Major Accounting Sarjana Ekonomi Thesis Semester Even Year 2007

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1 BINA BINUS NUSANTARA INTERNATIONAL UNIVERSITY Major Accounting Sarjana Ekonomi Thesis Semester Even Year 2007 CORPORATE SOCIAL RESPONSIBILITY (CSR) REPORTING AND ITS RELATION TO BUSINESS ECONOMIC PERFORMANCE IN INDONESIA: A CONTENT ANALYSIS STUDY ON LISTED COMPANIES Indira Syarifa Abstract Objectives This research intended to investigate the trend of CSR reporting in Indonesia as well as assess the correlation between company size, profitability, and stock market performance with frequency level of the disclosure. Hence, this exploratory study is supported by hypotheses testing. Method The method used in this study is content analysis assisted with tabulation tables and Global Reporting Initiative (GRI) framework. The variables were measured against sentences as unit of analysis over three (3) years of annual reporting of fifty (50) listed companies in Indonesia. Results and Conclusions In summary, the study reveals eight (8) findings. Firstly, the application CSR reporting in Indonesia had been increasing over the years. Secondly, the top three reported themes are economic performance, labor practices and decent work performance, and society performance. Thirdly, the proportion of economic performance reporting had been decreasing over the years as the social and environmental reporting grows. Fourthly, most of CSR activities are reported in the separate sections of annual reports. Fifthly, there is strong positive relationship between company size and level of CSR reporting. Sixthly, large companies disclose more social and environmental (noneconomic) reporting compared to mid-size and small companies. Next, industry characteristics do influence the extent of CSR reporting. Finally, there is positive relationship between the level of CSR reporting and profitability as well as stock market. Keywords Corporate Social Responsibility, Reporting, Business Economic Performance, Content Analysis, Annual Reports, Listed Companies, Indonesia v

2 Preface First of all, the author would like to dedicate her gratitude to Allah SWT for the blessing throughout the completion of this thesis. This thesis entitled Corporate Social Responsibility (CSR) Reporting and Its Relation to Business Economic Performance in Indonesia: A Content Analysis Study on Listed Companies, was prepared and designated to fulfill the final requirement for a completion of undergraduate degree on Accounting Major, School of Accounting, Bina Nusantara International University. This thesis will be a final project that had been planned and prepared during the undergraduate study period. The completion is expected to provide value added to readers so that further research in this particular topic can be conducted and may contribute to the development of this research. With regard to this opportunity, the author would like to thank the following people: 1. Mr. Firdaus Alamsjah as the executive director of the Joseph Wibowo Center for giving the author an opportunity to study at Binus International. 2. Mr. Minaldi Loeis as the program director of Bina Nusantara International. 3. Mr. Dezie L. Warganegara, the head of Accounting School of Bina Nusantara International, for his support and dedication throughout these semesters. 4. Mrs. Ersa Tri Wahyuni, the deputy of Accounting School of Bina Nusantara International, for being such a great advisor and a very passionate lecturer. 5. Mr. Dominique Razafindrambinina, the deputy of Accounting School of Bina Nusantara International, for his interesting and hilarious sessions and for giving me very meaningful advices in life. 6. Mr. Edward Tanujaya, for his dedication in the thesis supervision and for giving me such meaningful inputs and feedbacks during the supervisory period. 7. The author s families for their daily support and prayer for the completion of the degree. 8. The author s lifelong friends for the togetherness and supports over the years. vi

3 9. Binus International Accounting students batch 2007 who have been together through the goods and the bads; and for the solid friendship and support throughout these years. 10. Yulia Sanjaya, a senior colleague, for her time in tutoring and giving the author deeper understanding on comprehensive accounting subjects. 11. For all the lecturers in Binus International for the chances given to obtain wider knowledge in all subjects. 12. Faculty member and staff of Bina Nusantara International for helping the author in finishing the degree. 13. Everyone and parties who have supported the author for the degree completion. The author believes that the involvement and support given by every party named above had been greatly contribute to the completion of the undergraduate degree. Furthermore, the author realizes that this thesis is not perfect, thus, it is hoped for advices and suggestion for further improvements on this paper. Lastly, the author expects that this thesis would provide useful knowledge for herself as well as the readers for further references in similar study. Jakarta, July 20 th, 2007 Author Indira Syarifa vii

