Ownership structure and corporate social
responsibility disclosure: some Malaysian
evidence
Nazli A. Mohd Ghazali
Nazli A. Mohd Ghazali is
Assistant Professor,
Department of Accounting,
International Islamic
University, Kuala Lumpur,
Malaysia.
DOI 10.1108/14720700710756535
Abstract
Purpose – The purpose of this article is to examine the influence of ownership structure on corporate
social responsibility (CSR) disclosure in Malaysian company annual reports (CARs).
Design/methodology/approach – The study uses a CSR disclosure checklist to measure the extent of
CSR disclosure in annual reports and a multiple regression analysis to examine the association between
ownership structure and the extent of CSR disclosure in annual reports.
Findings – The paper finds that, even among the larger and actively traded stocks in Malaysia, there is
considerable variability in the amount of social activities disclosed in corporate annual reports. Results
from multiple regression analysis show that, consistent with expectations, companies in which the
directors hold a higher proportion of equity shares (owner-managed companies) disclosed significantly
less CSR information, while companies in which the government is a substantial shareholder disclosed
significantly more CSR information in their annual reports.
Research limitations/implications – The sample for this study comes from larger and actively traded
stocks on the Bursa Malaysia. Thus, the results may not be generalizable to smaller and less actively
traded stocks.
Practical implications – The findings appear to suggest that the level of CSR disclosure in annual
reports of companies depends on the extent of ‘‘public pressure’’ faced by each company. The results
also raise the question of whether corporate involvement in social activities should be made a mandatory
disclosure in annual reports to better assess the extent of ‘‘corporate citizenship’’ of Malaysian
companies.
Originality/value – The study finds that ownership structure, which had been ignored in prior studies on
factors influencing CSR disclosure, has an impact on CSR disclosure.
Keywords Corporate social responsibility, Annual reports, Management accountability, Malaysia
Paper type Research paper
Introduction
Corporate social responsibility (CSR) disclosure has received an increasing amount of
attention in both the academic and business fraternities. Such disclosure encompasses the
provision of information on human resource aspects, products and services, involvement in
community projects/activities and environmental reporting. Gray et al. (1995) state that ‘‘ . . .
It is not restricted necessarily by reference to selected information recipients, and the
information deemed to be CSR may, ultimately, embrace any subject . . . ’’. This view of CSR
being a broad concept has been recognized by many quarters. The European Commission
(2001) for example, regards CSR as a concept whereby companies decide voluntarily to
contribute to a better society and a cleaner environment. The World Business Council for
Sustainable Development defines CSR as ‘‘the continuing commitment by business to
behave ethically and contribute to economic development while improving the quality of life
of the workforce and their families as well as the local community and society at large’’
(Holme and Watts, 2000). These definitions demonstrate that the traditional view of
businesses exists only to make profits has changed over the years. The role of a business
VOL. 7 NO. 3 2007, pp. 251-266, Q Emerald Group Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j PAGE 251
 today is not restricted to profit making purposes but also include an element of corporate
social responsibility and accountability.
Studies in this area have largely examined the nature and extent of CSR disclosure. However
much of prior research have concentrated on developed countries (e.g. Cowen et al., 1987;
Belkaoui and Karpik, 1989; Guthrie and Parker, 1989; Patten, 1991; Ness and Mirza, 1991;
Gray et al., 1995; Hackston and Milne, 1996; Adams et al., 1998; Brown and Deegan, 1998;
Neu et al., 1998; Williams, 1999; Newson and Deegan, 2002). In contrast, very few studies
(e.g. Singh and Ahuja, 1983; Teoh and Thong, 1984; Andrew et al., 1989; Kuasirikun and
Sherer, 2004) have examined CSR in developing countries. Understanding CSR in a
developing country is worthwhile to get some indication on the extent to which economic
development and business environment affect CSR activities.
Research on factors influencing CSR disclosure has mainly focused on the significance of a
number of corporate characteristics such as company size (e.g. Belkaoui and Karpik, 1989;
Patten, 1991) and industry type (e.g. Roberts, 1992; Hackston and Milne, 1996; Adams et al.,
1998). However, no research has been done on the association between ownership
structure and CSR disclosure. A number of studies have found significant association
between corporate voluntary disclosure (financial and non-financial information) and
ownership structure (e.g. Hossain et al., 1994; Chau and Gray, 2002; Eng and Mak, 2003). In
addition, prior research have documented that ownership structure is significantly
associated with earnings informativeness (e.g. Fan and Wong, 2002) and firm values (e.g.
Claessens et al., 2002; Mitton, 2002; and Lemmon and Lins, 2003). An examination of the
possible influence of ownership structure on CSR disclosure will not only be insightful but
may contribute towards assessing the relative importance of corporate ownership on CSR
practices.
Malaysia provides an interesting research avenue because of its unique business
environment. One of the distinguishing features of the Malaysian business environment is
government shareholdings especially in privatized entities. The privatization program was
implemented by the Malaysian government in 1983. Privatized companies are not purely
profit driven but were set up to achieve social objectives. One of the specific aims of the
privatization project was to restructure and ensure a more equitable society. In particular, the
privatization program serves as an important vehicle enhancing Bumiputra participation in
the corporate sector[1].Given the importance of privatized entities, these companies may be
regarded as more politically sensitive. As at December 2000, privatized companies
constitute 5 percent of total listed companies. However they contributed 30.3 percent to total
market capitalization of all listed companies on the Kuala Lumpur Stock Exchange (Bursa
Malaysia). Government equity ownership in privatized companies on that date was 49.5
percent[2]. The present study aims to answer the following research questions:
1. What is the extent of CSR disclosure in Malaysian CARs?
2. Which items of CSR are most disclosed in Malaysian CARs?
3. Is there any association between ownership structure and CSR disclosure in Malaysian
CARs?
The results appear to indicate that the extent of CSR disclosure is relatively low with
disclosers ranging from 4.6 percent to 77.3 percent while five companies did not disclose
any CSR information in their annual reports. Director ownership, company size and
government ownership are significantly associated with the extent of CSR disclosure.
Consistent with expectations, larger companies and companies in which the government is
a substantial shareholder disclosed significantly more CSR information while companies in
which the executive directors (or owner-managed companies) hold a higher proportion of
equity share disclosed significantly less CSR information.
The remainder of the paper is organized as follows. The next section provides an overview of
the Malaysian business environment. Prior literature on CSR is then discussed. This is
followed by the development and formulation of the research hypotheses. After outlining the
methodology including data selection and research instrument, analysis and discussion on

