Professional Documents
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a
School of Management, Bradford University, Emm Lane, Bradford BD9 4JL, UK
b
School of Business and Economics, University of Exeter, Exeter EX4 4PU, UK
Abstract
Our aim is to increase understanding of the potential effects of culture and corporate
governance on social disclosures. The ethnic background of directors and shareholders
is used as a proxy for culture. Corporate governance characteristics include board com-
position, multiple directorships and type of shareholders. The dependent variable, dis-
closure in annual reports of Malaysian corporations, is measured by an index score as
well as in terms of number of words. Our results indicate a significant relationship
between corporate social disclosure and boards dominated by Malay directors, boards
dominated by executive directors, chair with multiple directorships and foreign share
ownership. Four of the control variables (size, profitability, multiple listing and type
of industry) were significantly related to corporate social disclosure with the exception
of gearing. This study has public policy implications for Malaysia as well as a number of
other countries in the Asia–Pacific region.
Ó 2005 Elsevier Inc. All rights reserved.
*
Corresponding author. Tel.: +44 1392 263201; fax: +44 1392 263210.
E-mail address: t.e.cooke@exeter.ac.uk (T.E. Cooke).
0278-4254/$ - see front matter Ó 2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.jaccpubpol.2005.06.001
392 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
1. Introduction
Corporate social reporting has been the subject of substantial academic re-
search for more than two decades.1 Some of the main research questions that
have been tackled or are currently being researched include: what companies
are reporting;2 can social and environmental disclosure practices be linked to
attributes of economic performance or to factors such as size, industry mem-
bership, risk, market reaction, external influences, firm reputation, country
of origin or proximity to individual consumers;3 and what motivates compa-
nies to make particular social and environmental disclosures.4
However, most of the factors and proxies that have been considered in pre-
vious studies are company-specific. Since disclosure is an ‘‘. . . accounting activ-
ity involving both human and non-human resources or techniques as well as
the interaction between the two’’ (Perera, 1994, p. 268), studies in this area
would benefit if both cultural and corporate governance factors are considered.
The inclusion of ethnicity (a proxy for culture) of decision makers within and
without an organisation is important in some countries because the traditions
of a nation are instilled in its people and might help explain why things are as
they are. As such, how a firm operates and reports will be influenced by the so-
cial values of the relevant publics within which it exists (Lehman, 1995; Deegan
and Rankin, 1996).
The mind of Malaysian managers is influenced by ethnicity, education and
type of organisation they work for (Chuah, 1995). Thus, operationally, ethnic-
ity acts as a suitable surrogate for culture in this study but the researchers
acknowledge that the measure is partial. Ethnicity is chosen because it is a sig-
nificant marker of class relations and provides a principle ‘‘... according to
which conflicts over wealth and state power take place’’ (van Fossen, 1998,
p. 89). Furthermore, in multiracial countries, the prevailing societal values
may not reflect the values of the nation as a whole especially if each racial
group has chosen to maintain its own ethnic identity and values. Differences
between the groups are greater if there exists a history of conflict or in which
1
See Mathews (1997) for further discussion on the development of social reporting over that
period.
2
See, for example, Ernst and Ernst, 1976; Teoh and Thong, 1984; Andrew et al., 1989; Guthrie
and Parker, 1990; Harte and Owen, 1991; Adams et al., 1995; Deegan and Gordon, 1996; Newson
and Deegan, 2002.
3
See, for example, Ingram and Frazier, 1980; Anderson and Frankle, 1980; Trotman and
Bradley, 1981; Freedman and Jaggi, 1982; Ullman, 1985; Cowen et al., 1987; Roberts, 1992;
Herremans et al., 1993; Tilt, 1994; Clarke and Gibson-Sweet, 1999; Newson and Deegan, 2002.
4
See, for example, Guthrie and Parker, 1989; Patten, 1992; Roberts, 1992; Donaldson and
Preston, 1995; Deegan and Gordon, 1996; Deegan and Rankin, 1997; Adams et al., 1998; Neu
et al., 1998; Deegan, 2000.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 393
5
However, longitudinal studies of disclosure practices in the annual reports of a particular
organisation indicate fluctuations in the variety and extent of CSD (Guthrie and Parker, 1989;
Deegan et al., 2002).
394 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
6
Although political–economy theory has been used by others to explain this phenomenon, we felt
that legitimacy theory would be more appropriate when considering voluntary rather than
mandatory social disclosure.
7
All banks, insurance and unit trusts companies were excluded, primarily because of the different
statutory requirements that apply. In addition, companies in these sectors rarely disclose social
responsibility information, unlike entities in developed countries.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 395
in Section 4. Section 5 discusses the results followed by the summary and con-
cluding remarks including avenues for further research.
Legitimacy theory
Fig. 1. Link between LindblomÕs legitimation strategies and Dowling and PfefferÕs legitimation
actions.
used’’ (Sutton, 1993, p. 2). The financial crisis in the Far East in 1997 raised
questions of corporate legitimacy and its governance structures and the rela-
tionship between the corporation and the social context governing the func-
tioning of such entities.
