Hackston dan Milne (1996)_Some_determinants

Determinants ofdisclosures in

NZ companies

77

Some determinants of socialand environmental disclosures

in New Zealand companiesDavid Hackston

KPMG, Wellington, New Zealand, andMarkus J. Milne

University of Otago, Dunedin, New Zealand

IntroductionDuring the past 20-30 years there has been a growing public awareness of therole of corporations in society. Many of the firms which have been credited withcontributing to economic and technological progress have been criticized forcreating social problems. Pollution, resource depletion, waste, product qualityand safety, the rights and status of workers, and the power of large corporationsare 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 onthe private sector to accept responsibility for impacts on society from businessactivities. Companies are being urged to become accountable to a wideraudience than shareholder and creditor groups. Friedman’s (1962) doctrine thatthe only social responsibility of business is to maximize profits is notuniversally accepted. Studies have documented a growing awareness on thepart of business executives that business has an obligation to help society, evenif it means less profit (Holmes, 1976; Ostlund, 1977).

The growth in awareness of corporate social responsibility has added to thecriticisms of the use of profit as an all-inclusive measure of corporateperformance. 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 theoreticalperspectives in support of corporate social accounting, including agencytheory, legitimacy theory, political economy of accounting theory andstakeholder theory (see, for example, Belkaoui and Karpik, 1989; Gray et al.,1987, 1988, 1995a; Guthrie and Parker, 1990; Patten, 1991, 1992; Roberts, 1992).

Accounting, Auditing &Accountability Journal, Vol. 9

No. 1, 1996, pp. 77-108. © MCBUniversity Press, 0951-3574

The authors would like to thank Kate Brown, Ralph Adler, Alan Macgregor and an anonymousreviewer from the First Asian Pacific Interdisciplinary Research in Accounting Conference,Sydney, 1995, for comments on earlier drafts. In addition, Carol Adams and two anonymousreviewers are expressly thanked for comments on later drafts. All errors remain the responsibilityof the authors. Correspondence on this paper should be addressed to Markus J. Milne, Fax: 64 34798450.

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To date, however, there still exists no universally accepted theoreticalframework of corporate social accounting (Belkaoui and Karpik, 1989; Gray etal., 1995a; Guthrie and Mathews, 1985).

Despite the lack of consensus in the accounting profession and the theoreticalaccounting literature about why companies disclose social responsibilityinformation, an increasing number of companies are voluntarily disclosingtheir social responsibility activities in their annual reports. Corporate socialdisclosure (CSD) can be defined as the provision of financial and non-financialinformation relating to an organization’s interaction with its physical and socialenvironment, as stated in corporate annual reports or separate social reports(Guthrie and Mathews, 1985). CSD includes details of the physical environment,energy, human resources, products and community involvement matters (seeAppendix).

The purposes of the present study are to provide an up-to-date description ofNew Zealand companies’ CSD practices in the light of documented overseas’CSD practices; examine some potential determinants of social disclosures inNew Zealand companies; and examine the research analysts’ choice ofmeasurement technique of CSD on any relationships found. By replicatingoverseas studies using similar sampling and measurement techniques, thisstudy provides a benchmark of New Zealand disclosure practices from whichfurther work can proceed. Further, by using multiple measures for variousvariables, the robustness of any relationships found can be rigorously assessed.Before proceeding to test explanations for why companies make socialdisclosures, it is important that empirical research establish the existence andreliability of its measured evidence (Lindsay, 1995).

Prior literaturePatterns of CSDMost empirical studies to date provide a descriptive basis from which a numberof disclosure patterns have emerged. Further studies have also foundassociations between several corporate characteristics and CSD. These studiesare now reviewed before proceeding to an examination of New Zealanddisclosure practices.

Most empirical studies on CSD practices have focused on the USA, the UK,and Australia. A little work has also been done with other countries includingCanada, Germany, Japan, New Zealand, Malaysia and Singapore[1]. Much of theempirical research into US practices has tended to utilize the extensive surveyevidence of Ernst & Ernst (1978). This study is now somewhat out of date, andonly Guthrie and Parker (1990) provide more recent survey evidence on USpractices. Gray et al. (1987, 1995a) provide survey evidence on the UK, with thelater study including every year from 1979 to 1991. Surveys of Australia includeTrotman (1979) and Guthrie (1983). Two surveys by Davey (1982) and Ng (1985)have provided some descriptions of CSD in New Zealand.

Table I provides a summary of the survey evidence. Results from the presentstudy are shown for comparative purposes and discussed later. The Table

Table I.International

comparison ofsocial disclosure

studies

Surv

ey c

ount

ry, s

tudy

and

yea

r of

stu

dy

USA

UK

Aus

tral

iaN

ew Z

eala

ndE

rnst

&G

uthr

ie a

ndG

uthr

ie a

ndG

ray

et a

l.G

ray

et a

l.G

uthr

ie a

ndG

uthr

ie a

ndD

avey

Ng

Hac

ksto

neE

rnst

(197

7)Pa

rker

(198

3)Pa

rker

(198

3)(1

983)

(199

1)Pa

rker

(198

3)Pa

rker

(198

0)(1

982)

(198

5)M

ilne

(199

2)

Sam

ple

500

5050

100

100

5050

3232

50

Inci

denc

ea90

8598

56b

7210

056

5684

100

83

Am

ount

cN

/A1.

