Professional Documents
Culture Documents
Determinants of
disclosures in
NZ companies
77
Markus J. Milne
University of Otago, Dunedin, New Zealand
Introduction
During the past 20-30 years there has been a growing public awareness of the
role of corporations in society. Many of the firms which have been credited with
contributing to economic and technological progress have been criticized for
creating social problems. Pollution, resource depletion, waste, product quality
and safety, the rights and status of workers, and the power of large corporations
are issues which have become the focus of increasing attention and concern
(Gray et al., 1987, p. 1). Pressures from a variety of sources have come to bear on
the private sector to accept responsibility for impacts on society from business
activities. Companies are being urged to become accountable to a wider
audience than shareholder and creditor groups. Friedmans (1962) doctrine that
the only social responsibility of business is to maximize profits is not
universally accepted. Studies have documented a growing awareness on the
part of business executives that business has an obligation to help society, even
if it means less profit (Holmes, 1976; Ostlund, 1977).
The growth in awareness of corporate social responsibility has added to the
criticisms of the use of profit as an all-inclusive measure of corporate
performance. In response, some major accounting institutions (AICPA, NAA,
ICAEW) began to consider corporate social accounting in the mid 1970s
(Ramanathan, 1976). Progress has been slow and sporadic at best, however.
Accounting researchers have also begun to articulate different theoretical
perspectives in support of corporate social accounting, including agency
theory, legitimacy theory, political economy of accounting theory and
stakeholder theory (see, for example, Belkaoui and Karpik, 1989; Gray et al.,
1987, 1988, 1995a; Guthrie and Parker, 1990; Patten, 1991, 1992; Roberts, 1992).
The authors would like to thank Kate Brown, Ralph Adler, Alan Macgregor and an anonymous
reviewer from the First Asian Pacific Interdisciplinary Research in Accounting Conference,
Sydney, 1995, for comments on earlier drafts. In addition, Carol Adams and two anonymous
reviewers are expressly thanked for comments on later drafts. All errors remain the responsibility
of the authors. Correspondence on this paper should be addressed to Markus J. Milne, Fax: 64 3
4798450.
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53
75
35
43
63
57
Human resources 47
33
59
33
24
Community
General/other
Notes:
Energy
Products
96
10
98
14
0.89
10
65
0.5
72
15
62
15
10
100
75
2.0
100
18
29
93
21
0.7
56
50
11
34
17
0.68
56
50
Australia
Guthrie and Guthrie and
Parker (1983) Parker (1980)
83
0.75
23
79
40
6
30
19
100
300d
13
88
28
3
19
3
84
270d
13
16
66
50
32
32
New Zealand
Davey Ng
Hackstone
(1982) (1985) Milne (1992)
Percentage of total sample of companies that made at least one social disclosure
Guthrie and Parkers 98 per cent incidence rate includes both mandatory and voluntary disclosures. When voluntary disclosures
only are considered, the UK incidence rate is 56 per cent
Average amount of disclosure to the nearest 100th of an annual report page for those companies making at least one social disclosure
Average number of words
Percentage of companies making at least one disclosure in that theme of the total sample of companies
Themee:
Environment
1.26
N/A
9856
100
85
100
90
Amountc
50
50
500
Incidencea
Sample
UK
Guthrie and Gray et al. Gray et al.
Parker (1983) (1983)
(1991)
USA
Ernst &
Guthrie and
Ernst (1977) Parker (1983)
Determinants of
disclosures in
NZ companies
79
Table I.
International
comparison of
social disclosure
studies
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indicates the incidence, nature and amount of CSD in the respective countries.
All the figures relating to the incidence and nature of CSD are percentages.
Except for Davey (1982) and Ng (1985), the amount of CSD is measured in
average number of pages of CSD per company.
A number of patterns emerge from the data in Table I: first, the incidence of
CSD appears much higher in the USA, The UK, and New Zealand than in
Australia. Guthrie and Parkers 1983 UK result of 98 per cent, however, includes
both mandatory and voluntary disclosures. When adjusted for only voluntary
disclosures, they reported an incidence rate of 56 per cent for the UK. Gray et
al.s (1995a) reported figures for the UK are for voluntary disclosures only and,
consequently, there is some difference between the two surveys for the 1983 UK
results. Interestingly, Trotmans (1979) survey of 100 Australian companies in
1977 (not shown in Table I) reported a higher 69 per cent incidence rate than
Guthrie and Parkers later 1983 study which reported 56 per cent. As most of
the surveys shown in Table I sample the top companies rather than draw
random samples, it may be that sampling technique and sample size influences
incidence rates.
Second, the pattern of ranking of CSD by theme, for companies which make
CSD, appears reasonably consistent across all countries, with human resources,
environment, and community receiving most attention. Energy and product
themes, however, receive much more attention in the USA than in the other
countries surveyed. The particularly high rate for the product theme in our own
study was not expected, and is discussed later in the results section.