Empirical studies in social accounting have employed a number of proxies
to test aspects of legitimacy theory although content analysis has been most
commonly used. Proxies, that help explain environmental disclosures include
ownership structure i.e. public vs private company (Cormier and Gordon,
2001); industry sensitivity (Deegan and Gordon, 1996); major corporate events
(Guthrie and Parker, 1989; Patten, 1992); and type of users of annual reports
(Deegan and Rankin, 1997). Proxies used to explain community involvement
disclosure include a corporationÕs public profile i.e. proximity of a company
to individual consumers (Clarke and Gibson-Sweet, 1999). More recent studies
have focused on direct questioning of managers to test their motivations for
CSD. For example, the study by OÕDonovan (2002) supports legitimacy theory
and provides insight into management disclosure behaviour based on scenarios
that have different impacts. Where the perceived threat is minimal, disclosure is
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 397
Previous studies on developed countries have shown that CSD in annual re-
ports has increased over time in response to a number of factors. Some of the
reasons may be attributed to increases in legislation, risk, activities of pressure
groups, ethical investors, specific events, awards, economic activities, media
interest, societal awareness, and politics.
Over the past decade, especially the early 1990s, Malaysia experienced sub-
stantial economic growth and tremendous social change before being hit by the
economic crisis in 1997. The rapid change in business environment was attrib-
uted to the conducive environment for both local and foreign businesses
including political stability, excellent infrastructure, indigenous supply of nat-
ural gas and petroleum, well trained and versatile workforce, and the wide use
and recognition of English as an international language (Seetharaman, 1993).
At the same time, the massive expansion in the economy resulted in a shortage
of workers in certain sectors, higher consumer spending on goods and services,
and an increase in awareness of environmental issues as a result of the boom in
the construction and property market.
However, the economic crisis in 1997 opened the PandoraÕs Box revealing
strong collusion between the ruling political group and business. A survey pub-
lished in the Far Eastern Economic Review (1998) indicated that 86.2% of busi-
nessmen felt that the government is too close to business to the point that the
‘‘. . . private sector can dictate terms, telling government what to do based on
their links to leadership, who got overambitious and the private sector who
398 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
got greedy’’ (Jayasankaran and Hiebert, 1998, p. 15). There were also worries
of rising corruption following the governmentÕs emphasis on economic growth
at any price (Jayasankaran, 1997). The Securities Commission and the KLSE
addressed some of these weaknesses through reforms in corporate governance.
There has also been greater emphasis on better disclosure and greater transpar-
ency of information. Given the scenario of events in the chosen time periods,
our directional hypothesis is as follows:
H1: There is a significant increase in the extent and variety of CSD in the
annual reports of Malaysian companies between 1996 and 2002.
3.2. Culture
8
NEP was introduced in 1970 following race riots in 1969 due to the economic dominance of the
Chinese amidst the poverty of the Malays (Jayasankaran and Hiebert, 1997). See Haniffa (1999) for
a discussion of NEP and its implications on the business environment.
9
Bumiputra refers not only to Malaysians of Malay but other indigenous ethnic groups
(Malaysia, 1991). However, for the purposes of this study, bumiputra refers to the Malay group
since they form the majority.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 399
H2: Ceteris paribus, the extent of CSD is greater for companies with boards
dominated by Malay directors.
H3: Ceteris paribus, the extent of CSD is greater for companies with a Malay
Finance Director.
H4: Ceteris paribus, the extent of CSD is greater for companies dominated by
Malay shareholders.
10
Interviews conducted in Malaysia reveal that top management, including the finance director, in
conjunction with PR specialists, makes decisions on information disclosure. In this study, finance
director refers to the individual who has the greatest power in financial decision making as well as
disclosure matters regardless of whether the individual sits on the board or not. It is also common
in Malaysia to find the CEO to be the finance director as well.
11
We acknowledge that culture is a complex issue that cannot be resolved by a simple assertion of
proxies. Nevertheless, the proxy chosen is thought appropriate to support the theoretical
framework of this study.
400 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
H5: Ceteris paribus, the extent of CSD is greater for companies with boards
dominated by non-executive directors.
The chairman of the board may have greater power and influence than other
board members although, de jure, all directors share equal power (ignoring the
issue of share ownership). Influence may extend to disclosure practices of the
firm. Since CSD is largely voluntary in nature, awareness of issues of concern
raised and discussed in other companies by chairmen who hold multiple direc-
torships12 would influence disclosure practice of the company to be in tune
with others as part of its reputation management and legitimacy strategy
(DiMaggio and Powell, 1983). Multiple directorships refer to the situation
where directors sit on more than one board.13 This aspect is often discussed
12
Before the introduction of the Malaysian Code of Corporate Governance (MCCG) in 2000
which among others requires directors to undergo training to equip themselves to undertake the
role, the general perception is that non-executive directors sitting on the boards of Malaysian
companies lack skills and experience to contribute to performance of companies and merely plays a
Ôrubber stampÕ function except where they sit on more than one board.
13
We have not come across any literature that directly discusses multiple directorships. However,
it has been discussed indirectly under directorship interlocks. It is quite difficult to segregate cross-
directorships/interlocks and multiple directorships because, by creating interlocks, the incidence of
directors holding more than one directorship will be higher.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 401
H6: Ceteris paribus, the extent of CSD is greater for companies with a chair-
man having multiple directorships.
The ownership structure of the company may give rise to legitimacy gaps.
Different shareholders may demand different disclosures and the demand is
greater when foreigners, due to the separation between management and own-
ers geographically, hold a high proportion of shares (Schipper, 1981; Brad-
bury, 1991; Craswell and Taylor, 1992). Since a substantial fund in the
Malaysian capital market comes from foreign investors, higher disclosure of
information, including social and environmental information to aid decision-
making may be expected. Thus, the hypothesis is,
H7: Ceteris paribus, the extent of CSD is greater for companies dominated by
foreign shareholders.