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results are presented. Finally, conclusions, limitations and suggestions for further research
are provided in the last section.

The Malaysian business environment

Malaysia is a country in South-East Asia, having two parts, West and East separated by the
South China Sea. At independence in 1957, Malaysia inherited an economy dominated by
two commodities, rubber and tin (Gomez and Jomo, 2002, p. 10). Malaysia is currently one
of the world’s largest producer of palm oil, rubber, tin and petroleum[3]. In the 1970s, the
manufacturing sector began to assume an important role in the Malaysian economy. By the
1990s, with the shift from labor-intensive to capital-intensive production processes, the
manufacturing sector became the leading sector of the country. In 2000, manufacturing
contributed about 33.4 percent to GDP, (an increase from 24.6 percent of GDP in 1990) and
85.2 percent of total exports (58.8 percent in 1990) with electrical and electronics products
being the major components (OPP3, 2001; Chapter 2). Malaysia ranked as the 18th largest
exporting country in the world in 2001 (MTR, 2003; Chapter 7).
Corporate ownership in Malaysia is highly concentrated[4]. The World Bank reported that in
more than half of the public listed companies in Malaysia, the five largest shareholders
owned sixty per cent or more of the companies’ equity. The largest shareholder groups
among the top five shareholders in Malaysia are the nominee companies (45.6 percent),
followed by non-financial companies (25.1 percent) and the government (17.2 percent).
According to Capulong et al. (2000) it is believed that the majority of shareholdings by the
nominees were owned by families. Additionally, Claessens et al.’s (2000) survey of East
Asian corporations found that of the 238 Malaysian companies in the sample, 10.3 percent
were widely held, 67.2 percent were owned by families, 13.4 percent by the government
while financial and non-financial institutions owned 2.3 percent and 6.7 percent respectively.
Further, at the 20 percent cut-off level, 85 percent of Malaysian public listed companies had
owner managers. These statistics show that family owned and government owned
companies are common features of the Malaysian business environment.

Prior literature
The notion of corporate citizenship is central to the concept of CSR. It is also for this reason
that the majority of studies on CSR have argued legitimacy theory as the main motivation for
companies to provide social disclosures in their CARs (e.g. Patten, 1992; Walden and
Schwartz, 1997; Neu et al., 1998; Tsang, 1998; Adams et al., 1998). Legitimacy theory
stresses the importance of societal acceptance in ensuring a company’s survival.
Underlying this theory is the belief that a company’s actions can have an impact on the
environment in which it operates. If a company’s activities are seen or perceived to have
detrimental effects on the community, the public may react by boycotting the company’s
product or pressuring for government intervention. CSR disclosure in this instance is
provided to justify a company’s continued existence. However, there have been studies
which concluded that legitimacy theory alone was not able or inadequate to explain social
reporting behavior observed in companies investigated (e.g. Guthrie and Parker, 1989;
O’Dwyer, 2002). Gray et al. (1995) argued that the manner in which a company operates and
reports its performance is influenced by the social values it exists. That suggests the
possibility of legitimacy being interpreted differently by societies of different cultures,
political systems and government ideologies.
Another explanation for CSR disclosure is provided by the political cost theory. It has been
suggested that various economic factors give rise to political costs which influence
managers on the selection of accounting method (Watts and Zimmerman, 1978; Hagerman
and Zmijewski, 1979). Watts and Zimmerman (1978) argued that companies that are more
sensitive to political pressures choose accounting methods, including social responsibility
campaign that minimize reported earning and reduce political costs. Watts and Zimmerman
(1986) acknowledged that company size is a noisy proxy for political costs and that political
sensitivity may not only depend on company size. Subsequent studies showed that industry
sensitivity could also represent the extent of political costs. Blacconiere and Patten (1994)
and Patten and Nance (1998) reported that companies with more extensive disclosure in the

