ก ก A TBS Public Lecture on Corporate Social Responsibility (CSR) ก Determinants of Social and Environmental Disclosure: A Linear-Regression Approach

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1 ก ก A TBS Public Lecture on Corporate Social Responsibility (CSR) ก. ก ก ก ก ก ก ก ก Determinants of Social and Environmental Disclosure: A Linear-Regression Approach ก

2 Determinants of Social and Environmental Disclosure: A Linear Regression Approach ผ ช วยศาสตราจารย ดร. อรพรรณ ยลระบ ล 1 คณะพาณ ชยศาสตร และการบ ญช มหาว ทยาล ยธรรมศาสตร 2

Research hdesign Design Strategy (type, purpose, time frame, scope, environment) Data

3 Discover the management dilemma Define the management question Dfi Define the research question Refine the research question Exploration Exploration Research Proposal 3 Research hdesign Design Strategy (type, purpose, time frame, scope, environment) Data Collection Design Sampling Design Question and Instrument Pilot Testing Instrument Revision 4

4 Data collection and Preparation Data Analysis and Interpretation Research Reporting Management Decision 5 Corporate Social Responsibility Disclosure and Reporting 6

5 Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economicdevelopment while improving thequality oflife of the workforce and their families as well as of the local community and society at large. 7 8

6 In a perfect and complete markets, the absence of information asymmetryorother other barriers to efficient market operations, financial statements are completely relevant and reliable and map perfectly into a firms market value. In reality, the conditions are not ideal and there are uncertainties surrounding future events. This leads to ()I (a) Information asymmetry problem and (b) moral hazard problem. 9 Mandatory Disclosure Voluntary Disclosure 10 External Non firm Sources of Disclosure

Mandatory Disclosure Mandatory disclosure alleviates information asymmetry between

It also reduces the social costs incurred by investors active search for information.

undisclosed information as negative information and will discount firm value.

Level of managers willingness to communicate information.

7 Mandatory Disclosure Mandatory disclosure alleviates information asymmetry between investors and managers. It also reduces the social costs incurred by investors active search for information. Vl Voluntary Disclosure The managers are encouraged to disclosure private information voluntarily. If the investors believe that the managers withhold information, they will consider undisclosed information as negative information and will discount firm value. External Disclosure 11 Investors may search for external sources of information that are not under firm s control. Cost of information search incurred by investors collectively are cost of society. Level of managers willingness to communicate information. Notall firmsrenderrender voluntary CSR disclosure since the disclosure is not without cost. 1. Cost of measuring, verifying, collating and publishing environmental information and 2. Loss of strategic discretion associated with making public commitments to verifiable future action and/or performance (Brammer and Pavelin, 2008). 12 The quality of voluntarity disclosed environmental information is largely demand driven and is influenced by pressure from external stakeholders.

CSR Disclosure & Expectation Management Pre emptive emptive step to mitigate adverse pressures in the future.

Firm disseminates the value relevant information to a variety of interested parties outside parties.

Legitimacy theory posits that for a corporation to continue to exist it must act in congruence with society's values and norms.

remain legitimate in the eyes of whom it considers is able to affect its legitimacy (O'Donovan, 2000) 14 Stakeholder theory

8 CSR Disclosure & Expectation Management Pre emptive emptive step to mitigate adverse pressures in the future. 13 Corporate Disclosure diminishes informational asymmetries between the firm and its stakeholders. Firm disseminates the value relevant information to a variety of interested parties outside parties. The information will influence the perceptions of external stakeholders. Legitimacy theory posits that for a corporation to continue to exist it must act in congruence with society's values and norms. An aspect of legitimacy theory, investigated in this research, is that in order to continue to exist a corporation will act to remain legitimate in the eyes of whom it considers is able to affect its legitimacy (O'Donovan, 2000) 14 Stakeholder theory describes devotion of sufficient resources and managerial attention to stakeholder relations, which will tend to lead to positive (profitable) outcomes for the corporation. Moreover, the stakeholder groups should exercise oversight and control over management (Health and Norman, 2004).

Research Limitations Sampling Relatively small number of firms disclosed the CSR information. Firms in the sample, mostly, are in the similar industries and exhibit low variations in firm attributes.