260.

890.

52.

00.

70.

6827

0d30

0d0.

75

The

mee :

Env

iron

men

t57

5314

775

2117

613

23

Hum

an re

sour

ces

4775

9865

100

9334

6688

79

Prod

ucts

3335

104

100

43

2840

Ene

rgy

5943

21

154

70

36

Com

mun

ity33

6396

1062

2911

1619

30

Gen

eral

/oth

er24

00

515

186

133

19

Not

es:

aPe

rcen

tage

of t

otal

sam

ple

of c

ompa

nies

that

mad

e at

leas

t one

soc

ial d

iscl

osur

eb

Gut

hrie

and

Par

ker’s

98

per

cent

inci

denc

e ra

te in

clud

es b

oth

man

dato

ry a

nd v

olun

tary

dis

clos

ures

. Whe

n vo

lunt

ary

disc

losu

res

only

are

con

side

red,

the

UK

inci

denc

e ra

te is

56

per

cent

cA

vera

ge a

mou

nt o

f dis

clos

ure

to th

e ne

ares

t 100

th o

f an

annu

al re

port

pag

e fo

r th

ose

com

pani

es m

akin

g at

leas

t one

soc

ial d

iscl

osur

ed

Ave

rage

num

ber

of w

ords

ePe

rcen

tage

of c

ompa

nies

mak

ing

at le

ast o

ne d

iscl

osur

e in

that

them

e of

the

tota

l sam

ple

of c

ompa

nies


NZ companies

79

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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 inaverage number of pages of CSD per company.

A number of patterns emerge from the data in Table I: first, the incidence ofCSD appears much higher in the USA, The UK, and New Zealand than inAustralia. Guthrie and Parker’s 1983 UK result of 98 per cent, however, includesboth mandatory and voluntary disclosures. When adjusted for only voluntarydisclosures, they reported an incidence rate of 56 per cent for the UK. Gray etal.’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 UKresults. Interestingly, Trotman’s (1979) survey of 100 Australian companies in1977 (not shown in Table I) reported a higher 69 per cent incidence rate thanGuthrie and Parker’s later 1983 study which reported 56 per cent. As most ofthe surveys shown in Table I sample the “top” companies rather than drawrandom samples, it may be that sampling technique and sample size influencesincidence rates.

Second, the pattern of ranking of CSD by theme, for companies which makeCSD, appears reasonably consistent across all countries, with human resources,environment, and community receiving most attention. Energy and productthemes, however, receive much more attention in the USA than in the othercountries surveyed. The particularly high rate for the product theme in our ownstudy was not expected, and is discussed later in the results section.

Third, the amount of CSD is also reasonably consistent between companies inthe USA, UK, and Australia. Measured in average pages per company, UScompanies do disclose more information than their UK or Australiancounterparts. From Guthrie and Parker’s comparative study, however, thesedifferences are not statistically significant. Again, some care is required inmaking comparisons across studies to sort out voluntary disclosure from totalsof both mandatory and voluntary disclosure. Gray et al.’s (1995a) UK pageamounts are for voluntary disclosure and compare to the Australian and NewZealand studies, where very little, if any, CSD is mandated. Guthrie and Parker’sUK 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 ofwords per company.

Some caution needs to be exercised in claims relating to patterns indisclosure practices from these survey data, however. The surveys wereconducted in different time periods, involve different sample sizes, differentmethods, and different researchers. Moreover, as discussed below, a number ofadditional variables now appear to be associated with CSD, and the surveyshave not controlled for these, either directly or by drawing random samples. Assuch, the data are not strictly comparable.


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Corporate characteristics and CSDBeyond the descriptive analyses, studies have begun to extend the empiricalCSD literature by focusing on a number of corporate characteristics which arepotential determinants of CSD practices. Studies have investigated the effects ofcompany size, profitability, industry, country of ownership, reporting country,capital intensity, senior executive attitudes, company age, and the existence ofcompany social responsibility committees. In reviewing these studies, Gray etal. (1995a, pp. 49-50) tentatively conclude:

• CSD is not related to profitability in the same period, but it may berelated to lagged profits;

• CSD does appear to be related to company size;• industry appears to affect CSD, but the studies are not clear or consistent

enough to determine such effects precisely;• the country in which the company reports and the country of company

ownership appear related to CSD. In addition, capital intensity, age,senior executive attitudes, and social responsibility committees may berelated to CSD.

SizeAn association between company size and CSD has been demonstrated in anumber of empirical studies (see, for example, Belkaoui and Karpik, 1989;Cowen et al., 1987; Kelly, 1981; Pang, 1982; Patten, 1991, 1992; Trotman andBradley, 1981). Both agency theory and legitimacy theory contain argumentsfor a size-disclosure relationship. In addition, larger companies undertake moreactivities, make a greater impact on society, have more shareholders who mightbe concerned with social programmes undertaken by the company, and theannual report provides an efficient means of communicating this information(Cowen et al., 1987). Not all CSD studies have supported a size-disclosurerelationship, however. For example, Roberts (1992) found no relationship in aUS sample. Similarly, in New Zealand, both Davey (1982) and Ng (1985) failed tosupport hypothesized associations between company size and CSD practices.Guthrie and Mathews (1985) suggest Davey’s and Ng’s results may have beendue to the small sample used[2]. With sampling and analytical methodscomparable to other studies, this study re-examines the impact of company sizeon CSD practices in New Zealand.