Third, the amount of CSD is also reasonably consistent between companies in
the USA, UK, and Australia. Measured in average pages per company, US
companies do disclose more information than their UK or Australian
counterparts. From Guthrie and Parkers comparative study, however, these
differences are not statistically significant. Again, some care is required in
making comparisons across studies to sort out voluntary disclosure from totals
of both mandatory and voluntary disclosure. Gray et al.s (1995a) UK page
amounts are for voluntary disclosure and compare to the Australian and New
Zealand studies, where very little, if any, CSD is mandated. Guthrie and Parkers
UK and US page amounts are for both mandated and voluntary disclosures,
and this may explain the difference in the 1983 UK results. Prior to this study,
comparison with New Zealand companies was difficult because both Davey
(1982) and Ng (1985) measured the amount of disclosure in average number of
words per company.
Some caution needs to be exercised in claims relating to patterns in
disclosure practices from these survey data, however. The surveys were
conducted in different time periods, involve different sample sizes, different
methods, and different researchers. Moreover, as discussed below, a number of
additional variables now appear to be associated with CSD, and the surveys
have not controlled for these, either directly or by drawing random samples. As
such, the data are not strictly comparable.
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corporate image and influence sales (Cowen et al., 1987). Patten (1991), on the
other hand, argues industry, similar to company size, influences political
visibility and this drives disclosure to ward off undue pressure and criticism
from social activists.
Several empirical studies have found positive associations between
industry classifications and CSD. In an Australian study, Kelly (1981) found
that primary and secondary industry companies tended to disclose more
environmental and energy-related information than corporations engaged in
tertiary industries, while the opposite relationship was found for information
relating to community interaction. In a study of US companies which was
similar in design to Kellys, Cowen et al. (1987) found that industry category
influenced energy and community involvement disclosures. Their results,
however, clearly indicated that the incidence and total amount of CSD are not
associated with industry category. Contrary to this finding, however, Patten
(1991) and Roberts (1992) have found positive relationships between highprofile industries and the amount of corporate social responsibility
disclosure. As for company size, both Davey (1982) and Ng (1985) failed to
find an association between industry type and CSD for New Zealand
companies. Again, industry type and CSD in New Zealand are re-examined.
Corporate profitability
The relationship between CSD and corporate profitability has been
postulated to reflect the view that social responsiveness requires the same
managerial style as that necessary to make a firm profitable (Bowman and
Haire, 1976). CSD is believed to reflect an adaptive management approach to
dealing with a dynamic, multidimensional environment and an ability to meet
social pressure and respond to societal needs. Such management skills are
considered necessary to survive in todays corporate environment (Cowen et
al., 1987). Heinze (1976), however, contends that profitability is the factor that
allows management the freedom and flexibility to undertake and reveal to
shareholders more extensive social responsibility programmes.
Empirical research on the profitability-CSD relationship, however, has
produced very mixed results. Both Bowman and Haire (1976) and Preston
(1978) provide results which support a profitability-CSD relationship.
Bowman and Haire (1976) report significant differences for a five-year average
return on equity (ROE) between disclosing and non-disclosing companies.
Preston reports a higher, single-year ROE for high disclosers than for other
Fortune 500 companies. On the other hand, Cowen et al. (1987) failed to
support any profitability-CSD relationship. Belkaoui and Karpiks (1989)
results for this relationship conflict and are difficult to interpret. They report
a positive and significant pairwise correlation, and an insignificant, yet
negative regression coefficient for ROA and disclosure. While Roberts (1992)
has found evidence for a positive relationship between lagged profits and
CSD, Patten (1991), using multiple measures of profitability including lagged
measures, fails to find any relationship between profitability and CSD. Neither
Determinants of
disclosures in
NZ companies
83
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Measurement of variables
Dependent variable corporate social disclosure. Content analysis is used to
measure corporate social responsibility disclosures. Content analysis is a
method of codifying the text (or content) of a piece of writing into various groups
(or categories) depending on selected criteria (Weber, 1988). Following coding,
quantitative scales are derived to permit further analysis. Krippendorff (1980,
p. 21) states that content analysis is a research technique for making replicable
and valid inferences from data according to their context. In one form or
another, the method has been widely adopted in previous social responsibility
disclosure studies (see, for example, Abbott and Monsen, 1979; Ernst & Ernst,
1978; Guthrie and Mathews, 1985; Guthrie and Parker, 1990).
To enable content analysis to be performed in a replicable manner, an
interrogation instrument, checklist, and decision rules were developed. The
interrogation instrument is shown in Figure 1 and the checklist is included in the
Appendix. The interrogation instrument is used to record the amount of CSD in
different categories. The instrument categories are constructed based on the
earlier work of Ernst & Ernst (1978), Guthrie and Parker (1990), and Gray et al.
(1995a) and include the dimensions of disclosure theme (environment, energy,
products/consumers, community, employee/human resources, general/other);
evidence (monetary quantification, non-monetary quantification, declaration);
news type (good news, bad news, neutral news); and amount (number of
sentences).
The instrument does contain some differences from earlier work, however,
and these are now considered.
Location in report. The dimension of location in report is excluded. The
literature is unclear as to why location in report is important and
location data appears to have very little value beyond permitting
description (Gray et al., 1995b, p. 83).