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 oil and gas industry did so to manage companies’ exposure to future regulatory costs.
Similar findings were also reported by Patten (1991) and Ness and Mirza (1991) where more
social disclosures were provided in high-profile and oil and gas industries.
Studies on the nature of CSR disclosure mainly examine the theme and type of disclosure.
Most prior research documented ‘‘human resource’’ information to be the category most
disclosed by companies investigated (e.g. Teoh and Thong, 1984; Andrew et al., 1989;
Hackston and Milne, 1996; Tsang, 1998; Abu-Baker and Naser, 2000; Newson and Deegan,
2002; Kuasirikun and Sherer, 2004). Companies were also found to disclose only favourable
social performance rather than activities detrimental to the environment (Hackston and
Milne, 1996; Brown and Deegan, 1998). Nik Ahmad et al. (2003) who examined news-type of
disclosure also found 80 per cent of sample companies made good-news disclosure while
only 2 per cent had negative disclosure with the balance reporting neutral statements. These
findings imply that social and environmental information in CARs may be underprovided
because companies tend to disclose only favorable aspects of social and environmental
activities.
There were also studies which investigate factors influencing CSR disclosure in CARs. The
main findings of these studies were that company size and industry type were statistically
significant in explaining the extent of social disclosure (e.g. Singh and Ahuja, 1983; Patten,
1991; Ness and Mirza, 1991; Hackston and Milne, 1996; Neu et al., 1998; Adams et al.,
1998). Newson and Deegan (2002) in their study on Australia, Singapore and South Korea
also documented the significance of industry in influencing social disclosures in annual
reports. Adams et al. (1998) who examined a sample of annual reports from six European
countries argued that the significance of company size and type of industry could be
explained by the legitimacy theory. However, legitimacy theory was inadequate to explain
the differences in results due to country of origin.
In the Malaysian context, research on CSR includes Teoh and Thong (1984), Andrew et al.
(1989), Rashid and Ibrahim (2002), Nik Ahmad et al. (2003), Abdul Hamid (2004) and
Haniffa and Cooke (2005). Teoh and Thong (1984) and Rashid and Ibrahim (2002) reported
that the disclosure of social activities in the annual reports was much less than the extent of
involvement indicated by each company. Teoh and Thong (1984) and Andrew et al. (1989)
also examined corporate characteristics influencing social disclosure. By classifying
companies into bands of annual turnovers and total assets, and ownership by countries,
larger and foreign owned companies were found to disclose more social information in their
annual reports. Reasons suggested for the findings include larger companies having more
resources to engage in social activities and foreign-owned companies being more visible
and more likely to be subject to scrutiny by the host government. It was argued that
disclosure of social information could allay fears or criticisms that these companies were
only concern with exploiting the economic resources of a developing country.
The majority of previous research on CSR disclosure has focused on the theme and nature of
disclosure. Studies which examined factors influencing social disclosures have mainly
concentrated on corporate characteristics such as company size, profitability, industry and
gearing (e.g. Singh and Ahuja, 1983; Patten, 1991; Hackston and Milne, 1996; Abdul Hamid,
2004). The present study extends previous research on CSR by examining the relationship
between ownership structure and CSR disclosure in annual reports[5].

Hypotheses development
Based on the literature review, three ownership structure and three corporate characteristic
variables have been identified for testing their association with CSR disclosure in annual
reports. In each case an expectation is formed based on prior literature.

Ownership concentration
In a widely held company, voluntary disclosure can act as a bonding and monitoring tool
reducing agency conflicts (Jensen and Meckling, 1976) between managers and
shareholders. Ownership concentration has been found to be statistically significant and
negatively associated with the extent of voluntary disclosure in annual reports (e.g. Hossain

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et al., 1994)[6]. A widely held company means that the shares of the company are not
concentrated in the hands of a few large shareholders. Instead, this type of companies may
be having a large number of shareholders each holding a small portion of the company’s
shares. Accordingly, when a company is widely held the issue of public accountability may
become more important because there is a greater chance that these companies are being
held by the public at large. A higher level of public accountability may necessitate additional
involvement in social or community activities and hence disclosure of these activities. Thus it
may be expected that ownership concentration is negatively associated with the extent of
social activities. This study uses the proportion of shares held by the ten largest
shareholders as a measure of ownership concentration, consistent with Hossain et al. (1994)
and Haniffa and Cooke (2002). The hypothesis is as follows:
H1. The extent of CSR disclosure in annual reports is negatively associated with
ownership concentration.