IndustryThe nature of a company’s industry has been identified as a factor potentiallyaffecting CSD practices. Dierkes and Preston (1977) contend that companieswhose economic activities modify the environment, such as extractiveindustries, are more likely to disclose information about their environmentalimpacts than are companies in other industries. Consumer-orientedcompanies can be expected to exhibit greater concern with demonstratingtheir social responsibility to the community, since this is likely to enhance

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corporate image and influence sales (Cowen et al., 1987). Patten (1991), on theother hand, argues industry, similar to company size, influences politicalvisibility and this drives disclosure to ward off undue pressure and criticismfrom social activists.

Several empirical studies have found positive associations betweenindustry classifications and CSD. In an Australian study, Kelly (1981) foundthat primary and secondary industry companies tended to disclose moreenvironmental and energy-related information than corporations engaged intertiary industries, while the opposite relationship was found for informationrelating to community interaction. In a study of US companies which wassimilar in design to Kelly’s, Cowen et al. (1987) found that industry categoryinfluenced energy and community involvement disclosures. Their results,however, clearly indicated that the incidence and total amount of CSD are notassociated with industry category. Contrary to this finding, however, Patten(1991) and Roberts (1992) have found positive relationships between high-profile industries and the amount of corporate social responsibilitydisclosure. As for company size, both Davey (1982) and Ng (1985) failed tofind an association between industry type and CSD for New Zealandcompanies. Again, industry type and CSD in New Zealand are re-examined.

Corporate profitabilityThe relationship between CSD and corporate profitability has beenpostulated to reflect the view that social responsiveness requires the samemanagerial style as that necessary to make a firm profitable (Bowman andHaire, 1976). CSD is believed to reflect an adaptive management approach todealing with a dynamic, multidimensional environment and an ability to meetsocial pressure and respond to societal needs. Such management skills areconsidered necessary to survive in today’s corporate environment (Cowen etal., 1987). Heinze (1976), however, contends that profitability is the factor thatallows management the freedom and flexibility to undertake and reveal toshareholders more extensive social responsibility programmes.

Empirical research on the profitability-CSD relationship, however, hasproduced 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 averagereturn on equity (ROE) between disclosing and non-disclosing companies.Preston reports a higher, single-year ROE for high disclosers than for otherFortune 500 companies. On the other hand, Cowen et al. (1987) failed tosupport any profitability-CSD relationship. Belkaoui and Karpik’s (1989)results for this relationship conflict and are difficult to interpret. They reporta positive and significant pairwise correlation, and an insignificant, yetnegative regression coefficient for ROA and disclosure. While Roberts (1992)has found evidence for a positive relationship between lagged profits andCSD, Patten (1991), using multiple measures of profitability including laggedmeasures, fails to find any relationship between profitability and CSD. Neither


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83

Davey (1982) nor Ng (1985) could find evidence of a profitability-CSDrelationship for New Zealand companies.

Country of ownership and reporting country From Gray et al.’s (1995a) review, a number of studies seem to indicate that thecountry in which the company reports affects the theme of CSD, if not theamount of disclosure (see, for example, Guthrie and Parker, 1990). In addition,Andrews et al. (1989) report that the country of ownership may have some effecton CSD, although it is difficult to assess the reliability of this result since itappears to be confounded with company size. Since the study here is confinedto New Zealand companies, the influence of country effects on CSD is notinvestigated. However, the study does offer some additional tentative insightsinto the ownership-CSD relationship. Although not an original intention of thestudy, companies with dual and multiple (overseas) stock exchange listings areinvestigated for their level of association with CSD amount.

Whether any systematic relationships between CSD and the variablesdiscussed above exist is open to question. Like the descriptive analyses, suchrelationships have been investigated in different time periods, employingdifferent sampling and measurement techniques. Without systematicinvestigation using multiple measures and standardized techniques (replicationstudies), drawing firm conclusions about the existence of any such relationshipsis extremely difficult (Lindsay, 1995). Until such time as techniques arestandardized, researchers need to be careful and explicit about what and howthey make their measurements. In the light of such disparity, research studies inthe CSD field would do well to establish the reliability of its evidence for anysuch relationships before moving on to tackle the issues of why suchrelationships occur.

MethodSample design and data collectionThe annual reports from the largest 50 companies listed on the New ZealandStock Exchange at 31 December 1992 were selected for this study. The “top” 50is based on a size ranking of market capitalization as in Guthrie and Parker(1990), and therefore provides data for the international comparisons. Guthrie(1983) used a similar method for selecting his sample. The largest 50 companiescomprised 92 per cent of the total market capitalization on this date. The 92 percent figure is comparable with the amount of the Australian share market (90 percent) included in Guthrie’s study.

From the initial sample, two companies were removed as they had been listedon the exchange during the year and had not filed an annual report during theperiod. Another company was removed from the study as it was a foreignregistered company and released its annual report to meet the reporting criteriaof the UK. The UK reporting criteria make some CSDs compulsory. The finalsample for this study comprised 47 companies.