Amount of disclosure. The amount of disclosure per company and per
content category is measured by the number of sentences. In many earlier
studies, quantification for each of the disclosure categories consisted of
recording whether or not a company made a disclosure in the category,
and total amount per company was measured to the nearest tenth or
quarter of a page. Ng (1985) is critical of portion of pages measurement
because print sizes, column sizes and page sizes may differ from one
annual report to another. To overcome these problems, Ng used number
of words. Measuring CSD amount by the number of words, however,
leaves the researcher pondering which individual word is a CSD and
which is not. Consequently, the possibility remains that disagreement
between different coders could be quite serious. Sentences, as a
measurement unit, overcome the problems of portion of pages and
remove the need to account for, or standardize, the number of words. On
the other hand, one might concede that a difference does exist between
two sentences which are identical but for different font sizes. As natural
units of written English which clearly exist between two punctuation
Environment
Energy
Declarative/neutral
Declarative/bad news
Declarative/good news
Non-monetary/neutral
Non-monetary/bad news
Non-monetary/good news
Monetary/neutral
Monetary/bad news
Monetary/good news
Monetary/non-monetary/neutral
Monetary/non-monetary/bad news
Monetary/non-monetary/good news
Text disclosures
Sentence characteristics
Product/
consumers
Name
Community
Employee
(other)
Employee
(health and safety)
Year
General
Totals
Determinants of
disclosures in
NZ companies
85
Figure 1.
Social responsibility
disclosure instrument
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pretesting rounds had produced high levels of coding reliability, the final round Determinants of
was formally assessed using content analytic reliability measures.
disclosures in
Scotts (1955) , and Krippendorffs (1980) were both used to assess the
NZ companies
levels of inter-coder agreement occurring above chance on the initial coding
decision is this sentence a social disclosure, yes? or no? The reliability tests
indicated Krippendorffs (1980) = 0.901 and Scotts (1955) = 0.873. As noted
87
in Guthrie and Mathews (1985), while no acceptable standards of reliability have
been established for social disclosure content analysis, 0.80 (80 per cent
agreement above chance) or better is suggested as an acceptable level of intercoder reliability (Guthrie and Mathews, 1985, p. 261). Similarly, Wimmer and
Dominick (1991, pp. 171-5) suggest 0.75 or better is normally accepted within
the content analysis literature for these tests.
With the new guidelines and checklist established from the pretesting
rounds, the remaining 47 annual reports were photocopied and spiral bound.
Given the high levels of coder reliability from the pretesting phase, content
analysis was performed on the final data by a single coder using the checklists
and instruments developed during the pretesting process.
Independent variables company size. In previous studies, company size has
been measured by either number of employees, total asset value, sales volume,
or an index rank (e.g. Fortune 500). Belkaoui and Karpik (1989) employed the
log of net sales in their study, whereas Trotman and Bradley (1981) used both
sales and total assets. Cowen et al. (1987) used Fortune rank. Roberts (1992) used
a four-year average of revenues. Patten (1991) used the log of sales, but also
repeated the analysis with Fortune 500 rankings. Employee numbers, sales and
total assets have been shown to be highly correlated (Kimberly, 1976).
Nonetheless, given that no theoretical reasons exist for a particular measure of
size in this and other disclosure studies, three measures of size will be used:
market capitalization, sales, and total assets.
Corporate profitability. Profitability is measured using the accounting-based
return on equity (EBIT/total equity), and return on assets (EBIT/total assets). In
addition to current (1992) measures of these variables, five-year (1988-1992)
averages are also used in line with previous studies (Abbott and Monsen, 1979;
Bowman and Haire, 1976; Cowen et al., 1987). Measuring return on equity, or
return on assets, over an extended period is claimed to provide a more reliable
measure of corporate performance than measurement of a single year. Where
data are unavailable for the full five-year period, an average is calculated for
those years that are available.
Industry type. The industry variable in this study is measured as a
dichotomous classification of industries into high-profile and low-profile
industries. Roberts (1992, p. 605) defines high-profile industries as those with
consumer visibility, a high level of political risk, or concentrated intense
competition, and suggests prior studies which include industry may have
captured a systematic relationship between such characteristics and social
responsibility activities. Of course, all such classifications are to an extent
subjective and ad hoc. Patten (1991), for example, identified petroleum,
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chemical, and forest and paper as high profile for one study. Dierkes and
Preston (1977) suggest extractive industries are highly visible and, therefore,
subject to greater legal constraints. Roberts (1992) included automobile, airline,
and oil industries as high profile, and food, health and personal products, hotel,
and appliance and household products as low profile.
All those industries identified in the above studies as high profile are included
as high-profile in this study. In addition, agriculture, liquor and tobacco, and
media and communications are classified as high profile. While these industries
might not be regarded universally as high profile, they are particularly
dominant in New Zealand society, and are believed to meet the criteria outlined
by Roberts (1992) for high profile[4].
Analysis, results and discussion
The results of the descriptive analysis of the corporate social disclosure
measures are presented in Tables II and III. In addition to the incidence figures,
i.e. the number of disclosing companies as a percentage of the total sample of
companies shown in the second column, Table II reports on issues of theme,
evidence, and news by proportions of amount of disclosure as measured by
number of sentences (fourth column). Nearly all previous studies have tended to
report only the incidence rate, primarily because disclosure amount has not
been recorded in a disaggregated manner by theme, evidence, and news. A
problem with relying on incident rates is that they may be misleading in the
Disclosing
Disclosing
Disclosed
companies
companies as a
Number of
sentences as a
(making at least percentage of total
disclosed
percentage of all
one disclosure) sample (incidence) sentences (amount) disclosed sentences
Theme
Environment
Human resources
Products
Energy
Community
General/other
Total
Evidence
Monetary
Non-monetary
Declarative
Total
News
Table II.