3.4.1. Size
Previous studies have indicated a positive relationship between the extent of
CSD and company size. One explanation for the association is that large com-
panies undertake more activities and have greater impact on society (Trotman
14
For a discussion of the impact of interlocking directorships in Japan, see Cooke (1996).
402 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
and Bradley, 1981; Teoh and Thong, 1984; Andrew et al., 1989). Larger com-
panies are also subject to greater scrutiny by various groups in society and
therefore would be under greater pressure to disclose their social activities to
legitimise their business (Cowen et al., 1987). Thus,
H8: Ceteris paribus, the extent of CSD is greater for larger companies.
3.4.2. Profitability
Unlike size, the relationship between profitability and CSD is inconclu-
sive (see Mangos and Lewis, 1995; Patten, 1991; Roberts, 1992). A possible
explanation for a positive association between CSD and profitability is
that management has the freedom and flexibility to undertake and reveal
more extensive social responsibility programmes to shareholders. Profit-
able companies disclose social information to demonstrate their contribu-
tion to societyÕs well being (legitimise their existence) and therefore the
hypothesis is,
H9: Ceteris paribus, the extent of CSD is greater for highly profitable
companies.
3.4.3. Gearing
In a highly geared company, management needs to legitimise its actions to
creditors as well as shareholders. Gearing has been found to be an important
explanatory variable by Belkaoui and Kahl (1978), Malone et al. (1993) and
Wallace et al. (1994). Highly geared companies disclose more information to
assure creditors that shareholders and management are less likely to bypass
their covenant claims (Myers, 1977; Schipper, 1981) as well as to meet some
of the needs of lenders (Cooke, 1996). Hence, the next hypothesis is,
H10: Ceteris paribus, the extent of CSD is greater for highly geared
companies.
peting companies and respond to the pressures of various interest groups. This
also suggests that pressure to legitimise a corporation is greater in developed
rather than developing countries. Hence,
H11: Ceteris paribus, the extent of CSD is greater for companies with multiple
listing status.
H12: Ceteris paribus, the extent of CSD is associated with the type of
industry.
4. Research method
The sample was drawn from non-financial companies listed on the main
board of the KLSE in 1996. Companies were selected at random on a propor-
tional allocation basis to ensure a representative sample from all other indus-
trial sectors. Letters were sent to 160 companies requesting their English
version annual reports and the response rate was 83%.15
15
The 1996 annual reports were collected in 1997. A sample size of 167 was selected based on the
table developed by Krejcie and Morgan (1970) as a guideline for sample size decisions. The
response rate in 1997 was 83% (139 companies) and due to time constraint after sending reminder
letters twice, additional searches were not undertaken. Based on the same list of companies that
responded in 1997, letters were sent in August 2003 asking for their 2002 annual reports to enable
the undertaking of this longitudinal study. The English version of annual reports were selected to
ease analysis and the researchers do not foresee any problems related to inconsistency in different
language versions of the report as Malaysians are well versed in different languages.
404 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Based on the pedagogical note suggested by Wallace and Mellor (1988), the
third type of check on non-response bias, which involved assessing whether re-
sponses received validly represent the entire population based on certain se-
lected characteristics, was undertaken. This is important because information
relating to the whole population from which the sample is selected may enable
the researcher to assess whether the responses are free of bias (Holmes et al.,
1991).16
Although companies may use other media of communication to demon-
strate social responsibility disclosures (see Zeghal and Ahmed, 1990), this study
focuses on annual reports because of the high degree of credibility attached to
information disclosed in this way (Tilt, 1994). Additionally, annual reports are
used by a number of stakeholders as the sole source of certain information
(Deegan and Rankin, 1997); have greater potential to influence due to wide-
spread distribution (Adams and Harte, 1998); offer a snapshot of manage-
mentÕs mindset in a particular period (Neimark, 1992); and are more
accessible for research purposes (Woodward, 1998). The same 139 companies
were used for 2002 and our response rate was 100%.
16
Non-response bias was tested using the parametric t-test based on means of two critical
variables viz. total assets and return on equity (proxies for company size and profitability
respectively) in testing the sets of respondents and non-respondents. The test for non-response bias
indicated that the sample is soundly based i.e. no significant difference in the critical variables
between the two groups. We also tested for non-response bias based on means of board
composition and share ownership. The results also indicated that the sample is soundly based i.e.
no significant difference based on culture and governance structure between the two groups.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 405
words [CSDL])17 were used to capture the nature of disclosure made in each of
the five themes. The former measurement captures ÔvarietyÕ of disclosure while
the latter captures the ÔextentÕ of disclosure. One of the reasons for adopting
both measures is because the latter cannot capture pictures and graphics, which
are potentially powerful and highly effective methods of communication (Beat-
tie and Jones, 1992, 1994; Preston et al., 1996) and excluding them may be con-
sidered a limitation. We measure pictures and graphics through the disclosure
index i.e. a company scores one for disclosure of any number of pictures or
graphics under each item in a theme, hence indicating/capturing ÔvarietyÕ of dis-
closure rather than ÔextentÕ. Since our focus is on the nature of disclosure rather
than the importance of items disclosed, we consider our approach to be
reasonable.