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Measurement of variablesDependent variable – corporate social disclosure. Content analysis is used tomeasure corporate social responsibility disclosures. Content analysis is amethod 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 replicableand valid inferences from data according to their context”. In one form oranother, the method has been widely adopted in previous social responsibilitydisclosure 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, aninterrogation instrument, checklist, and decision rules were developed. Theinterrogation instrument is shown in Figure 1 and the checklist is included in theAppendix. The interrogation instrument is used to record the amount of CSD indifferent categories. The instrument categories are constructed based on theearlier 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 ofsentences).

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. Theliterature is unclear as to why location in report is important andlocation data appears to have very little value beyond permittingdescription (Gray et al., 1995b, p. 83).

• Amount of disclosure. The amount of disclosure per company and percontent category is measured by the number of sentences. In many earlierstudies, quantification for each of the disclosure categories consisted ofrecording whether or not a company made a disclosure in the category,and total amount per company was measured to the nearest tenth orquarter of a page. Ng (1985) is critical of portion of pages measurementbecause print sizes, column sizes and page sizes may differ from oneannual report to another. To overcome these problems, Ng used numberof words. Measuring CSD amount by the number of words, however,leaves the researcher pondering which individual word is a CSD andwhich is not. Consequently, the possibility remains that disagreementbetween different coders could be quite serious. Sentences, as ameasurement unit, overcome the problems of portion of pages andremove the need to account for, or standardize, the number of words. Onthe other hand, one might concede that a difference does exist betweentwo sentences which are identical but for different font sizes. As naturalunits of written English which clearly exist between two punctuation


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Figure 1.Social responsibility

disclosure instrument

So

cial

res

po

nsi

bili

ty d

iscl

osu

re in

stru

men

tN

ame

Year

Text

dis

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ente

nce

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acte

ristic

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nerg

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rodu

ct/

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umer

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omm

unity

Em

ploy

ee(h

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ety)

Em

ploy

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ener

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good

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marks, sentences are also likely to provide more reliable measures ofinter-rater coding than words.

Given the concern over page measurement versus sentences, wedecided to construct an approximation to page measurement from thesentence-coded data. First, the average number of sentences per page ofthe chairman’s report for each annual report was calculated. Theaverage for each report was then divided into the total number of socialdisclosure sentences for that report to produce a derived pagemeasurement for each company.

Later, it was decided to go back and measure the absolute amount ofsocial disclosure per company (but not per content category) byproportions of annual report page to the nearest hundredth of a page[3].In all three measures of social disclosure amount, no attempt is made tostandardize for annual report length. There is no restriction on thenumber of pages an annual report can include and, if companies consideradditional disclosure is sufficiently important, it is believed they willinclude extra pages in the report. The use of all three measures of socialdisclosure amount enables comparisons with other studies and permitscomparative analysis to assess the importance of the choice of measure.

• Theme of disclosure. To facilitate the completion of the interrogationinstrument an extensive checklist of items to be included under each ofthe theme dimension categories was developed. Obtained from Ng(1985), but based on original work by Ernst & Ernst (1978), this checklistwas subsequently revised as a result of pretesting. In addition, a numberof decision rules were developed to facilitate a consistent interpretationof the checklist. The original checklist and its amendments are includedin Appendix 1, and the decision rules are included in Appendix 2. Asdistinct from many of the earlier studies, the employee theme is dividedinto employee health and safety and employee other content categories.This division is consistent with the most recent work of Gray et al.(1995a).

• Voluntary/mandated disclosure. Recent work by Guthrie and Parker(1990) and Gray et al. (1995a) draws an important distinction betweenvoluntary disclosures and those disclosures mandated by legislation. InNew Zealand, however, so little social disclosure is mandated bylegislation that no provision for the voluntary/mandated distinction ismade in the interrogation instrument. All the classified disclosures aretreated as voluntary.

Three rounds of pretesting were performed by the two authors and anadditional academic staff member. These pretesting rounds producedincreasingly convergent views as to what constituted a CSD sentence, and led tothe formulation of several decision rules and amendments to the initialchecklist (see Appendices 1 and 2). Although the three coders believed these


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pretesting rounds had produced high levels of coding reliability, the final roundwas formally assessed using content analytic reliability measures.

Scott’s (1955) π, and Krippendorff ’s (1980) α were both used to assess thelevels of inter-coder agreement occurring above chance on the initial codingdecision “is this sentence a social disclosure, yes? or no?” The reliability testsindicated Krippendorff’s (1980) α = 0.901 and Scott’s (1955) π= 0.873. As notedin Guthrie and Mathews (1985), while no acceptable standards of reliability havebeen established for social disclosure content analysis, 0.80 (80 per centagreement above chance) or better is suggested as an acceptable level of inter-coder reliability (Guthrie and Mathews, 1985, p. 261). Similarly, Wimmer andDominick (1991, pp. 171-5) suggest 0.75 or better is normally accepted withinthe content analysis literature for these tests.

With the new guidelines and checklist established from the pretestingrounds, the remaining 47 annual reports were photocopied and spiral bound.Given the high levels of coder reliability from the pretesting phase, contentanalysis was performed on the final data by a single coder using the checklistsand instruments developed during the pretesting process.

