearing to be socially and environmentally
responsible. This practice may also be institutionalized to become a norm, thereby
resulting in consistent CSR. This argument is in line with the perception of the
respondents in this study since they regard CSR as part of their investor relations and
marketing strategies. Hypothesis on the size of the company is strongly supported. This
27
indirectly explained the size of the companies which are relying on the government
contract.
This study concludes that the main motive for the companies’ adoption of CSR is to use it
as a public relations strategy. This strategy is addressed to the most influential parties that
hold significant resources for the companies in order to sustain and survive in the market.
LIMITATIONS
This study however, is not without its limitations. Firstly, this study is only looking at the
Annual Reports for one year, and as such may not be suitable as a generalization of other
periods. Due to this, it may fall short of being appropriate to be used in constructing
policy. This research also focuses on only the Malaysian context, thereby limiting any
comparison with other countries.
Secondly, the proxies used to measure the independent variable are confined by data
availability. Most of the data is difficult to access to enable the study to be based on
continuous measurement. This is due to the fact that some of the companies do not
disclose such information and some even treat it as confidential. Furthermore, most of the
variables are qualitative in nature and as such allow only a dichotomous type of
measurement.
Lastly, this study is Annual Reports centric. It does not look at any other stand alone
reports that the respondents might have produced on the society and the environment.
The decision by this study to ignore these stand alone reports is based on the evidence
from previous published studies that indicate the Annual Reports as being the main
channel of reporting by companies for both financial and non-financial information.
Future studies should apply the longitudinal methodology in examining the nature and
responses of the respondents. In addition, these studies should increase the number of
respondents in order to obtain more generalised results and to look for evidences of CSR
beyond the Annual Reports. It is a known fact that certain companies in Malaysia
produce stand alone reports that, for all intents and purposes, serve as CSR. Longitudinal
methodology also enables comparisons be made with other countries in order to know
clearly where Malaysia stand in terms of CSR development.
28
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