Good
Descriptives for social
Bad
disclosure measures in Neutral
New Zealand companies Total
11
37
19
3
14
9
23
79
40
6
30
19
107
523
79
6
172
27
914
12
57
9
1
19
3
100
29
30
34
62
64
72
162
182
570
914
18
20
62
100
37
15
22
79
32
47
710
57
147
914
78
6
16
100
sense that they treat companies which make one or more disclosures as equal Determinants of
a company making one sentence disclosure on the environment is treated as
disclosures in
equal to a company which discloses 50 sentences on the environment. As can be
NZ companies
seen from Table II, measuring proportions by amount can make a difference.
For example, while 40 per cent of companies make disclosures on aspects of
products, most of those which do disclose only disclose a small amount since
89
the product theme only accounted for 9 per cent of the total disclosure for the
sample. Although not shown in Table II, on average companies making product
theme disclosures only disclosed four product-theme sentences each. In
contrast, companies making human resource disclosures, disclosed an average
of 14 human resource related sentences each.
Total
Average
Minimum
Maximum
Sentences
Measured pages
Derived pages
914
23.4
1
137
29.29
0.75
0.02
3.8
52.84
1.35
0.04
7.75
Table III.
Total amount of disclosure
Similarly, while it might appear from the incidence rates shown in the second
column that monetary (62 per cent), non-monetary (64 per cent), and declarative
(72 per cent) evidence are fairly equally represented, the proportion by amounts
measure (fourth column) provides a very different picture. Clearly, while many
companies do make monetary and non-monetary social disclosures, the vast
bulk of their social disclosures are declarative statements (62 per cent of total
disclosure). Companies making declarative disclosures, on average, disclose
about 17 declarative sentences each. In contrast, companies making monetary
disclosures average about six monetary sentences each. Likewise, and not
surprising, good news statements clearly dominate (78 per cent of total
disclosure) with only a very small proportion of statements being bad news
(6 per cent of total disclosure). Of the companies making good news disclosures,
they each average about 19 good news sentences, while bad news disclosers
each average about four bad news sentences.
In terms of the total amount disclosed, 39 companies (out of 47) disclosed a
total 914 sentences, representing an average of 23 sentences. The maximum
disclosed by any single company was 137 sentences. In terms of page amount,
a total of 29.29 actual measured pages was disclosed, representing an average
of 0.75 pages, with the most disclosed by a single company being 3.8 pages.
Clearly, the derived page measurement grossly overestimates the amount of
disclosure. Nonetheless, as discussed later, the measure appears to overestimate
each company systematically and holds up very well as a relative measure of
disclosure.
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Independent variables
Size:
Nat log of 1992 sales
Nat log of 1992
total assets
Nat log of 1992
market capitalization
Profitability:
Return on assets 1992
Average return on
assets 1988-1992
Return on equity 1992
Average return on
equity 1988-1992
Dependent variable
CSD amount:
Measured pages
Derived pages
Number of sentences
Table IV.
Descriptive statistics
for continuous
variables
Mean
SD
Min.
Max.
19.10
1.55
16.21
23.25
19.36
1.58
17.13
19.20
1.18
17.90
0.112
0.05
0.03
0.108
0.237
0.04
0.12
0.221
0.623
1.124
19.44
Kurtosis
K-S stats
0.431
0.114
0.653 0.786
23.77
0.994
0.535
1.054 0.216
22.47
1.335
1.080
1.125 0.158
0.250
0.121
0.062
0.440 0.990
0.03
0.03
0.210
0.730
0.358
1.365
0.08
5.028
0.663 0.771
0.619 0.837
0.09
0.06
0.630
1.750
6.300
0.691 0.725
0.81
1.60
28.86
0.00
0.00
0.00
2.535
2.588
2.971
7.611
7.836
9.985
1.512* 0.020
1.653**0.008
1.865**0.009
3.80
7.75
137.0
Skewness
Notes:
*Significant at the 5% level.