Independent variables – company size. In previous studies, company size hasbeen measured by either number of employees, total asset value, sales volume,or an index rank (e.g. Fortune 500). Belkaoui and Karpik (1989) employed thelog of net sales in their study, whereas Trotman and Bradley (1981) used bothsales and total assets. Cowen et al. (1987) used Fortune rank. Roberts (1992) useda four-year average of revenues. Patten (1991) used the log of sales, but alsorepeated the analysis with Fortune 500 rankings. Employee numbers, sales andtotal assets have been shown to be highly correlated (Kimberly, 1976).Nonetheless, given that no theoretical reasons exist for a particular measure ofsize 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-basedreturn on equity (EBIT/total equity), and return on assets (EBIT/total assets). Inaddition 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, orreturn on assets, over an extended period is claimed to provide a more reliablemeasure of corporate performance than measurement of a single year. Wheredata are unavailable for the full five-year period, an average is calculated forthose years that are available.

Industry type. The industry variable in this study is measured as adichotomous classification of industries into high-profile and low-profileindustries. Roberts (1992, p. 605) defines high-profile industries as those withconsumer visibility, a high level of political risk, or concentrated intensecompetition, and suggests prior studies which include industry may havecaptured a systematic relationship between such characteristics and socialresponsibility activities. Of course, all such classifications are to an extentsubjective 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 andPreston (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 includedas high-profile in this study. In addition, agriculture, liquor and tobacco, andmedia and communications are classified as high profile. While these industriesmight not be regarded universally as high profile, they are particularlydominant in New Zealand society, and are believed to meet the criteria outlinedby Roberts (1992) for high profile[4].

Analysis, results and discussionThe results of the descriptive analysis of the corporate social disclosuremeasures 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 ofcompanies shown in the second column, Table II reports on issues of theme,evidence, and news by proportions of amount of disclosure as measured bynumber of sentences (fourth column). Nearly all previous studies have tended toreport only the incidence rate, primarily because disclosure amount has notbeen recorded in a disaggregated manner by theme, evidence, and news. Aproblem with relying on incident rates is that they may be misleading in the

Disclosing Disclosing Disclosedcompanies companies as a Number of sentences as a

(making at least percentage of total disclosed percentage of allone disclosure) sample (incidence) sentences (amount) disclosed sentences

ThemeEnvironment 11 23 107 12Human resources 37 79 523 57Products 19 40 79 9Energy 3 6 6 1Community 14 30 172 19General/other 9 19 27 3Total 914 100EvidenceMonetary 29 62 162 18Non-monetary 30 64 182 20Declarative 34 72 570 62Total 914 100NewsGood 37 79 710 78Bad 15 32 57 6Neutral 22 47 147 16Total 914 100

Table II.Descriptives for socialdisclosure measures inNew Zealand companies

sense that they treat companies which make one or more disclosures as equal –a company making one sentence disclosure on the environment is treated asequal to a company which discloses 50 sentences on the environment. As can beseen from Table II, measuring proportions by amount can make a difference.For example, while 40 per cent of companies make disclosures on aspects ofproducts, most of those which do disclose only disclose a small amount sincethe product theme only accounted for 9 per cent of the total disclosure for thesample. Although not shown in Table II, on average companies making producttheme disclosures only disclosed four product-theme sentences each. Incontrast, companies making human resource disclosures, disclosed an averageof 14 human resource related sentences each.

Similarly, while it might appear from the incidence rates shown in the secondcolumn that monetary (62 per cent), non-monetary (64 per cent), and declarative(72 per cent) evidence are fairly equally represented, the proportion by amountsmeasure (fourth column) provides a very different picture. Clearly, while manycompanies do make monetary and non-monetary social disclosures, the vastbulk of their social disclosures are declarative statements (62 per cent of totaldisclosure). Companies making declarative disclosures, on average, discloseabout 17 declarative sentences each. In contrast, companies making monetarydisclosures average about six monetary sentences each. Likewise, and notsurprising, good news statements clearly dominate (78 per cent of totaldisclosure) 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 discloserseach average about four bad news sentences.

In terms of the total amount disclosed, 39 companies (out of 47) disclosed atotal 914 sentences, representing an average of 23 sentences. The maximumdisclosed by any single company was 137 sentences. In terms of page amount,a total of 29.29 actual measured pages was disclosed, representing an averageof 0.75 pages, with the most disclosed by a single company being 3.8 pages.Clearly, the derived page measurement grossly overestimates the amount ofdisclosure. Nonetheless, as discussed later, the measure appears to overestimateeach company systematically and holds up very well as a relative measure ofdisclosure.

Sentences Measured pages Derived pages

Total 914 29.29 52.84Average 23.4 0.75 1.35Minimum 1 0.02 0.04Maximum 137 3.8 7.75

Note: Total sample of companies = 47; all disclosing companies = 39Table III.

Total amount of disclosure


NZ companies

89

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Table IV provides the descriptive statistics for the continuous independentmeasures of size, profitability, and the three dependent measures of CSDamount. The three measures of size have been transformed by their natural logdue to non-normality, while the four profitability measures, being ratios, metthe K-S tests of normality without adjustment. The three measures of CSDamount have been left unadjusted. Note that the means (and the minimums)reported in Table IV do not tally with those in Table III because Table IV isbased on the total sample of 47 companies, and not the 39 disclosing companies.

Table V presents the dichotomous high- and low-profile industry classification.Collapsing the New Zealand Stock Exchange (NZSE) industry classificationsinto high- and low-profile on the basis of Roberts’ (1992) criteria results in 21high-profile cases, and 26 low-profile cases as shown in Table V.