The preliminary research instrument was pilot tested on 20 companies se-
lected at random from the 1996 and 2002 samples to ensure that items that
were unique or important to the Malaysian environment were added and those
not relevant omitted. This also ensured that items peculiar to a particular
industry were taken into account. The final checklist instrument consisted of
41 corporate disclosure items. To ensure consistency, only one of the authors
coded all the annual reports and a set of basic coding rules was constructed
to ensure reliability and validity.
17
Different volume measurement has been employed in previous studies and each has its
advantages and limitations. Number of pages (Patten, 1992; Deegan and Rankin, 1996) and
proportion of page (Guthrie and Parker, 1990; Gray et al., 1995a) reflect the amount of total space
given to a topic and by inference, the importance of that topic (Krippendorff, 1980). However, such
measurements may be affected by font size, margins and treatment of blank parts of a page. The use
of number of words (Zeghal and Ahmed, 1990; Deegan and Rankin, 1996; Deegan and Gordon,
1996) is more practical and easily categorised but may be affected by concise and verbose styles of
writing (Hackston and Milne, 1996). Number of sentences (Tsang, 1998; Hackston and Milne,
1996) has the advantages of being more easily identifiable, less subjective to interjudge variations,
and avoids problems of allocations based on proportion of page and standardising number of word
but is more suitable in inferring meanings (Krippendorff, 1980). In this study, both word and
sentence counts were considered but due to a high correlation between the two, only word count
will be reported in the paper.
18
Use of dichotomous procedure is considered a limitation because it treats disclosure of one item
as equal to a company that makes 50 disclosures and does not indicate how much emphasis is given
to a particular content category but the advantage is that it gives coders less choice (Hackston and
Milne, 1996, p. 88). The use of word count partly overcomes this problem.
406 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
the firm. The approach to scoring is additive and equally weighted19 and was
calculated as follows to give the final CSDI (index):
Pnj
X ij
CSDIj ¼ t¼1
nj
where
so that 0 6 Ij 6 1.
19
Wiseman (1982) used a weighted index to measure disclosure but in this study the items were
not weighted because of potential scoring bias and scaling problems and is consistent with Cooke
(1989) and Ahmed and Nichols (1994).
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 407
Table 1
Constructs of the independent variables
Explanatory variables Measurement
Malay dominated board Proportion of Malay directors to total
of directors (MALDIR) directors on the board
A Malay finance director (MALFD) 1 = Malay finance director and 0 = others
Malay dominated Proportion of Malay shareholders to total
shareholders (MALOWN) shareholders
Composition of non-executive Proportion of non-executive directors to total
directors (COMPNED) directors on the board
Chairperson with multiple 1 = chairperson with multiple directorships
directorships (CHMD) and 0 = otherwise
Ownership by foreign Proportion of foreign shareholders to
shareholders (FOROWN) total shareholders
Size (STA) Proxy used is total assets
Profitability (ROE) Return on equity = Earnings after tax/Total equity
Gearing (DTE) Debt to equity = Long-term debt/Total equity
Multiple listing (LIST) 1 = multiple listings and 0 = single listing
Industry type (IT) KLSE classification:
IT1 = consumer, IT2 = construction/property,
IT3 = trading/services, IT4 = plantations/mining,
IT5 = industrial
One other issue involved in the construction of the dependent variable re-
lates to equal weighting since the directional magnitude may not be clearcut.
Even though the scores and scoring instrument are connected to a numerical
continuum associated with the dependent variable, it might not be appropriate
to treat raw scores as interval measures since underlying characteristics are
more akin to ordinal data. In addition, the direction of some of the relation-
ships discussed earlier between the dependent and independent variables is
not clear although assumed to be monotonic. One method to deal with this
issue is to transform the data to normal scores (Cooke, 1998) and this is the
approach adopted here. Normal scores are used since the resulting tests have
exact statistical properties because significance levels can be determined, the
F and t-tests are meaningful, the power of the F and t-tests can be used, and
the regression coefficients derived are meaningful. In addition, normal scores
offer a means whereby a non-normal dependent variable can be transformed
into normality, thus implying that errors are normally distributed by the
assumptions of OLS.
To further verify the results of the regression analysis and in drawing con-
clusions based on legitimacy theory, telephone interviews20 were conducted
with ten respondents involved in the corporate disclosure process. Initial con-
tacts were made by telephone seeking their cooperation to participate, giving
an approximate idea of how long the interview would last and setting up a
mutually convenient time when the telephone conversation would not be inter-
rupted. A semi-structured questionnaire (see Appendix B) was used to obtain
insights into reasons for engaging/not engaging in CSD and the suitability of
the proxies used in this study to reflect pressures from within and without
the organisation.
20
Telephone interviews were used, as it is easy to contact different people outside the country in a
relatively short period of time. E-mail was not used because respondents indicated preference to
respond via short informal telephone conversations rather than having to read and answer the
questionnaire sent by e-mail.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 409
5. Discussion of results
Table 2 presents the results of the descriptive analysis of CSD by themes for
both years. The table summarises: the number of companies making at least one
disclosure for both years (columns 1 and 2); incidence figures i.e. the number of
companies making at least one disclosure as a percentage of the total sample for
both years (columns 3 and 4); the means and standard deviation of disclosure
based on the number of items disclosed under each theme for both years (col-
umns 5–8); extent of disclosure as measured by the word count for both years
(columns 9 and 10); the extent of disclosure as measured by the word count
to total words for all disclosures in the sample (columns 11 and 12) for both
years; and the means and standard deviations of disclosure based on the number
of words disclosed under each theme for both years (columns 13–16).