Director ownership
In contrast to a widely held company, a company in which the directors hold a significant
portion of the company’s shares or owner-managed companies can be said to be closely
held. Consistent with their expectations, Eng and Mak (2003) found managerial ownership to
be negatively associated with the extent of voluntary disclosure in Singaporean listed
companies. Owner managed companies is a common business attribute in Malaysia. For
this type of companies, public accountability may be less of an issue because outsiders’
interests may be relatively small. Additionally, because the level of public interest in closely
held companies can be expected to be relatively low, this type of companies may be less
active in social activities. In other words, managers of closely held companies may not invest
heavily in socially responsible activities because the costs of investing in these activities may
far outweigh its potential benefits. Hence less amount of CSR information can be expected in
a closely held or owner managed companies. This study uses the proportion of shares held
by executive and non-independent directors as a measure of director ownership, consistent
with Eng and Mak (2003). The hypothesis is as follows:
H2. The extent of CSR disclosure in annual reports is negatively associated with the
proportion of shares held by executive and non-independent directors.

Government ownership
Government ownership is another strong feature in the Malaysian corporate sector,
particularly evident in privatized entities. Privatized companies in Malaysia were
incorporated to achieve some social objectives rather than simply profit driven (Gomez
and Jomo, 2002; Chapter 4). The listing of a number of privatized entities has enabled a
wider distribution of equity ownership to the public (EMP, 2001; Chapter 7). It may be
expected that a government owned company is more politically sensitive because the
activities of these companies are more in the public eyes. That is because ownership by the
government indirectly means that the company is owned by the public at large. Thus, this
type of companies may engage in more socially responsible activities and hence more
disclosure of social activities to legitimize their existence. Government ownership in this
study is represented by a dummy variable, whether the government is a substantial
shareholder in that company[7]. It is expected that a company in which the government is a
substantial shareholder will disclose more CSR information in their annual reports. The
hypothesis is as follows:
H3. The extent of CSR disclosure in annual reports is positively associated with
government ownership.

Company size
Watts and Zimmerman (1978) argued that larger firms are more visible in the public eyes and
more politically sensitive. Following this argument, managers of larger companies may
disclose CSR activities in the annual reports as part of a strategy to manage or reduce

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 political costs. Larger companies tend to receive more attention from the public and are
under greater public pressure to exhibit social responsibility (Cowen et al., 1987). It has also
been suggested that CSR is aimed at protecting or enhancing a company’s image or
reputation (Hooghiemstra, 2000). Belkaoui and Karpik (1989) acknowledged that
image-building and public interest concerns might influence the decision to spend on
socially responsible activities and to disclose those activities. Larger companies can be
expected to disclose more CSR information to show or portray their corporate citizenship,
thereby legitimizing their existence. That is because additional disclosure may influence
society’s perceptions about the company (Neu et al., 1998). Additional disclosure may also
allay public perceptions that large companies are reaping exorbitant profits from the public.
Company size has been found to be significant and positively associated with the extent of
social disclosure in previous studies (e.g. Singh and Ahuja, 1983; Belkaoui and Karpik,
1989; Patten, 1991; Hackston and Milne, 1996; Adams et al., 1998; Richardson and Welker,
2001; Abdul Hamid, 2004; and Haniffa and Cooke, 2005). This study uses market
capitalization as at 31 December 2001 as a measure of company size. Based on the results
of prior studies, larger companies are expected to disclose more CSR information in their
annual reports. The hypothesis is as follows:
H4. The extent of CSR disclosure in annual reports is positively associated with
company size.

Profitability
In the voluntary disclosure literature, companies which disclose more information are argued
to do so to signal their good performance. Additional disclosure ‘‘screened out’’ good
performing companies from those performing less well (Akerlof, 1970). In the social
disclosure area, those who hypothesized a negative relation between social disclosure and
economic performance have argued that high investment in social responsibility results in
additional costs (Balabanis et al., 1998). However, Belkaoui and Karpik (1989) opined that
those firms which are more socially responsive can be expected to be more profitable
because these firms should possess the same requisites skills to run a company profitably.
Empirical evidence on the relationship between CSR disclosure and profitability is
inconclusive. While Belkaoui and Karpik (1989), Patten (1991), Hackston and Milne (1996)
and Richardson and Welker (2001) documented weak association between CSR disclosure
and profitability, Singh and Ahuja (1983) and Balabanis et al. (1998) found some statistically
significant evidence of a positive association between CSR disclosure and profitability.
Profitability in this study is measured by the ratio of profit before tax to total assets. In view of
the mixed results in prior research, no expectation is formed regarding the association
between the extent of CSR disclosure and profitability. The results may assist in determining
the relative importance of economic performance in influencing CSR disclosure. The
hypothesis is as follows:
H5. The extent of CSR disclosure in annual reports is associated with a company’s
profitability.