To test the levels of association between the different continuous dependentand independent variables (size, profitability, and disclosure amount), pair-wisePearson’s and Spearman’s rank correlations were performed. The correlationcoefficients are reported in Tables VI and VII. In Table VI the correlationcoefficients are reported in the top of each cell, with the probability valuereported underneath in each cell.

Mean SD Min. Max. Skewness Kurtosis K-S stats

Independent variablesSize:Nat log of 1992 sales 19.10 1.55 16.21 23.25 0.431 0.114 0.653 0.786Nat log of 1992

total assets 19.36 1.58 17.13 23.77 0.994 0.535 1.054 0.216Nat log of 1992

market capitalization 19.20 1.18 17.90 22.47 1.335 1.080 1.125 0.158

Profitability:Return on assets 1992 0.112 0.05 –0.03 0.250 0.121 0.062 0.440 0.990Average return on

assets 1988-1992 0.108 0.04 0.03 0.210 0.358 –0.08 0.663 0.771Return on equity 1992 0.237 0.12 –0.03 0.730 1.365 5.028 0.619 0.837Average return on

equity 1988-1992 0.221 0.09 0.06 0.630 1.750 6.300 0.691 0.725

Dependent variableCSD amount:Measured pages 0.623 0.81 0.00 3.80 2.535 7.611 1.512* 0.020Derived pages 1.124 1.60 0.00 7.75 2.588 7.836 1.653**0.008Number of sentences 19.44 28.86 0.00 137.0 2.971 9.985 1.865**0.009

Notes:*Significant at the 5% level.**Significant at the 1% level.The sources of data for all the variables (except market capitalization) are each company’s 1988-1992 annual reports. The source for market capitalization is the NZSE 1992 annual report

Table IV.Descriptive statisticsfor continuousvariables


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Market capitalization rank Company name NZSE industrial class

Low-profile industries30 Milburn New Zealand Ltd BLD20 PLD Holdings Ltd ELE12 Fischer & Paykel Industries Ltd ELE19 BNZ Finance Ltd FIN34 Huttons Kiwi Ltd FOD15 Progressive Enterprises Ltd FOD44 Best Corporation Ltd FOD11 Sanford Ltd FOD45 Mainzeal Group Ltd INV4 Brierley Investments Ltd INV

13 Ceramco Corporation Ltd INV48 Corporate Investments Ltd INV16 Fay Richwhite and Company Ltd INV42 Salmond Smith Biolab Ltd MED28 Fortex Group Ltd MET29 Mair Astley Ltd MET41 U-Bix Business Machines Ltd MIS17 Rank Group Ltd MIS38 Waste Management NZ Ltd MIS46 Shortland Properties Ltd PRO32 Robt Jones Investments Ltd PRO36 Gulf Resources Pacific Ltd PRO43 Michael Hill International Ltd RET23 Hallenstein Glasson Holdings Ltd RET27 Cavalier Corporation Ltd TEX24 Donaghys Ltd TEX

High profile industries47 Regal Salmon Ltd AGS50 Apple Fields Ltd AGS49 Reid Farmers Ltd AGS40 Nuplex Industries Ltd CHM8 Fernz Corporation Ltd CHM9 The New Zealand Refining Company Ltd ENE

18 Steel & Tube Holdings ENG3 Fletcher Challange Ltd FOR2 Carter Holt Harvey Ltd FOR

14 DB Group Ltd LIQ5 Lion Nathan Ltd LIQ7 Wilson and Horton Ltd MCM

10 Independent Newspapers Ltd MCM1 Telecom Corporation of New Zealand Ltd MCM

25 New Zealand Oil and Gas Ltd MIN22 Southern Petroleum NL MIN21 Macraes Mining Company Ltd MIN6 Air New Zealand Ltd TRN

31 Port of Tauranga Ltd TRN35 The Helicopter Line Ltd TRN33 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

Table V.Classification of

companies by industry

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From Table VI, it is clear that all the size measures (Nat log of sales 1992, Natlog of market capitalization 1992, and Nat log of total assets 1992) are highlypositively correlated with the actual measured page amount of socialdisclosure. Consistent with studies from the USA (Cowen et al., 1987; Belkaouiand Karpik, 1989; Patten, 1991, 1992) and Australia (Kelly, 1981; Trotman andBradley, 1981), the results indicate that the larger listed New Zealand firms (ofrelatively large firms) disclose more social and environmental information.Although these results are in contrast to the earlier New Zealand studies ofDavey (1982) and Ng (1985), such differences may be due to the differentsampling and analytical methods used in their studies.

From Table VI none of the four profitability measures is significantlyassociated with the social disclosure measure, and these findings are consistentwith 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 notsignificantly correlated with disclosure amount. The profitability of large NewZealand companies (both current and lagged), therefore, appears unrelated tothe amount of social and environmental information they disclose.

In addition to firm size and amount of disclosure, the only other significantcorrelations between measures of the independent variables occurs, perhapsnot surprisingly, between the return on assets measures and the natural log oftotal assets. Also, as expected, for both the size and the profitability variables,the different measures of the same variable are all significantly correlated.