**Significant at the 1% level.
The sources of data for all the variables (except market capitalization) are each companys 19881992 annual reports. The source for market capitalization is the NZSE 1992 annual report
Company name
Low-profile industries
Milburn New Zealand Ltd
BLD
PLD Holdings Ltd
ELE
Fischer & Paykel Industries Ltd
ELE
BNZ Finance Ltd
FIN
Huttons Kiwi Ltd
FOD
Progressive Enterprises Ltd
FOD
Best Corporation Ltd
FOD
Sanford Ltd
FOD
Mainzeal Group Ltd
INV
Brierley Investments Ltd
INV
Ceramco Corporation Ltd
INV
Corporate Investments Ltd
INV
Fay Richwhite and Company Ltd
INV
Salmond Smith Biolab Ltd
MED
Fortex Group Ltd
MET
Mair Astley Ltd
MET
U-Bix Business Machines Ltd
MIS
Rank Group Ltd
MIS
Waste Management NZ Ltd
MIS
Shortland Properties Ltd
PRO
Robt Jones Investments Ltd
PRO
Gulf Resources Pacific Ltd
PRO
Michael Hill International Ltd
RET
Hallenstein Glasson Holdings Ltd
RET
Cavalier Corporation Ltd
TEX
Donaghys Ltd
TEX
High profile industries
47
Regal Salmon Ltd
AGS
50
Apple Fields Ltd
AGS
49
Reid Farmers Ltd
AGS
40
Nuplex Industries Ltd
CHM
8
Fernz Corporation Ltd
CHM
9
The New Zealand Refining Company Ltd
ENE
18
Steel & Tube Holdings
ENG
3
Fletcher Challange Ltd
FOR
2
Carter Holt Harvey Ltd
FOR
14
DB Group Ltd
LIQ
5
Lion Nathan Ltd
LIQ
7
Wilson and Horton Ltd
MCM
10
Independent Newspapers Ltd
MCM
1
Telecom Corporation of New Zealand Ltd
MCM
25
New Zealand Oil and Gas Ltd
MIN
22
Southern Petroleum NL
MIN
21
Macraes Mining Company Ltd
MIN
6
Air New Zealand Ltd
TRN
31
Port of Tauranga Ltd
TRN
35
The Helicopter Line Ltd
TRN
33
Owens Group Ltd
TRN
Notes: BLD = Building; ELE = Electrical; FIN = Finance and banks; FOD = Food; INV = Investment;
MED = Medical supplies; MET = Meat and by-products; MIS = Miscellaneous services; PRO = Property;
RET = Retailers; TEX = Textiles and apparel; AGS = Agricultural and associated services;
CHM = Chemicals; ENE = Energy and fuel; ENG = Engineering; FOR = Forestry; LIQ = Liquor and tabacco;
MCM = Media and communications; MIN = Mining; TRN = Transport and Tourism
30
20
12
19
34
15
44
11
45
4
13
48
16
42
28
29
41
17
38
46
32
36
43
23
27
24
Determinants of
disclosures in
NZ companies
91
Table V.
Classification of
companies by industry
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Table VI.
Pearson correlation
coefficients for
continuous variables
Return
on
Measured equity
pages
1992
Return on equity
1992
Return on assets
1992
Nat log of sales
1992
Nat log of market
market
capitalization 1992
Nat log of total
assets 1992
Average return on
assets 1988-1992
Average return on
equity 1988-1992
Return
on
assets
1992
0.079
0.595
0.191
0.198
0.638
0.000
0.628
0.000
0.048
0.747
0.156
0.293
0.757
0.000
0.679
0.000
0.136
0.361
0.102
0.493
0.154
0.298
0.277
0.059
0.364
0.012
0.744
0.000
0.197
0.183
0.524
0.000
0.562
0.000
0.349
0.016
Nat log
Nat log
Nat log Average
of
of market
of
return
sales capitalization assets on assets
1992
1992
1992 1988-1992
0.784
0.000
0.788
0.000
0.181
0.222
0.176
0.235
0.848
0.000
0.070
0.639
0.069
0.645
0.359
0.013
0.059
0.692
0.628
0.000
From Table VI, it is clear that all the size measures (Nat log of sales 1992, Nat
log of market capitalization 1992, and Nat log of total assets 1992) are highly
positively correlated with the actual measured page amount of social
disclosure. Consistent with studies from the USA (Cowen et al., 1987; Belkaoui
and Karpik, 1989; Patten, 1991, 1992) and Australia (Kelly, 1981; Trotman and
Bradley, 1981), the results indicate that the larger listed New Zealand firms (of
relatively large firms) disclose more social and environmental information.
Although these results are in contrast to the earlier New Zealand studies of
Davey (1982) and Ng (1985), such differences may be due to the different
sampling and analytical methods used in their studies.
From Table VI none of the four profitability measures is significantly
associated with the social disclosure measure, and these findings are consistent
with Davey (1982), Ng (1985), Cowen et al., (1987), Patten (1991), and Roberts
(1992). Also consistent with Patten (1991), but in contrast to Roberts (1992),
various measures of lagged profits (not shown in Table VI) were not
significantly correlated with disclosure amount. The profitability of large New
Zealand companies (both current and lagged), therefore, appears unrelated to
the amount of social and environmental information they disclose.
In addition to firm size and amount of disclosure, the only other significant
correlations between measures of the independent variables occurs, perhaps
not surprisingly, between the return on assets measures and the natural log of
total assets. Also, as expected, for both the size and the profitability variables,
the different measures of the same variable are all significantly correlated.
Measured pages
Number of sentences
Derived pages
0.981
0.000
0.963a
0.979
0.000
0.964a
0.079
0.595
0.041a
0.191
0.198
0.187a
0.638
0.000
0.532a
0.757
0.000
0.596a
0.679
0.000
0.488a
0.136
0.361
0.110a
0.102
0.493
0.157a
Number of sentences
0.980
0.000
0.969a
0.117
0.434
0.071a
0.169
0.254
0.198a
0.576
0.000
0.532a
0.697
0.000
0.551a
0.612
0.000
0.436a
0.130
0.381
0.151a
0.075
0.617
0.120a
Derived pages
Determinants of
disclosures in
NZ companies
93
0.097
0.513
0.065a
0.178
0.229
0.195a
0.605
0.000
0.528a
0.734
0.000
0.554a
0.648
0.000
0.437a
0.153
0.303
0.149a
0.075
0.616
0.129a
Table VII.
