Stakeholders' power, corporate characteristics, and social and environmental disclosure: evidence from China

Outline

• Abstract
• Keywords
• 1. Introduction
• 2. Literature Review
• 3. Theoretical Framework and Research Hypotheses
• 3.1. a Joint Framework of Legitimacy Theory and Stakeholder Theory
• 3.2. Hypotheses
• 3.2.1. Stakeholders' Power
• 3.2.2. Corporate Characteristics
• 4. Research Methods
• 4.1. Sample and Data
• 4.2. a Three-Dimensional Social and Environmental Disclosure Index (sedi)
• 4.2.1. Disclosure Quantity
• 4.2.2. Disclosure Type Quality
• 4.2.3. Disclosure Item Quality
• 4.3. Empirical Model
• 5. Results and Analyses
• 5.1. Descriptive Analysis for the Variables
• 5.2. Analysis and Discussion at Sedi Level
• 5.2.1. Correlation Matrix
• 5.2.2. Regression Results
• 5.3. Further Analysis – Disclosure at the Gri Categories Level
• 6. Conclusions
• References

Conclusions

This study presents an up-to-date investigation into corporate social and environmental disclosure practices within the legitimacy and stakeholder frameworks in the context of China. The empirical results provide important insights into the influence of stakeholders’ power and corporate characteristics on corporate social and environmental disclosure practices of socially responsible Chinese listed firms. Corporate characteristics, such as firm size, profitability, and industry classification, are all significant factors influencing corporate social and environmental disclosure. Consistent with legitimacy theory, those firms that are more likely to be subject to public scrutiny, such as larger firms and firms in high-profile industries, disclosed more social and environmental information to meet the expectations of the public. The pressures from various stakeholders, like government, creditors, and auditors tested in this study, generally appear to be weak in China at present. However, along with the increase in the stakeholders’ concerns about corporate social responsibility behaviors, shareholders have influenced firms’ social and environmental disclosures; and creditors have influenced firms’ disclosures related to their environmental performance. According to stakeholder theory, those firms that seek to gain or maintain the support of particular powerful stakeholders have begun to adopt a disclosure strategy.

This study also provides us with several unexpected but insightful results. For instance, Chinese listed firms with central state ownership were encouraged to make social and environmental disclosure as per the SASAC recommendations, but these firms do not show a substantial difference in social and environmental disclosure compared with other Chinese listed firms. The involvement of the Big Four in the financial audit has also made no substantial difference in corporate social and environmental disclosure. Such findings provide practical implications for Chinese policymakers and other relevant stakeholders. Although the Chinese government and its agencies, as both regulator and facilitator, have issued regulations and guidelines in promoting firms’ social and environmental activities and disclosure, ambiguity and uncertainty within governmental regulations and guidelines have led to non-comparable disclosure practices among firms. Therefore, the Chinese government needs to make continuous efforts by providing more detailed guidance regarding the content and extent of social and environmental disclosure to assist firms to communicate their social and environmental activities effectively to regulatory bodies and other stakeholders. In the future, audit firms should be encouraged to provide reasonable assurance for firms’ social and environmental disclosures in their annual reports and CSR reports.

This study makes a contribution to the social and environmental accounting literature by expanding the scope of extant research on corporate social and environmental disclosure to the context of a developing nation, China. This study also makes a methodological contribution to the literature by constructing a stakeholder-driven, three-dimensional social and environmental disclosure index, which comprises a quantity dimension and two quality dimensions: disclosure types and disclosure items.

However, findings of this study must be interpreted with considering the following limitations. First, owing to the manual collection of disclosure data and a labor-intensive latent content analysis process, a relatively small sample was used, which may limit the application of the findings to firms outside the social responsibility ranking list. Second, despite extensive efforts made regarding the choice of determinants and the development of accurate proxies for various variables, subjectivity was inevitable. Third, it is also acknowledged that the single-year data used for testing the relationships hypothesized in this study may restrict the generalization of findings. Fourth, this study looks into the extent of social and environmental disclosure rather than the existence of disclosure, as the sample comprised socially responsible firms engaging in social and environmental disclosure. The findings of this study however provide a springboard for further research. Future studies may consider other potential determinants and examine the association between them and corporate social and environmental disclosure on a longitudinal basis. Another suggestion is to compare and contrast findings between firms on and outside the social responsibility ranking list.