Relying on incidence rates alone may not give a complete picture as the ap-
proach treats companies that disclose one or more items in each theme as
equal. For example, based on incidence rates, the percentage of companies
(11%) disclosing at least one item under the environmental theme in 1996 is
higher than the number of companies (9%) disclosing at least one item under
the community involvement theme but in terms of the percentage of words dis-
closed by the former group (5% of total disclosures), it is less than the latter
group (9% of total disclosure). This may partly be due to the exclusion of
graphics and pictures when using word count. A total of 37,243 words of
CSD was provided in the 1996 annual reports for the 139 companies examined,
representing an average of 268 words per annual report. In the 2002 annual re-
ports, a total of 38,293 words of CSD was recorded, an average of 275 words
per annual report.
Table 3 presents the results of the test on the hypothesis that there is a sig-
nificant difference in the extent and variety of CSD in the annual reports of
Malaysian companies for the two periods under study.
Tests based on both Wilcoxon and paired sample t-test based on number of
items indicate significant differences in four themes of CSD (environmental,
employees, community and product) while words measurement do not show
significant differences21 in two of those themes viz. community and product.
Based on the descriptive analysis and statistical tests, we can accept the direc-
tional hypothesis (H1) i.e. CSD in annual reports of Malaysian companies has
significantly increased (based on items measured) and the extent and variety of
CSD differs between the two years for four of the five themes. This finding is
consistent with other longitudinal studies.
21
Test for the theme Ôvalue-addedÕ cannot be computed due to zero standard deviation.
410 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Table 2
Descriptive statistics for social disclosure measures in Malaysian listed companies
Themes Disclosing Disclosing Mean Std. Dev. Number of Disclosed Mean Std. Dev.
companies companies disclosed words words as a
(making at as a (amount) percentage
least one percentage of all
disclosure) of total disclosed
sample words
(incidence)
1996 2002 1996 2002 1996 2002 1996 2002 1996 2002 1996 2002 1996 2002 1996 2002
Environment 15 24 11 17 0.29 0.35 0.74 0.75 1909 2543 5 7 13.73 18.30 33.59 40.63
Employees 59 60 42 43 2.45 2.71 2.08 2.13 11,867 12,518 32 33 134.44 90.06 72.85 70.07
Community 13 29 9 21 0.53 0.68 1.03 1.03 3419 3542 9 9 24.60 25.48 47.11 43.64
Products 22 24 16 17 2.82 3.00 1.66 1.54 18,687 18,329 50 48 134.4 131.86 70.37 63.44
Value-added 3 4 2 3 0.14 0.14 0.49 0.49 1361 1278 4 3 9.80 8.64 35.0 32.0
Total 37,243 38,293 100 100
Note: Total sample of companies for each year—139.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 411
Table 3
Paired-sample t-test and Wilcoxon test for social disclosure measures in Malaysian listed companies
Disclosures Mean difference t-value Sig. Mean Z Sig.
Overall
Items 0.6403 8.028 0.000 1996—6.230 6.597 0.000
2002—6.871
Words 7.554 1.975 0.052 1996—267.94 1.483 0.138
2002—275.49
Environmental
Items 0.065 3.091 0.002 1996—0.288 3.000 0.003
2002—0.353
Words 4.561 3.486 0.001 1996—13.74 3.181 0.001
2002—18.30
Employee
Items 0.252 4.923 0.000 1996—2.453 4.550 0.000
2002—2.701
Words 4.684 2.753 0.007 1996—85.37 2.955 0.003
2002—90.06
Community
Items 0.144 4.144 0.000 1996—0.532 3.911 0.000
2002—0.676
Words 0.885 0.584 0.560 1996—24.60 0.903 0.366
2002—25.48
Product
Items 0.179 3.257 0.001 1996—2.820 3.350 0.001
2002—3.000
Words 2.576 0.896 0.372 1996—134.4 1.481 0.139
2002—131.9
Value-added
Items 1996—0.1367
N/A N/A N/A 2002—0.1367 N/A N/A
Words 1996—9.7914
2002—9.832
22
This is one of the special category awards under NACRA (National Annual Corporate Report
Awards) organised by the KLSE (now known as Bursa Malaysia), the Malaysian Institute of
Certified Public Accountants (MICPA), Malaysian Institute of Management (MIM) and
Malaysian Institute of Accountants (MIA) to honour excellent corporate reporting among public
listed companies.