Pearson correlation
coefficients for
continuous dependent
variables
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94
Table VIII.
t-tests for independent
samples of industry
Independent variables
Size
Nat log of sales 1992
Nat log of total
assets 1992
Nat log of market
capitalization 1992
Profitability
Return on assets 1992
Average return on
assets 1988-1992
Return on equity 1992
Average return on
equity 1988-1992
Dependent variable
CSD amount
Measured pages
Derived pages
Number of sentences
Mean
highprofile
Mean
lowprofile
Mean
diff
SE of
diff
t-value
Two-tailed
p
19.32
18.93
0.388
0.456
0.85
0.400
19.77
19.09
0.676
0.460
1.47
0.149
19.64
18.85
0.789
0.332
2.38
0.022
0.098
0.124
0.026
0.017
1.58
0.122
0.101
0.200
0.113
0.267
0.012
0.066
0.013
0.035
1.00
1.91
0.323
0.063
0.202
0.236
0.033
0.028
1.19
0.241
0.965
1.770
10.57
0.346
0.599
30.42
0.619
1.173
19.85
0.222
0.441
8.032
2.80
2.66
2.47
0.008
0.011
0.017
Note: Industry is partitioned into high-profile (21 cases) and low-profile (26 cases)
surprising, especially given what appeared to be the crudity of the derived page
measurement.
In addition to examining the association between the continuous variables,
two-tailed t-tests for independent samples of industry were performed. The
purpose of these tests is to assess whether any significant differences exist
between the mean amounts of size, profitability, and disclosure amount
between the high- and low-profile industry groups. From Table VIII, significant
differences exist between high- and low-profile industries for all of the measures
of social disclosure amount (measured pages, derived pages, and number of
sentences). High-profile industry companies disclose significantly more social
and environmental information than low-profile industry companies. This
finding is similar to those of Patten (1991) and Roberts (1992), against whose
work the more relevant comparisons can be made due to similarities in the
construction of the industry classification in this and their studies.
In terms of the relationship between industry and the other independent
variables, none of the profitability measures show significant differences,
although the single-year return on equity ratio for 1992 is marginal. For the
measures of size, neither sales nor assets show significant differences by
industry. The market capitalization measure, however, does differ by industry
partition. As measured by market capitalization, the average company size of
the high-profile industry group is significantly larger than the average company
size of the low-profile industry group. Further, although not shown, this Determinants of
association between market capitalization and industry (as measured in this
disclosures in
sample) also exists for the previous two years (1990, 1991). Why these particular
NZ companies
industries should dominate the New Zealand stock market is not clear. Moreover,
whether this relationship is peculiar to New Zealand, and whether it continues to
exist outside of the top 50 companies, needs further investigation.
95
To examine the multiple effect of the independent variables on the amount of
social disclosure in New Zealand companies, the following OLS multiple
regression equation was run:
Measured pages =
a 1 + b 1 Nat log of sales 1992 + b 2 Industry
+ b3 Return on assets 1992
where:
Measured pages =
amount of social disclosure measured in actual
pages to nearest one-hundredth of a page.
Nat log of sales 1992 =
natural logarithm of sales turnover for 1992.
Industry =
industry classification, dummy variable with
1= high-profile, 0= low-profile.
Return on assets for 1992 = earnings before interest and tax over total assets
The equation is a direct replication of that found in Patten (1991), and the
results shown in Table IX are entirely consistent with Pattens, both size and
industry are significant variables, while profitability is not. A minor difference
with the study here is that social disclosure is measured as a continuous
variable, whereas Patten partitioned his sample into high and low disclosers.
The model would also appear to fit the New Zealand sample better since it
explains 46 per cent of the variation (Adjusted R2 = 0.467), while Patten (p. 303)
reports 25 per cent (Adjusted R2 = 0.256). Although not shown in Table IX,
Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Return on assets 1992
B
SE B
Beta
t
Nat log of sales 1992
Industry
Return on assets 1992
Constant
Regression measures
Multiple R = 0.70842
R2 = 0.50185
Adjusted R2 = 0.46710
Standard error = 0.59056
0.31048
0.48806
0.40655
5.48203
ANovA
Regression
Residual
0.05709
0.17876
1.57392
1.12964
DF
3
43
0.59527
0.30318
0.02881
Sum of squares
15.10821
14.99661
F = 14.44000
5.4380
2.7300
0.2580
4.8530
Sig t
0.0000
0.0091
0.7974
0.0000
Mean squares
5.03507
0.34876
Sig F = 0.000
Table IX.
Regression results:
Nat log of sales 1992 +
Return on assets 1992
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Table X.
Regression results
Nat log of market
capitalization 1992 +
Return on assets 1992
Regression measures
Multiple R = 0.77399
R2 = 0.59906
Adjusted R2 = 0.57109
Standard error = 0.52981
0.47356
0.26898
0.70016
8.74723
ANovA
Regression
Residual
0.07044
0.16866
0.82856
1.31960
DF
3
43
0.69529
0.16709
0.08366
Sum of squares
18.03461
12.07021
F = 21.41603
6.7230
1.5950
0.8450
6.6290
0.0000
0.1181
0.4028
0.0000
Mean squares
6.01154
0.28070
Sig F = 0.000
Table XI, when the correlations are recalculated on the separate sub-samples of Determinants of
industry rather than the entire sample, in all cases the size-disclosure
disclosures in
correlations are much higher for the high-profile industry sub-sample.