Industry
Verrecchia (1983) argues that proprietary costs vary across industries. Following this line of
argument, companies in certain types of industries may face different degree of pressure to
disclose certain type of information because of competitive reasons. Patten (1991) found
evidence consistent with the hypothesis that companies in high profile industries disclosed
significantly more social information in their annual reports. A similar observation was also
reported by Hackston and Milne (1996) in their study on New Zealand companies. Roberts
(1992) defines high-profile industries as those with consumer visibility, a high level of political
risk or concentrated intense competition. The present study uses the degree of industry
competitiveness to classify companies into industry profile. Industry competitiveness is
measured by the ratio of the sample company’s sales to the total sales of the companies in
the same industry sector[8]. It is expected that companies in highly competitive industries
will disclose more CSR information in their annual reports. The null hypothesis is as follows:

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 H6. The extent of CSR disclosure in annual reports is positively associated with the
degree of industry competitiveness.

Research methodology

Data
Companies selected for analysis were those included in the Bursa Malaysia Composite
Index. Companies included in the Composite Index are generally actively traded and large
in size. It was decided to focus on these types of companies because actively traded and
large companies are more in the public eyes and therefore can be expected to engage in
some socially responsible activities. Sample selection based on large companies has been
used in prior studies (e.g. Hackston and Milne, 1996).
As at 31 December 2001, there were 87 non-financial companies in the Composite Index.
The selected 87 companies represent 66.1 percent[9] of the market capitalization of all
companies in the main market. The annual reports for the financial year 2001 of the selected
companies were downloaded from the Bursa Malaysia website.

Research instrument
To assess the extent of CSR disclosure in annual reports, a checklist containing 22 items was
constructed. In developing the checklist, reference was first made to the checklists
employed by previous researches on voluntary disclosure, particularly those conducted on
Malaysian companies (e.g. Hossain et al., 1994 and Haniffa and Cooke; 2002)[10].
Reference was also made to the adjudication criteria developed by the Bursa Malaysia for
the Corporate Awards and ‘‘other recommended disclosures’’ contained in the Sample
Annual Report prepared by the Malaysian Institute of Accountants and
PriceWaterhouseCoopers in Malaysia. The list was then pilot tested on a sample of 25
CARs to ensure that there is some variability in disclosure between different companies, to
capture items not yet included in the original list[11] and to eliminate those that were not
disclosed by any of the sample companies. The final list comprised of 22 items.

Scoring method
The approach taken to scoring in this study was based on an unweighted method which
means that all information were equally valued regardless of their importance or relevance to
any particular user group (Cooke, 1989; and Chau and Gray, 2002). A dichotomous
procedure was applied whereby a company is awarded a 1 if an item included in the
checklist is disclosed and 0 if it is not disclosed. Accordingly, the CSR disclosure index was
derived by computing the ratio of actual scores awarded to the maximum score attainable
(22) by that company. The CSR disclosure indices represent the dependent variable in this
study.

Results and analysis

Table I shows the distribution of CSR disclosure indices for companies included in the
analysis in bands of ten per cent. It can be seen that five (5.7 percent) companies did not
disclose any of the items included in the checklist. Among the 82 disclosers, the lowest
score is 4.6 percent while the maximum is at 77.3 percent. These results show that even
among the larger companies on the Bursa Malaysia, there is considerable variability in the
amount of CSR information disclosed in CARs. The low levels of CSR disclosure in annual
reports is, however, comparable to prior studies in other countries (e.g. McNally et al., 1982
(New Zealand); Firer and Meth, 1986 (South Africa); Wallace, 1988 (Nigeria); and Naser and
Nuseibeh, 2003 (Saudi Arabia)).
In comparison to previous research on Malaysian companies, the present study shows a
higher percentage of companies making some CSR disclosure in annual reports (82
companies (94.3 percent) compared to Andrew et al. (1989). In their study on 119 Malaysian
and Singaporean companies, Andrew et al. (1989) reported only 31 (26 percent) companies
made some disclosure on their social activities in the annual reports. A lower extent of

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Table I The extent of CSR disclosure
0 0.1-9.99 10-19.9 20-29.9 30-39.9 40-49.9 50-59.9 60-69.9 70-79.9 Total
Industry/CSR disclosure index (%) Number of companies

Tech 1 1 1 3
CP 1 3 1 2 3 2 12
IP 2 7 3 3 1 1 1 18
T&S 1 3 2 12 2 3 2 1 26
Cons 1 1 1 1 1 5
IPC 1 1 1 3
Hotel 1 1
Prop 7 2 2 2 13
Plant 1 1 1 1 1 5
Mining 1 1
Total 5 23 11 21 3 10 8 3 3 87

Notes: Tech: technology; CP: consumer products; IP: industrial Products; T & S: trading and services; Cons: construction; IPC:
infrastructure project companies; Prop: properties; Plant: plantation

disclosure was also reported by studies that examined managerial perceptions of corporate
social reporting in Malaysia (e.g. Teoh and Thong, 1984; and Rashid and Ibrahim, 2002). The
present results appear to suggest that a greater proportion of Malaysian managers were
aware of the need to disclose corporate social activities in their annual reports.
Table II shows that discussion of major types of products/services (86.2 percent), policy on
training (50.6 percent), community programs (39.1 percent) and charitable donations (36.8
percent) are the three most disclosed items in CARs. The finding regarding discussion of
major types of products/ services is consistent with prior studies (e.g. McNally et al., 1982;
Firer and Meth, 1986; and Ho and Wong, 2001). The high score observed in respect of
‘‘policy on training’’ may be explained by the importance attached to employee training by
the Malaysian government[12]. As part of the steps taken by the government to boost