412 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Table 4
Descriptive statistics for the dependent and continuous independent variables
Variables Mean Std. Dev. Min. Max. Skewness Kurtosis K–S
(Lilliefors)
1996
CSDI 16.28 11.11 2.63 52.63 5.22 2.44 0.125**
CSDL 267.94 178.83 15.00 857.00 4.55 1.29 0.102**
MALDIR 46.05 24.46 0.00 100.00 2.20 1.38 0.119**
MALOWN 36.85 22.84 6.01 97.30 4.42 0.38 0.151**
COMPNED 43.34 11.54 20.00 82.00 3.81 1.97 0.129**
FOROWN 16.19 12.60 0.00 48.85 3.54 0.39 0.099**
STA 883030.7 1519155 3986 11867584 21.45 59.44 0.281**
(RM million)
ROE 9.81 8.20 18.17 31.79 0.36 2.14 0.069
DTE 38.62 20.67 1.07 89.56 1.27 0.31 0.064
2002
CSDI 17.13 10.47 2.50 56.10 6.06 4.36 0.149**
CSDL 275.49 168.52 16.00 801.00 4.66 1.27 0.110**
MALDIR 47.19 23.70 0.000 100.00 1.95 1.14 0.116**
MALOWN 38.73 23.20 10.40 94.00 3.52 1.43 0.132**
COMPNED 49.87 10.14 25.00 74.00 1.20 1.40 0.140**
FOROWN 14.90 10.12 0.00 43.13 2.16 1.14 0.070
STA 3681429 9519842 8529 81859055 27.96 95.37 0.350**
(RM million)
ROE 12.14 7.35 5.30 35.33 1.79 0.06 0.088
DTE 14.5 4.82 0.20 46.13 3.86 1.50 0.038
Notes: CSDI = corporate social disclosure index; CSDL = length of corporate social disclosure;
MALDIR = proportion of Malay directors on the boards; MALOWN = proportion of Malay
shareholders; COMPNED = proportion of non-executive directors on the board; FOR-
OWN = proportion of foreign shareholders; STA = size of total assets; ROE = return on equity
(proxy for profitability); and DTE = debt to equity ratio (proxy for gearing).
** K-S (Lilliefors) with significance <.05, hence data not normally distributed.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 413
Table 5
Correlation matrix
CSDL CSDI BPDIR BPOWN NED FOOWN SIZETA ROE DTE
1996
CSDL 1
CSDI .933** 1
MALDIR .219** .259** 1
MALOWN .148 .135 .232** 1
COMPNED .182* .192* .126 .047 1
FOROWN .075 .172* .176* .016 .162 1
STA .441** .419** .138 .056 .062 .145 1
ROE .310** .268** .207* .013 .182* .157 .042 1
DTE .042 .041 .015 .067 .003 .015 .078 .031 1
2002
CSDL 1
CSDI .940** 1
MALDIR .216* .243** 1
MALOWN .264** .248** .231** 1
COMPNED .241** .186* .066 .048 1
FOROWN .193* .258** .144 .158 .122 1
STA .195* .210* .102 .066 .001 .076 1
ROE .333** .356** .109 .024 .164 .162 .046 1
DTE .063 .043 .023 .106 .173* .138 .137 .094 1
* Correlation is significant at the 0.05 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
1996 was from 2.6% to 52.6% while in 2002, the range was between 2.5% and
56.1%. The mean of the CSDL in 1996 was 267 words and ranged between 15
and 857 words while the mean of the CSDL in 2002 was 275 words with a
range between 16 and 801 words. Both measures of dependent variables were
not normally distributed as indicated by standard tests on skewness and kurto-
sis as well as the non-parametric Kolmogorov–Smirnov normality test (or K–S
Lilliefors).23 Similarly, the continuous independent variables were found not to
be normally distributed except for profitability and gearing in 1996 and foreign
ownership and gearing in 2002. As such, the dependent and continuous inde-
pendent variables were transformed to normal scores before conducting the
regression analysis.
Besides testing for normality, it is important to check for multicollinearity,
homoscedasticity and linearity. Table 5 presents the correlation matrix for the
dependent and continuous independent variables for both years. It can be seen
23
K–S Lilliefors with significance of >.05 indicates normality and small significance value
indicates reason to doubt the normality assumption (see Norusis, 1995).
414 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
24
The rule of thumb for checking problems of multicollinearity is when the correlation is >0.800
(Gujarati, 1995). Based on the VIF, multicollinearity is a problem if the factor exceeds 10 (Neter
et al., 1983; Kennedy, 1992).
25
Residuals are what are left over after the model is fit and they are also the difference between the
observed value of the dependent variable and the value predicted by the regression line (Norusis,
1995, p. 447).
26
Four different transformations of the dependent and independent variables were conducted and
the normal scores approach produced the best fit.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 415
Table 6
Multiple regression results using index (CSDI) as the dependent variable
1996 2002
Variables Predicted sign Coefficient value t-statistic Sig t VIF Coefficient value t-statistic Sig t VIF
Intercept 1.640 0.104 1.119 0.234
MALDIR + 0.371 5.061 0.000** 1.214 0.359 5.005 0.000** 1.301
MALOWN + 0.021 0.300 0.765 1.119 0.101 1.491 0.138 1.148
MALFD + 0.112 1.619 0.108 1.086 0.105 1.577 0.117 1.117
COMPNED + 0.221 3.147 0.002** 1.114 0.205 3.085 0.003** 1.117
CHMD + 0.140 2.133 0.035* 1.292 0.087 1.336 0.184 1.082
FOROWN + 0.166 2.148 0.034* 1.353 0.153 2.197 0.021* 1.233
STA + 0.193 2.511 0.013* 1.339 0.188 2.584 0.011* 1.338
ROE + 0.215 2.781 0.006** 1.348 0.278 3.759 0.000** 1.376
DTE + 0.058 0.743 0.459 1.371 0.017 0.230 0.818 1.365
LIST + 0.238 3.238 0.002** 1.222 0.288 4.115 0.000** 1.238
IT1 ± 0.059 0.745 0.457 1.410 0.043 0.580 0.563 1.408
IT2 ± 0.126 1.494 0.138 1.617 0.124 1.542 0.126 1.636
IT3 ± 0.146 1.647 0.102 1.780 0.068 0.803 0.424 1.806
IT4 ± 0.036 0.369 0.713 2.199 0.104 1.113 0.268 2.212
Adjusted R2 = 0.389, F-statistic = 7.287, p = 0.000 Adjusted R2 = 0.453, F-statistic = 9.164, p = 0.000
Note: IT1 = consumer; IT2 = construction/property, IT3 = trading/services; IT4 = plantations/mining; IT5 = industrial and the excluded industry
group is industrial.