Return Return Nat log Nat log Nat log Averageon on of of market of return

Measured equity assets sales capitalization assets on assetspages 1992 1992 1992 1992 1992 1988-1992

Return on equity –0.0791992 0.595Return on assets –0.191 0.6281992 0.198 0.000Nat log of sales 0.638 0.048 –0.1561992 0.000 0.747 0.293Nat log of marketmarket 0.757 –0.154 –0.197 0.784capitalization 1992 0.000 0.298 0.183 0.000Nat log of total 0.679 –0.277 –0.524 0.788 0.848assets 1992 0.000 0.059 0.000 0.000 0.000Average return on –0.136 0.364 0.562 –0.181 –0.070 –0.359assets 1988-1992 0.361 0.012 0.000 0.222 0.639 0.013Average return on 0.102 0.744 0.349 0.176 0.069 –0.059 0.628equity 1988-1992 0.493 0.000 0.016 0.235 0.645 0.692 0.000

Table VI.Pearson correlationcoefficients forcontinuous variables


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To examine the possible effects of measuring the amount of social disclosure indifferent ways, the correlation analysis reported in Table VI was re-run usingmeasured pages, derived pages, and number of sentences. Table VII reports thepair-wise correlations for the independent variables and the three measures ofthe dependent variable. Pearson’s correlation coefficients are shown in the top ofeach cell, with the probability value below. To alleviate any concerns over thenon-normality of the dependent variable measures, Spearman’s rankcorrelations are also reported. Again, and confirming the results in Table VI, allthe measures of size are significantly correlated with the different measures ofthe dependent variable, while none of the profitability measures is even close tosignificance. Given the earlier discussion over how to measure the amount ofsocial disclosure, a particularly important result from Table VII is the extremelyhigh correlations between the three measures of disclosure amount (measuredpages, derived pages, and number of sentences). In some respects this is quite

Measured pages Number of sentences Derived pages

Number of sentences 0.9810.0000.963a

Derived pages 0.979 0.9800.000 0.0000.964a 0.969a

Return on equity 1992 –0.079 –0.117 –0.0970.595 0.434 0.513

–0.041a –0.071a –0.065a

Return on assets 1992 –0.191 –0.169 –0.1780.198 0.254 0.229

–0.187a –0.198a –0.195a

Nat log of sales 1992 0.638 0.576 0.6050.000 0.000 0.0000.532a 0.532a 0.528a

Nat log of market capitalization 0.757 0.697 0.7341992 0.000 0.000 0.000

0.596a 0.551a 0.554a

Nat log of total assets 1992 0.679 0.612 0.6480.000 0.000 0.0000.488a 0.436a 0.437a

Average return on assets –0.136 –0.130 –0.1531988-1992 0.361 0.381 0.303

–0.110a –0.151a –0.149a

Average return on equity 0.102 0.075 0.0751988-1992 0.493 0.617 0.616

0.157a 0.120a 0.129a

Note: aSpearman rank correlation coefficients

Table VII.Pearson correlation

coefficients forcontinuous dependent

variables

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surprising, especially given what appeared to be the crudity of the derived pagemeasurement.

In addition to examining the association between the continuous variables,two-tailed t-tests for independent samples of industry were performed. Thepurpose of these tests is to assess whether any significant differences existbetween the mean amounts of size, profitability, and disclosure amountbetween the high- and low-profile industry groups. From Table VIII, significantdifferences exist between high- and low-profile industries for all of the measuresof social disclosure amount (measured pages, derived pages, and number ofsentences). High-profile industry companies disclose significantly more socialand environmental information than low-profile industry companies. Thisfinding is similar to those of Patten (1991) and Roberts (1992), against whosework the more relevant comparisons can be made due to similarities in theconstruction of the industry classification in this and their studies.

In terms of the relationship between industry and the other independentvariables, none of the profitability measures show significant differences,although the single-year return on equity ratio for 1992 is marginal. For themeasures of size, neither sales nor assets show significant differences byindustry. The market capitalization measure, however, does differ by industrypartition. As measured by market capitalization, the average company size ofthe high-profile industry group is significantly larger than the average company

Mean Meanhigh- low- Mean SE of Two-tailed

profile profile diff diff t-value p

Independent variablesSize

Nat log of sales 1992 19.32 18.93 –0.388 0.456 –0.85 0.400Nat log of total

assets 1992 19.77 19.09 –0.676 0.460 –1.47 0.149Nat log of market

capitalization 1992 19.64 18.85 –0.789 0.332 –2.38 0.022Profitability

Return on assets 1992 0.098 0.124 0.026 0.017 1.58 0.122Average return on

assets 1988-1992 0.101 0.113 0.012 0.013 1.00 0.323Return on equity 1992 0.200 0.267 0.066 0.035 1.91 0.063Average return on

equity 1988-1992 0.202 0.236 0.033 0.028 1.19 0.241

Dependent variableCSD amount

Measured pages 0.965 0.346 –0.619 0.222 –2.80 0.008Derived pages 1.770 0.599 –1.173 0.441 –2.66 0.011Number of sentences 10.57 30.42 –19.85 8.032 –2.47 0.017

Note: Industry is partitioned into high-profile (21 cases) and low-profile (26 cases)

Table VIII.t-tests for independentsamples of industry


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size of the low-profile industry group. Further, although not shown, thisassociation between market capitalization and industry (as measured in thissample) also exists for the previous two years (1990, 1991). Why these particularindustries should dominate the New Zealand stock market is not clear. Moreover,whether this relationship is peculiar to New Zealand, and whether it continues toexist outside of the top 50 companies, needs further investigation.