Table II CSR disclosure items

No. of co. Percentage
Disclosure items disclosed disclosed Rank

1 Breakdown of employees by line of business 4 4.6 21

2 Breakdown of employees by level of qualification/ exec 5 5.8 20
vs. non
3 Breakdown of employees by ethnic origin 3 3.5 22
4 Employees’ appreciation 25 28.7 9
5 Policy on training 44 50.6 2
6 Amount spent on training 7 8.1 17
7 Number of employees trained 15 17.2 14
8 Discussion of employees’ welfare 21 24.1 13
9 Safety policy 25 28.7 9
10 Information on accidents at workplace 6 6.9 18
11 Statement of Internal Control 13 14.9 15
12 Value Added Statement 6 6.9 18
13 Product safety 8 9.2 16
14 Environmental policy 26 29.9 8
15 Charitable donations/sponsorship 32 36.8 4
16 Participation in government social campaign 24 27.6 11
17 Community programs (health and education) 34 39.1 3
18 Discussion of major types of 75 86.2 1
products/services/projects
19 Improvement in product quality 32 36.8 4
20 Improvement in customer service 22 25.3 12
21 Distribution of marketing network for finished products 27 31.0 7
22 Customer awards/ratings received 29 33.3 6

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economic recovery, employers are encouraged to increase training and retrain their workers
to upgrade the workforce in various sub-sectors. The relatively high score for philanthropic
activities is not surprising given that disclosure of these items can put companies in a better
light such as improving a company’s image. It has been suggested that creating a positive
image can contribute to a company’s competitive advantage because people are more
prepared to do a business with a company that portrays a positive image (Hooghiemstra,
2000).
Information least disclosed include breakdown of employees by ethnic origin (3.5 percent),
breakdown of employees by line of business (4.6 percent) and breakdown of employees by
level of qualification (5.8 percent). It is possible that information on ethnic breakdown
involves sensitive issues and breakdown by line of business may give some indication of the
competitiveness of each sector of the company’s activities. That may partly explain the low
percentage of companies disclosing these items in the annual reports.
Table III provides descriptive statistics for the dependent and independent variables in this
study.
It can be seen from Table III that with regards to ownership structure, even among the large
companies in Malaysia, ownership by the ten largest shareholders varies between 24.1
percent to 93.7 percent. The mean of 67.2 percent indicates that on average, large
companies are concentrated in the hands of the ten largest shareholders. In contrast,
ownership by executive directors is much less with maximum ownership at 71.7 percent and
an average of only 21.4 percent. The statistics also show that the government is a substantial
shareholder in about 64 percent of sample companies.
To determine the association between ownership structure, corporate characteristics and
CSR disclosure in CARs, a multiple regression analysis employing six independent variables
was carried out.
The regression model is as follows:

CSRdi ¼ b0 þ b1 OwnTen þ b2 DirOwn þ b3 GovtSub þ b4 Mktcap þ b5 Prof þ b6 Indus þ 1

The operationalization of dependent and independent variables and their data source are
given in Table IV.
As shown in Table V, the model in respect of CSR disclosure which incorporates five
continuous variables and one categorical variable is significant (p ¼ 0:000) with an adjusted
R squared of 27.0 percent. This means that 27.0 percent of the variation in CSR disclosure
level in annual reports of companies investigated in this study can be explained by the six
variables specified in the model.
Market capitalization is positively associated and statistically significant at the 1 percent
level. The significance of company size is consistent with most of prior studies in other
countries (e.g. Patten, 1991; and Hackston and Milne, 1996) and Malaysia (Abdul Hamid,
2004; Haniffa and Cooke, 2005). Larger companies which arguably are more visible in the

Table III Descriptive statistics

Variable Mean Minimum Maximum

Panel a: continuous variables

CSR disclosure index (%) 25.2 0.0 77.4
Ownership by the ten largest shareholders (%) 67.2 24.1 93.7
Director ownership (%) 21.4 0.0 71.7
Market capitalization 2,629,231 90,269 33,243,341
Profitability (%) 6.6 212.12 49.03
Industry competitiveness (%) 13.0 0.23 89.3
Panel b: categorical variable
Government as a substantial shareholder 1 ¼ Yes 0 ¼ No
Number/(percentage) 56/(64%) 31/(36%)

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 Table IV The regression variables
Variable Definition

CSRdi CSR disclosure index

b0 . . . . . . b6 Regression coefficients
OwnTen Proportion of shares held by the ten largest shareholders
DirOwn Proportion of shares held by executive and non-independent directors
GovtSub 1 if the government is a substantial shareholder in the company; 0 otherwisea
MktCap Market capitalization as at 31 December 2001
Prof Profitability measured by Profit before tax/Total assets
Indus Industry competitiveness measured by the ratio of the sample company’s sales
to the total sales of the companies in the same industry sector
1 Error term

Notes: a The Securities Commission defines a substantial shareholder as a person having an interest
in not less than 5 percent of the nominal amount of the voting shares in a company, available at: www.
sc.com.my/eng/html/resources/press/2001/pr_20010806.pdf (accessed March 31, 2005). The same
definition is provided in Section 69D of the Companies Act 1965. With the exception of market
capitalization and industry competitiveness, all other data were taken from company annual reports.
Data on market capitalization and industry competitiveness were obtained from Datastream.