* Significant at 5%; ** significant at 1%.
416 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Table 7
Multiple regression results using words (CSDL) as the dependent variable
1996 2002
Variables Predicted sign Coefficient value t-statistic Sig t VIF Coefficient value t-statistic Sig t VIF
Intercept 3.292 0.001** 2.147 0.034*
MALDIR + 0.313 4.591 0.000** 1.214 0.273 3.745 0.000** 1.301
MALOWN + 0.030 0.453 0.651 1.119 0.138 2.018 0.046 1.148
MALFD + 0.060 0.933 0.352 1.086 0.080 1.192 0.236 1.117
COMPNED + 0.217 3.319 0.001** 1.114 0.193 2.867 0.005** 1.117
CHMD + 0.173 2.441 0.004** 1.250 0.139 2.036 0.045* 1.082
FOROWN + 0.108 1.506 0.135 1.353 0.088 1.192 0.236 1.344
STA + 0.210 2.933 0.004** 1.339 0.232 3.141 0.002** 1.338
ROE + 0.219 3.054 0.003** 1.348 0.211 2.817 0.006** 1.376
DTE + 0.013 0.183 0.855 1.371 0.013 0.180 0.857 1.365
LIST + 0.307 4.485 0.000** 1.222 0.305 4.298 0.000** 1.238
IT1 ± 0.068 0.930 0.354 1.410 0.084 1.110 0.269 1.408
IT2 ± 0.182 2.309 0.023* 1.617 0.076 0.927 0.356 1.636
IT3 ± 0.288 3.484 0.001** 1.780 0.169 1.971 0.051 1.806
IT4 ± 0.033 0.363 0.717 2.199 0.018 1.194 0.846 2.212
Adjusted R2 = 0.485, F-statistic = 11.007, p = 0.000 Adjusted R2 = 0.438, F-statistic = 8.688, p = 0.000
Note: IT1 = consumer; IT2 = construction/property; IT3 = trading/services; IT4 = plantations/mining; IT5 = industrial and the excluded industry
group is industrial.
* Significant at 5%; ** significant at 1%.
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 417
The two models also show that size, profitability and multiple listings were
all statistically related to CSD, results consistent with Foo and Tan (1988) and
Andrew et al. (1989) on Malaysian companies. Large companies make more
social disclosures for reasons of accountability and visibility as outlined in
legitimacy theory (Cormier and Gordon, 2001). The significance of profitability
was consistent with Roberts (1992) but inconsistent with Cowen et al. (1987)
and Patten (1991). This indicates that Malaysian companies use annual reports
as an avenue to publicise their image and legitimise their activities. The signif-
icance of multiple listings was consistent with Hackston and Milne (1996) and
indicates that in the absence of rules and regulations on social disclosures in
Malaysia, companies with listings on overseas stock exchanges adopt legitima-
tion strategies to reflect societal concerns in the global market. The industry–
social disclosure relationship seems to be less significant with the interaction
of other variables, suggesting that Malaysian companies do not adopt legitima-
tion strategies to address specific concerns relating to core economic activities
in their industry grouping. Similarly, gearing as proxy for risk, does not seem
to impact on CSD.
6. Conclusion
This study has examined whether the extent of CSD in the annual reports of
Malaysian listed companies changes over time and whether there is an associ-
ation with three groups of variables: culture, corporate governance and firm-
specific (control) variables. Consistent with previous studies, content analysis
is adopted to achieve the objectives. Descriptive analysis of our longitudinal
study and the results of both the parametric paired sample t-test and non-para-
metric Wilcoxon test indicates significant differences in the extent and variety
of CSD for the two years, despite minimal legislative guidance for such disclo-
sures. Some of the reasons identified from the interviews of companies choos-
ing to engage in CSD include getting awards, enhancing corporate image,
receiving government support, obtaining funds and a bandwagon effect.
Regression analysis is used to explain variability in the dependent variable
with the explanatory variables being culture and corporate governance with
company-specific factors acting as control variables. Two different dependent
variables are used in the regression models: CSDI and CSDL. We find two cul-
tural, three corporate governance and four of the control variables to be signif-
icant regressors that help explain variability in CSD practice of Malaysian
companies in both 1996 and 2002.
The significant relationship between Malay directors and Malay sharehold-
ers with CSD practice in the annual reports of Malaysian companies suggests
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 419
The findings of this research are subject to several limitations. First, this
study examined the disclosure practice of companies listed only on the main
board of the KLSE for the years 1996 and 2002 and as such, may not be gen-
eralised to other periods. A longitudinal study on a yearly basis that can trace
the disclosure practice of a particular company or a particular industry is a po-
tential avenue of research as it may help to provide insights into the relation-
ship between strategic changes in the company or industry over the years and
its CSD practices. Similarly, it will help trace the trend of disclosure and the
impact of culture and corporate governance against the backdrop of social
and economic development in the country. Since this study considered the
influence of culture and corporate governance factors on Malaysian listed
420 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
companies, studies in the future could test the influence of these variables on
CSD in other countries.