NZ companies
Similarly, the size-disclosure correlations for the low-profile industry subsample are in all cases lower, and in many cases insignificant. An interpretation
to be drawn from these sub-sample correlation analyses is that industry
97
appears to moderate the size-disclosure relationship. Being a larger company
(in terms of assets or sales) is likely to indicate a larger discloser of social and
environmental information, if the company is in a high-profile industry. For lowprofile industry companies, relative size is not such a good indicator of
disclosure amount.
High-profile industry companies (n = 21) Low-profile industry companies (n = 26)
Measured Number of Derived
Measured Number of Derived
pages
sentences
pages
pages
sentences
pages
Number of
sentences
Derived pages
Nat log of
sales 1992
Nat log of total
assets 1992
0.984
0.000
0.971a
0.983
0.000
0.949a
0.736
0.000
0.752a
0.811
0.000
0.823a
0.986
0.000
0.982a
0.667
0.000
0.673a
0.733
0.000
0.718a
0.683
0.000
0.658a
0.752
0.000
0.721a
0.934
0.000
0.956a
0.935
0.000
0.971a
0.379
0.056
0.321a
0.251
0.261
0.004a
0.929
0.000
0.951a
0.285
0.158
0.379a
0.169
0.407
0.019a
0.392
0.047
0.345a
0.303
0.132
0.042a
Table XI.
Correlation coefficients
for size and disclosure
variables by industry
group
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98
al., 1995a; Guthrie and Parker, 1990) or because the reporting culture demands
it, companies make more social disclosures in such regulated countries,
particularly the USA, Canada and the UK. Now, although companies dually
listed on overseas stock exchanges are not required to make the extra social
disclosures in their New Zealand annual reports, they may do so anyway, if only
because the information is readily accessible and already in the public arena.
A shown in Table XII, the sample was partitioned in three different ways.
First, companies with dual listings on North American (USA or Canada) stock
exchanges were partitioned from the others. This dummy variable is labelled
overseas listing. Second, companies with dual listings on North American or
UK stock exchanges were partitioned from the others (labelled overseas
listing 1). Finally, companies with dual listings on North American, UK or
Australian stock exchanges were partitioned from the others (labelled overseas
listing 2). The thinking behind the various partitions is that North American
social reporting requirements, followed by UK and then Australia are more
demanding than those in New Zealand.
From the regression results reported in Tables XIII-XV it appears that
overseas listings may be additionally associated with the amount of social
disclosures made by New Zealand companies. Comparing the results in Table
XIII with those in Table IX shows that the addition of overseas listing, the
strongest partition of overseas listings in terms of social reporting
requirements, increases the explained variation from 46 per cent (Adjusted R2 =
0.467) to 76 per cent (Adjusted R2 = 0.767). Similar, but smaller, increases in the
adjusted R2 figures are shown in Tables XIV and XV when the other (weaker)
partitions of overseas listings are used. The t-statistics in Tables XIII-XV show
that the size and industry variables, in addition to the overseas listing variable,
remain significantly associated with the amount of social disclosure. In the
overseas listing 2 model (shown in Table XV), however, the industry variable
does become marginal.
As for the earlier regression model, various runs of the later model were made
using the three different measures of social disclosure amount, the four
measures of profitability, and the three measures of size. In all cases for the
disclosure measures the models remained highly significant and the t-statistics
largely unchanged from those in Table XIII. As with the earlier model none of
the profitability measures approached significance and are not reported. Again,
substituting the market capitalization size measure produces a highly
significant model in which industry is no longer significantly associated with
disclosure amount. This time, however, comparing Tables XIII and XVI shows
the extra explanation gained from using the market capitalization measure in
place of the sales measure is quite marginal.
Conclusions
This paper has presented an empirical investigation into the social and
environmental disclosure practices of a sample of listed New Zealand
companies. In doing so, the paper provides a more up-to-date description of
Determinants of
disclosures in
NZ companies
2
5
8
21
25
6
7
9
10
11
12
13
14
15
16
17
18
19
20
22
23
24
27
28
29
30
31
32
33
34
35
36
38
40
41
42
43
44
45
46
47
48
49
50
99
Table XII.
Overseas stock
exchange listings
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Table XIII.