Table V Standard multiple regression results for CSR disclosure

Variables Beta t-value Significance Tolerance VIF

Constant 3.149 0.002

OwnTen 20.106 20.984 0.328 0.770 1.299
DirOwn 20.292 22.877 0.005** 0.873 1.146
GovtSub 0.232 2.228 0.029* 0.830 1.204
Mktcap 0.413 3.055 0.003** 0.492 2.031
Prof 0.140 1.399 0.166 0.899 1.112
Indus 20.158 21.164 0.248 0.488 2.051

Adjusted R 2 27.0
F statistics 6.001
Significance 0.000

Notes: **Coefficients are shown as significant at 1% or *5% level; SPSS 13.0 was used for the
statistical analysis in this study. The degree of collinearity among the independent variables is shown
in the Appendix. It can be seen from the Table that the highest Pearson correlation coefficient is
between the market capitalization (MktCap) and industry competitiveness (Indus) (r ¼ 0:691).
Gujarati (1995, p. 335) and Kennedy (1999, p. 187) suggested that collinearity should not be
considered harmful until the correlation coefficient exceeds 0.8 or 0.9. Tabachnick and Fidell (2001,
p. 84) proposed a more stringent cut-off point of 0.7. Since the highest Pearson correlation in this
study is below the cut-off point of 0.7, multicollinearity does not appear to be a serious problem in
interpreting the regression results. Multicollinearity was also assessed using the variance inflation
factor (VIF) computed by the regression analysis on SPSS. Collinearity is considered a problem only
when VIF exceeds 10 (Neter et al., 1983, p. 392; and Gujarati, 1995, p. 339). Table V shows that the
largest VIF is 2.051. These results further support the suggestion above that multicollinearity is not a
serious problem in interpreting the regression results in the present study

public eyes and more politically sensitive disclosed more CSR information perhaps to
manage their political costs and legitimize their existence. Additionally larger companies
may also engage in more social activities as part of their image building exercise.
Director ownership is significant at the 1 percent level in explaining CSR disclosure in CARs.
The negative association implies that companies in which the executive and
non-independent directors held a higher proportion of shares disclose significantly less
CSR information in their annual reports. The results appear to support the argument that
because owner-managed companies are generally closely-held, public accountability is
less of an issue to them. This type of companies may not see the need to invest heavily in
social activities and hence the low level of CSR disclosures.

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PAGE 260 CORPORATE GOVERNANCE VOL. 7 NO. 3 2007
Consistent with expectation, companies in which the government is a substantial
shareholder also disclosed significantly more CSR information. That may be partly due
to a large number of these companies are privatized entities which were set up to fulfill
an economic and political agenda in the country. Being set up for this special purpose
may necessitate these companies to engage in more ‘‘socially and publicly’’ inclined
activities. Hence additional disclosure of CSR activities may signal that the company is
operating in accordance with the expectations of the nation eventually legitimizing its
existence.
The non-significance of the economic performance variable, profitability, reinforces the
findings in prior studies (e.g. Patten, 1991; and Richardson and Welker, 2001; Abdul Hamid,
2004). The results appear to confirm Patten’s (1991) and Willliam’s (1999) view that social
disclosure are more closely related to public pressure rather than the market place or
economic pressure. Industry was also not a significant factor influencing CSR disclosure. It
is possible that the classification of industry in this study was not able to fully capture the
political or social sensitivity of each industry. Although industry has been found to be a
significant influence in prior studies (e.g. Cowen et al., 1987; Patten, 1991), Hackston and
Milne (1996) acknowledged that some of the industry classification were to a certain extent
subjective. Perhaps, future research could consider different types of company
classification. As social information includes employee-related, environmental and
community-related information, companies may be categorized accordingly to see for
example, if those providing consumables which are used in the day to day activities, engage
in more community or philanthropic activities. That is because this type of companies may
feel more need to be accepted by the public.