4 Table of Contents Page Cover Page.. i Title Page... ii Certificate of Approval.... iii Statement of Examiner... iv Abstract.. v Preface... vi Table of Contents... viii List of Tables. xii List of Figures xiv List of Graphs. xv List of Appendices. xvi Chapter 1 Introduction Background of the Problem Problem Identification Scope of Research Research Objectives and Benefits Research Hypotheses Research Methodology Population and Samples Data Gathering Methods Data Analysis Thesis Structure.. 9 Chapter 2 Theoretical Foundations on Corporate Social Responsibility (CSR) Concept of Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR) in the Developed Countries Corporate Social Responsibility (CSR) in viii

5 Indonesia Corporate Social Responsibility (CSR) Reporting Corporate Social Reporting and Good Corporate Governance (GCG) Motivation for Reporting Stakeholder Theory Legitimacy Theory Political Economy of Accounting (PEA) Theory International Reporting Guideline CSR Reporting in Indonesia Past Empirical Research and Findings Business Economic Performance Measurements Chapter 3 Research Methodology Research Hypotheses and Aims Time and Place Research Design Purpose of the Study Type of Investigation Extent of Researcher Interference Study Setting Unit of Analysis Time Horizon Sampling Design Data Collection Method Measurement and Measures Data Analysis Content Analysis Hypotheses Testing 53 Chapter 4 Findings and Discussions To what extent do listed companies in Indonesia publicly ix

6 disclose Corporate Social Responsibility (CSR) in annual reports? Trend of CSR Reporting in Indonesia Themes of CSR Reporting in Indonesia Location of CSR Reporting Do company characteristics (i.e. size and industry grouping) influence the frequency and type of CSR disclosure in annual reports? Company Size and the Level of CSR Reporting 64 Net Assets 65 Net Sales.. 66 Market Capitalizations Company Size and Type of Reporting 67 Small Company Mid-size Company.. 68 Large Company Industry Grouping and Type of Reporting. 71 Infrastructure, utilities, and transportation.. 72 Finance 73 Miscellaneous industry 74 Consumer goods industry 74 Mining. 75 Basic industry and chemicals.. 76 Trade, service, and investment 77 Agriculture.. 77 Property, real estate, and building construction To what extent does CSR reporting contribute to business economic performances? Company Profitability 78 Return on Assets (ROA).. 79 Return on Equity (ROE).. 80 x

7 Gross Profit Margin Stock Market Performances Stock Prices. 82 Price to Earnings (PER).. 83 Price to Book Value (PBV) 84 Jakarta Composite Index (JCI) 84 Chapter 5 Conclusions, Limitations, and Recommendations Conclusions Recommendations Limitations Avenue for Further Research.. 89 References.. 90 Curriculum Vitae 98 Appendices. 99 xi

8 List of Tables No. Table Page 2.1 Evolution of Corporate Philanthropy in the USA High Profile CSR Events in Indonesia Components of GRI-Sustainability Reporting Guideline Categories Selected papers which have used a form of content analysis as a research method List of Samples: 50 Listed Companies Descriptive Statistics of CSR Reporting per Year a CSR Reporting per Company in Sentences: b CSR Reporting per Company in Sentences: (continued) Coding Sheet Summary of CSR Reporting 50 Listed Companies: Summary of CSR Reporting: Location of CSR Reporting: Summary on Correlation Tests: CSR-Company Size: Composition of Sample Based on Market Capitalization Proportion of CSR Reporting in Small Company Proportion of CSR Reporting in Mid-size Company Proportion of CSR Reporting in Large Company Composition of Sample Based on Industry Grouping Years Average Percentage of Reporting per Theme per Industry: Summary on Correlation Tests: CSR-ROA Summary on Correlation Tests: CSR-ROE Summary on Correlation Tests: CSR-GPM.. 81 xii

9 4.16 Spearman s rho Correlation test: Level of CSR Reporting and Company Profitability Summary on Correlation Tests: CSR-Stock Prices Summary on Correlation Tests: CSR-PER Summary on Correlation Tests: CSR-PBV Spearman s rho Correlation: CSR-JCI Spearman s rho Correlation test: Level of CSR Reporting and Stock Market Performances xiii

10 List of Figures No. Figure Page 2.1 Sustainability Triangle A Shareholder Model for Corporation Research Process Research Design. 46 xiv

11 List of Graphs No. Graph Page 4.1 Trend of CSR Reporting per Year Proportion of Reporting Based on Size Classification: Jakarta Composite Index and CSR Reporting Trend: xv

12 List of Appendices No. Appendix Page Appendix I GRI Reporting Framework Appendix II Coding Sheet Location of Disclosures: Appendix III Financial Data: Appendix IV Summary of CSR Reporting per Company Appendix V Yearly CSR Reporting per Industry xvi