9 Research Limitations Sampling Relatively small number of firms disclosed the CSR information. Firms in the sample, mostly, are in the similar industries and exhibit low variations in firm attributes. Measurement of the quality of voluntary disclosures Mostly, the researchers focus on incidence of environmental disclosures without paying attention to their quality. Statistical methodologies The measured variables derived from content analysis may be categorical censored or dichotomous in nature. 15 Brammer and Pavelin, Disclosure Quality Disclosure quality is a function of quantity and richness of content. QUALITY = f(quantity, Richness of Content) Richness of Content) 16 พรพ พ ฒน จ ฑา, 2548 Quantity: DRT, OPR Richness of Content: RQT, DEN

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Content analysis is a research technique for

(or other meaningful matter) to the contexts of their use

When content analysis is performed by human coders,

the amount of agreement or correspondence among two or more

for objective, systematic and quantitative description of

12 Content analysis is a research technique for makingreplicable and validinferencesinferences from texts (or other meaningful matter) to the contexts of their use (Krippendorff, 2004). When content analysis is performed by human coders, reliability can be inferred to intercoder reliability or the amount of agreement or correspondence among two or more coders (Neuendorf, 2002) 21 This is a research technique for objective, systematic and quantitative description of the manifest content of communication. Company s Website Dedicated CSR Reports Annual Reports Information Sources Other Sources 22

13 Word counts Keyword frequency Quantitative Content Analysis Space measurement Time counts 23 Term of Theme 24

Global Reporting Initiatives (GRI) indicator: CSR sentences were identified based on a checklist categorized into four main themes: a. environment, b. labour practice, c. human rights, and d. society.

14 Global Reporting Initiatives (GRI) indicator: CSR sentences were identified based on a checklist categorized into four main themes: a. environment, b. labour practice, c. human rights, and d. society. report.com/report/gri index2.html?companyid=99 id Adnana et al., GRI Index 1. GRI provides an internationally recognized framework for CSR reporting. 2. Using an internationally recognized framework to measure CSR disclosure enables validation of the study. 3. GRI is comprehensive; it incorporates several reporting aspects such as social, environmental and economic performance. 4. GRI is also considered as the latest and innovative measures for CSR reporting. 5. Previous studies that examine CSR issues such as environmental reporting, ethical and social reporting, and sustainability reporting utilize GRI as a framework to develop their disclosure indices. 26

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17 31 Y x x x n n Multiple Regression is used as a descriptive tool in three types of situations. (1) It is used to develop a self weighting estimating equation by which to predict values for a criterion variable (DV) from the values for several predictor variables (IVs). (2) A descriptive application of multiple regression calls for controlling for confounding variables to better evaluate the contribution of other variables. (3) It is used to test and explain causal theories. It can also be referred dto as path analysis, which h is used to describe an entire structure of linkages that have been advanced from a causal theory. 32

In statistics, standardized coefficients or

resulting from an analysis carried out on

to how many standard deviations a dependent

33 Standardization of the coefficient is

which h of the independent d variables ibl

18 In statistics, standardized coefficients or beta coefficients are the estimates resulting from an analysis carried out on variables that have been standardized so that their variances are 1. Therefore, standardized coefficients refer to how many standard deviations a dependent variable will change, per standard deviation increase in the predictor variable. 33 Standardization of the coefficient is usually done to answer the question of which h of the independent d variables ibl (IVs) have a greater effect on the dependent variable (DV) in a multiple regression analysis, when the variables are measured in different units of measurement. Determinants CSR Disclosure Vl Value Quality Relevance 34

19 Nature of Business Activities & Industry Membership: Industries differ in the level of environmental impact, the visibility of environmental issues, and the degree of regulatory intervention. Environmentally sensitive industries with higher pollution propensity tend dto disclosure more in CSR. This is compliancedriven reporting. Failure to disclose might lead to negative perceptions. High Impact Industries Low Impact Industries 35 Firm Size: Larger companies tend to disclose CRS information more than smaller firms. 1. Large firms are exposed to greater attention from stakeholders than smaller firms. 2. Large firms face higher pressure from external stakeholders eg. government, NGOs, regulatory organizations. 3. Large companies aim to project their images as firms with sustainable mind. 4. Preparation and disclosure of CSR information is costly. It would be more economically affordable for larger firms. 36

Organizational Visibility and Media Exposure: 1.