Regression results:
Nat log of sales 1992 +
Overseas listing
0.17266
0.32074
2.42985
2.92290
ANovA
Regression
Residual
0.04151
0.11704
0.32206
0.78974
DF
3
43
0.33104
0.19924
0.61282
Sum of squares
18.03461
12.07021
F = 52.42504
4.1590
2.7400
7.5450
3.7010
Sig t
0.0000
0.0089
0.0000
0.0006
Mean squares
6.01154
0.28070
Sig F = 0.000
Notes:
B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized
regression coefficient; Industry = industry classification dummy variable with 1 = high
profile, 0 = low profile; Overseas listing = overseas listing classification dummy variable with
1 = US or Canadian listing, 0 = others; n = 47
3.0470
3.3340
5.1630
ANovA
Regression
Residual
0.0039
0.0018
0.0000
DF
3
43
Sum of squares
20.83335
9.27147
F = 32.20755
Mean squares
6.94445
0.21562
Sig F = 0.000
Notes:
Industry = industry classification dummy variable with 1 = high profile, 0 = low profile;
Overseas listing 1 = overseas listing classification dummy variable with 1 = US, Canada or
UK listings, 0 = others; n = 47
Determinants of
disclosures in
NZ companies
4.3330
1.8560
2.6520
ANovA
Regression
Residual
0.0001
0.0703
0.0112
DF
3
43
Sum of squares
17.19625
12.90852
F = 19.09425
Mean squares
5.73208
0.30020
Sig F = 0.000
Notes:
Industry = industry classification dummy variable with 1 = high profile, 0 = low profile;
Overseas listing 2 = overseas listing classification dummy variable with 1 = US, UK or
Australian listings, 0 = others; n = 47
0.30406
2.25089
5.31251
ANovA
Regression
Residual
0.05502
0.32029
1.05069
DF
2
44
0.44643
0.56769
Sum of squares
24.04550
5.05932
F = 87.30362
5.5270
7.0280
5.0560
101
Table XV.
Regression results:
Nat log of sales 1992 +
Overseas listing 2
Sig t
0.0000
0.0000
0.0000
Mean squares
12.02275
0.13771
Sig F = 0.000
Notes:
B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardized
regression coefficient; Overseas listing = overseas listing classification dummy variable with 1
= US or Canadian listing, 0 = others; n = 47
Table XVI.
Regression results:
Nat log of market
capitalization 1992 +
Overseas listing
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the relationships found are relatively robust to different measurement choices. Determinants of
From such a starting point, social disclosure research in New Zealand can move
disclosures in
on to more specific explanations for the relationships found in this study.
NZ companies
Notes
1. See Gray et al. (1995a, fn 8) for a full list of references to CSRD studies in these and other
countries.
2. An alternative explanation, but one not tested in this study, is that the size-disclosure
relationship only holds for the largest of companies and does not exist for relatively
smaller companies. All those studies reporting positive relationships either sample the
top companies in various countries or do not draw random samples. Daveys (1982)
study, and Ngs (1985) replication using the same sample, were based on a random sample.
3. Page measurement is undertaken using a clear plastic A4 sheet divided into a grid of 100
rectangles (each side of the A4 sheet is divided into 10). The grid is laid over each
highlighted sentence in the annual report and the number of hundredths assessed
(rounding up). These hundredths were finally summed to produce a total for each annual
report.
4. The liquor and communication industries in New Zealand, for example, are both
dominated by major players. At times, the intense competition has resulted in cases been
taken to the New Zealand Commerce Commission a body responsible for policing anticompetitive behaviour. The meat and by-products industry, although classified along with
the food industry as low-profile, could have been classified along with agriculture as highprofile. In the event, the results are not significantly affected by either treatment.
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pollution control in the conduct of the business operations; capital, operating and
research and development expenditures for pollution abatement;
statements indicating that the companys operations are non-polluting or that they
are in compliance with pollution laws and regulations;
statements indicating that pollution from operations has been or will be reduced;
conservation of natural resources, e.g. recycling glass, metals, oil, water and paper;
preventing waste.
(2) Aesthetics
wildlife conservation;
Determinants of
disclosures in
NZ companies
105
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106
Employee other
(1) Employment of minorities or women
providing amount and/or percentage figures for salaries, wages, PAYE taxes,
superannuation;
providing the disposition of staff where the staff are stationed and the number
involved;
providing statistics on the number of staff, the length of service in the company and
their age groups;
providing per employee statistics, e.g. assets per employee and sales per employee;
providing information on the stability of the workers jobs and the companys
future;
improvements to the general working conditions both in the factories and for the
office staff;
the closing down of any part of the organization, the resultant redundancies created,
and any relocation/retraining efforts made by the company to retain staff;
information and statistics on employee turnover;
information on any research projects set up by the company to improve its product
in any way.
(2) Product safety
verifiable information that the quality of the firms product has increased (e.g. ISO
9000).
Community involvement
Determinants of
disclosures in
NZ companies
107
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Others
108
(1)
(2)
Other: disclosing/reporting to groups in society other than shareholders and employees, e.g.
consumers; any other information that relates to the social responsibility of the company.
If any sentence has more than one possible classification, the sentence should be classified
as to the activity most emphasized in the sentence.
Tables (monetary and non-monetary) which provide information which is on the checklist
should be interpreted as one line equals one sentence and classified accordingly.
Innovations in products or services should not be included unless they are beyond what is
necessary to compete in the marketplace or attract business.
Any discussion of the pension funds or employee share schemes would be classified as good
news unless it was clearly to the contrary, e.g. that the scheme had been scrapped.
Any disclosure which is repeated shall be recorded as a CSD sentence each time it is
discussed.
Discussions relating to the quality of goods and services will not be a CSD unless it contains
notice of a verifiable change in quality, e.g. accreditation to the International Standards
Organisation ISO 9000 quality series standard.