Secondly, the study focused on only disclosures in corporate annual reports
although it is known that management utilise other mass communication
mechanisms. Hence, future research may consider disclosures in other media
such as newspapers, the internet, and in-house magazines.
Thirdly, developing accurate proxies for culture and corporate governance
dimensions in the CSD models and selection of variables to be included in
the models are constrained by data availability. Future research may consider
other cultural proxies such as religious values and culture dimensions proposed
by Hofstede (1991) and corporate governance dimensions such as age, qualifi-
cation and share ownership of board of directors.
Finally, given the exceedingly complex nature of the business environment
as well as time and geographical constraint, there are inherent limits in the abil-
ity of positive empirical research to capture all dimensions that influence CSD
policy and practice. Hence, further survey work involving more detailed inter-
views may help our understanding of these issues.
Appendix A (continued)
NAME OF COMPANY: ITEMS WORDS
INDUSTRY:
3. Discussion of ways to overcome
recruitment problems
4. Picture of employees welfare
5. Discussion of employees welfare
6. Profit sharing schemes policy
7. Number of employees
8. Breakdown of employees by
line of business
9. Breakdown of employees by
geographic area
10. Categories of employees by
functions
11. Categories of employees by race
12. Categories of employees by age
13. Number of employees for
2 or more yrs
14. Reasons for changes in
employee number
15. General redundancy/
retrenchment information
16. Information on accidents
17. Cost of safety measures
18. Health & safety standards
19. Corporate policy on
employee training
20. Nature of training
21. Number of employees
trained
22. Amount spent on
employees training
23. Categories of employees
trained
IV. PRODUCT OR SERVICE
INFORMATION
1. Discussion of major types
of products
2. Pictures of major types
of products
(continued on next page)
422 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Appendix A (continued)
NAME OF COMPANY: ITEMS WORDS
INDUSTRY:
3. Improvement in product quality
4. Improvement in customer services
5. Distribution of mktg network
for finished products—domestic
market
6. Distribution of mkg network for
finished products—foreign
market
7. Customer awards/ratings received
V. VALUE-ADDED INFORMATION
1. Value-added statement
2. Qualitative value-added
statement
3. Value-added data/ratios
Total
Index score
Appendix B (continued)
Section B
1. Who is responsible for preparing and publishing the
companyÕs annual report in your company?
2. Which other parties may influence decisions as to
accounting policies and formats and the level of disclosure?
3. Who has the most influence in the disclosure
decision making process in your company? (by rank)
Finance Director/Chief Accountant
Chairman of the board of directors
Managing Director
Public relations consultant
External Auditor
Audit Committee
Other
4. Is your company engaged in CSD?
Yes No
5. Why does your company engaged in CSD?
Enhance corporate image/Good corporate
citizenship/marketing/PR
Win awards
Bandwagon/fashionable to do so
Obligations to community/accountability
Public awareness and concerns on CSD issues
Improve morale of employees
Appease ethical investors/seek credit for good deeds
Obtain funds from wider sources
Pressures from stakeholders
Lower political pressures
Competitors in the industry
Receive government support
Directors desire to engage in CSD
Media attention
Stability and improvement in share prices
Other
6. Why doesnÕt your company engaged in CSD?
Cost of data collection and processing/
auditing/publication/technical problems
Competitive disadvantage/Disadvantages
in terms of bargaining power
Possibility of intervention by government
agencies
(continued on next page)
424 R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430
Appendix B (continued)
Section B
Possibility of claims from political or consumer
groups/increase demands/heighten suspicion
Not to set precedence/make an issue
Other
7. What factors may influence companies in
Malaysia to engage in CSD?
Enhance corporate image/Good corporate
citizenship/marketing/PR
Win awards
Bandwagon/fashionable to do so
Obligations to community/accountability
Public awareness and concerns on CSD issues
Improve morale of employees
Appease ethical investors/seek credit for
good deeds
Obtain funds from wider sources
Pressures from stakeholders
Lower political pressures
Competitors in the industry
Receive government support
Directors desire to engage in CSD
Media attention
Stability and improvement in share prices
Other
8. What factors may influence companies in
Malaysia not to engage in CSD?
Cost of data collection and processing/
auditing/publication/technical problems
Competitive disadvantage/Disadvantages
in terms of bargaining power
Possibility of intervention by government
agencies
Possibility of claims from political or consumer
groups/increase demands/heighten suspicion
Not to set precedence/make an issue
Other
9. Which of the following characteristics of companies
may influence decisions to engage in CSD?
Size
Type of industry
R.M. Haniffa, T.E. Cooke / Journal of Accounting and Public Policy 24 (2005) 391–430 425
Appendix B (continued)
Section B
Listing status
Listing age
Profitability
Other
10. Which of the following personal characteristics
of directors may influence decisions to engage in CSD?
Race
Social status
Academic background
Other
11. Which of the following characteristics of boards
may influence decisions to engage in CSD?
Cross-holdings of directorships
Board composition (executive vs non-executive)
Finance director on the board
Other
12. Any other matters/issues?
Note: Some of the questions are adapted from OÕDwyer (2002).
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