Conclusions and suggestions for further research

This paper has examined CSR disclosure in Malaysian company annual reports and has
found that the levels of disclosure were low ranging from 4.6 percent to 77.3 percent.
However, the present study shows a higher percentage of companies making some CSR
disclosure in annual reports (94.3 percent) as compared to a previous study on Malaysian
companies by Andrew et al. (1989) (26 percent), implying that more Malaysian managers
are aware of the concept of CSR.
The statistical results show that two ownership variables, director ownership and the
government as a substantial shareholder, which are common business attributes in
Malaysia, are significant influence on CSR disclosure in annual reports. However the third
ownership variable, ownership by the ten largest shareholders is not statistically significant
in explaining the level of CSR disclosure in annual reports. These results highlight that
distinguishing the different types of ownership is important in determining the impact of
ownership structure on CSR disclosure. The non-significance of ownership by the ten largest
shareholders perhaps signals that we need to identify who these ten largest shareholders
are and classify them accordingly because as we see from the results on director ownership
and government ownership, their association with CSR disclosure are in opposite directions.
Nonetheless, the present results show that ownership structure is an important factor
influencing CSR disclosure.
In concluding it needs to be mentioned that disclosure in annual reports should not be
regarded as a complete measure of corporate involvement in social activities. That is
because a company may have other channels of communicating its social contributions
such as through company newsletters, websites and newspapers. Thus an opportunity
arises for future research on CSR to study multiple channels of corporate communication.
Additionally, involvement in socially responsible activities may not necessarily translate into
disclosure of those activities. Hence it should not be concluded that companies which did
not disclose CSR information were not engaged in any social activities. Further, although the
statistical results show that larger companies disclose more CSR information, smaller
companies may also indirectly be engaged in CSR activities by the mere reason that they
provide employment for locals within their communities. This could be especially so in rural
areas. However, these companies may not want to disclose too much detail on their

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VOL. 7 NO. 3 2007 CORPORATE GOVERNANCE PAGE 261
 employment in a public document such as the annual reports or in other types of corporate
communication medium. Thus, this aspect of CSR may not be captured by a statistical
analysis. Nevertheless, this study provides a starting point for understanding the influence of
ownership on CSR disclosure in CARs.

Notes
1. The Bumiputra is a term used to describe the indigenous (majority of whom are Malays) people of
Malaysia. In 1969, inequalities between the politically dominant Bumiputra Malays and economically
dominant Chinese resulted in riots in Kuala Lumpur (Andaya and Andaya, 2001; pp. 287-300). A
series of policies were then launched by the Malaysian government to reduce inter-ethnic economic
differences and restructure the society (Gomez and Jomo, 2002, p. 24).
2. EMP (2001; Chapter 7), ‘‘Eighth Malaysia Plan, 2001-2005’’, available at www.epu.jpm.my/
new%20folder/RM8/c7_cont.pdf (accessed May 25, 2005).
3. Source: www.answers.com/topic/malaysia; www.icid.org/cp-malaysia.html (accessed April 3,
2006).

4. Source: ‘‘Social and Structural Review Update: Malaysia (2001)’’ published by the World Bank
Group available at: www.worldbank.org (accessed April 3, 2006).
5. The present study differs from Abdul Hamid (2004) by employing a dichotomous procedure to the
checklist of 22 items to assess the level of CSR disclosure while Abdul Hamid (2004) used content
analysis to measure the extent of disclosure. Additionally, the present study looks at non-financial
companies while Abdul Hamid (2004)’s sample consists of banks and finance companies. The present
study also examines ownership structure which was not included in Haniffa and Cooke (2005).
6. These studies were examining total voluntary information disclosure (i.e. financial and non-financial
information of which social information was part of non-financial information).
7. A dummy variable is used for government ownership because the study is interested in differences
in CSR disclosure between companies in which the government is able to influence the board of
directors, activities and operations (the government is a substantial shareholder) and those in which
the government is not a substantial shareholder.

8. Competition was also measured using the four-firm concentration ratio as in Clarkson et al. (1994).
The regression analysis employing this measure of industry competitiveness produced an adjusted
R squared of 26 percent, with market capitalization and director ownership statistically significant at
the 1 percent level and the government as a substantial shareholder significant at the 5 percent
level. Industry remains a non-significant variable.
9. Source: Investors’ Digest, January 2002. A monthly publication of the Bursa Malaysia.
10. Hossain et al. (1994) and Haniffa and Cooke (2002) however, examined the association between a
number of variables and all types (financial, strategic and non-financial) of voluntary information
disclosure on an aggregate basis but did not test separately for factors influencing CSR items.
11. An example of this item is the Statement of Internal Control which is a mandatory disclosure for
companies with financial years ending after December 31, 2001.
12. Source: ‘‘Labour Market Report 2001’’. Ministry of Human Resources, Malaysia, available at: www.
mohr.gov.my/new/lmr2001.htm (accessed September 18, 2003).

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 Appendix

Table AI Pearson correlations between continuous independent variables

OwnTen DirOwn Mktcap Prof

DirOwn 20.260*
Mktcap 0.260* 20.261*
Prof 0.069 20.157 0.181
Indus 0.247* 20.148 0.691** 0.276*

Notes: **correlation significant at the 1% level (two-tailed); *correlation significant at the 5% level
(two-tailed)

Corresponding author
Nazli A. Mohd Ghazali can be contacted at: nazlianum@iiu.edu.my

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