Media coverage influences the preferences of the public and helps set public agenda which

Media exposure eposues is a proxy poyfor social visibility.

ownership interest influence the disclosure policy. 1.

pressure to the firm. 2. The quoted firms tend to disclose more than unquoted firms. 3.

20 Organizational Visibility and Media Exposure: 1. Larger firms tend to favor formal channels of communication to public. 2. Media coverage influences the preferences of the public and helps set public agenda which may lead to pressure to the firms. 3. Media exposure eposues is a proxy poyfor social visibility. sb 37 Company Ownership & International Experience: The concentration or dispersion of ownership interest influence the disclosure policy. 1. Dispersion of ownership involves diverse groups of shareholders, which may induce pressure to the firm. 2. The quoted firms tend to disclose more than unquoted firms. 3. Foreign ownership influences the level of voluntary disclosure. The nationality ofparent plays significant role in determining the extent and nature of disclosure of subsidiary. 4. Diverse international experience is subject to more political and social ilpressure. 38

21 Environmental Certification & Recognition: ImplementationofEnvironmentalManagementSystem of (EMS) such as ISO14000 series and Eco Management and Audit European Scheme (EMAS) influences the level of CSR Disclosure. 39 Financial Performance & Firm Resources: Financial performance is expected to be positively associated with CSR activities and reporting. 40 Board Composition: BOD governs the corporate reporting and disclosure to ensure good governance mechanism is in place. The more independent BOD, the more CSR disclosure.

22 Determinants: Firm size Membership p in environmental sensitive industries The extent a firm is widely owned. Exposure to environmental related legal proceedings or fined. Probability to be involved in similar accident in the future. Environmental lobby groups concerns about a firm s environmental performance.... Voluntary CSR disclosure 41 Voluntary CSR disclosure Value Relevance: Abnormal stock returns Cost of capital Firm value 42

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CSR Research in Action 53 In aggregate, g a trend of increasing amounts of corporate social disclosure, although the five year trends (1997 2001) varied within different industries.

28 CSR Research in Action 53 In aggregate, g a trend of increasing amounts of corporate social disclosure, although the five year trends ( ) varied within different industries. CSR among Thai companies was found to be primarily focused on human resources, providing declarative good news disclosures (Ratanajongkul et al., 2006) Many Thai companies also see advantages in engaging in CSR activities, because they foster trust and nurture goodwill. This will positively influence the reputation of these companies. The social/religious context in Thailand is the basis for performing gooddeeds, because of the Buddhist merit making culture. Therefore a lot of Thai companies are involved in philanthropic actions and employee volunteering (Prayukvong and Olsen, 2009) 54

29 References Adnana, S. M., C. V. Stadenb, and D. Hay Do Culture and Governance Structure Influencce CSR Reporting Quality: Evidence from China, India, Malaysia and the United Kingdom. Working paper of University of Auckland Business School. Heath, J. and W. Norman Stakeholder Theory, Corporate Governance and Public Management: What can the history of state run enterprises teach us in the post Enron era? Journal of Business Ethics 53, pp Krippendorff, K Content analysis: an introduction to its methodology. Sage Publications. Neuendorf, K. A The Content tanalysis Guidebook. Sage Publications. 55 O'Donovan ODonovan, G. (2000) Legitimacy theory as an explanation for corporate environmental disclosures. PhD thesis thesis, Victoria University of Technology. References Prayukvong, P. and M. Olsen Executive SummaryResearch hpaper on Promoting Corporate Social Responsibility in Thailand and the Role of Volunteerism. The NETWORK of NGO and Business Partnerships for Sustainable Development (The NETWORK Thailand) Ratanajongkol, S., H. Davey, and M. Low Corporate social reporting in Thailand: The news isall good and increasing. Qualitative Research in Accounting & Management,.3 (1), pp id=596 ptt qshe policy.aspx?# 56

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Corporate Social Responsibility GRI INDEX TABLE

Corporate Social Responsibility GRI INDEX TABLE X-FAB reviewed the disclosures in this report relative to the GRI guidelines (3.1). Based on this review, we self-declare this report as meeting Application