To examine the multiple effect of the independent variables on the amount ofsocial disclosure in New Zealand companies, the following OLS multipleregression equation was run:

Measured pages = a1 + b1Nat log of sales 1992 + b2 Industry + b3Return 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 theresults shown in Table IX are entirely consistent with Patten’s, both size andindustry are significant variables, while profitability is not. A minor differencewith the study here is that social disclosure is measured as a continuousvariable, whereas Patten partitioned his sample into high and low disclosers.The model would also appear to fit the New Zealand sample better since itexplains 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 1992B SE B Beta t Sig t

Nat log of sales 1992 0.31048 0.05709 0.59527 5.4380 0.0000Industry 0.48806 0.17876 0.30318 2.7300 0.0091Return on assets 1992 –0.40655 1.57392 –0.02881 –0.2580 0.7974Constant –5.48203 1.12964 –4.8530 0.0000

Regression measures ANovA DF Sum of squares Mean squaresMultiple R = 0.70842 Regression 3 15.10821 5.03507R2 = 0.50185 Residual 43 14.99661 0.34876Adjusted R2 = 0.46710 F = 14.44000 Sig F = 0.000Standard error = 0.59056

Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta =standardized regression coefficient; Industry = industry classification – dummy variable with1 = high profile, 0 = low profile, n = 47

Table IX.Regression results:

Nat log of sales 1992 + Return on assets 1992

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dropping the insignificant profitability measure of return on assets 1992 fromthe regression model marginally improves the adjusted R2 measure to 0.478 (48per cent).

Following Patten (1991), various runs of this model were carried out using thedifferent measures of profitability (return on equity 1992, average return onequity 1988-1992, and average return on assets 1988-1992) and, consistent withhis findings, none of the profitability measures even approaches significance.For brevity, these results are not reported. In addition, various runs were alsomade using the different measures of the dependent variable (measured pages,derived pages and number of sentences) and the different measures of size (Natlog of sales 1992, Nat log of total assets 1992 and Nat log of marketcapitalization 1992). Not surprisingly, given their very high correlation, themeasures of the dependent variable made no significant difference to theregression results (not shown), although the model best fits measured pages,then derived pages, and finally number of sentences.

Substituting assets for sales makes little difference to the regression results,but the results do change with the market capitalization measure. As shown inTable X, the effect of market capitalization is to reduce the significance of theindustry variable, yet the model explains considerably more of the variation (atotal of 57 per cent) than when using the other size measures. Marketcapitalization, alone, appears to capture more of both size and industry. Whythis should be is not clear.

Given the multiple significance of size and industry (excepting when size ismeasured using market capitalization) in the above regression model, furtherinsights into the size-industry-disclosure relationship can be gained by re-examining the size-disclosure correlations shown in Table VII. As shown in

Measured pages = a1 + b1Nat log of market capitalization 1992 + b2Industry + b3Return onassets 1992

B SE B Beta t Sig t

Nat log of market capitalization1992 0.47356 0.07044 0.69529 6.7230 0.0000

Industry 0.26898 0.16866 0.16709 1.5950 0.1181Return on assets 1992 –0.70016 0.82856 –0.08366 –0.8450 0.4028Constant –8.74723 1.31960 –6.6290 0.0000


Notes: B = regression coefficient; SE B = standard error of regression coefficient; Beta =standardized regression coefficient; Industry = industry classification – dummy variable with1 = high profile, 0 = low profile, n = 47

Table X.Regression resultsNat log of market capitalization 1992 + Return on assets 1992


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Table XI, when the correlations are recalculated on the separate sub-samples ofindustry rather than the entire sample, in all cases the size-disclosurecorrelations are much higher for the high-profile industry sub-sample.Similarly, the size-disclosure correlations for the low-profile industry sub-sample are in all cases lower, and in many cases insignificant. An interpretationto be drawn from these sub-sample correlation analyses is that industryappears 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 andenvironmental information, if the company is in a high-profile industry. For low-profile industry companies, relative size is not such a good indicator ofdisclosure amount.

In addition to the possible association of size and industry with disclosureamount, this study also examined the possible association of overseas (multiple)stock exchange listings on disclosure amount. In an attempt to suggest anindicator for the largest companies in the sample, which are extremely highdisclosers, overseas stock exchange listings was introduced as a dummyvariable in the size-industry-disclosure regression models previously shown inTables IX and X.

An explicit rationale for the use of the overseas listing variable cannot befound in the existing social disclosure literature. However, as noted earlier, Grayet al. (1995a) suggest country of ownership and reporting country do appear tobe associated with social disclosure. Either because they are mandated byregulation, both legislation and the stock exchange (see, for example, Gray et

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 0.984 0.934sentences 0.000 0.000

0.971a 0.956a

Derived pages 0.983 0.986 0.935 0.9290.000 0.000 0.000 0.0000.949a 0.982a 0.971a 0.951a

Nat log of 0.736 0.667 0.683 0.379 0.285 0.392sales 1992 0.000 0.000 0.000 0.056 0.158 0.047

0.752a 0.673a 0.658a 0.321a 0.379a 0.345a

Nat log of total 0.811 0.733 0.752 0.251 0.169 0.303assets 1992 0.000 0.000 0.000 0.261 0.407 0.132

0.823a 0.718a 0.721a –0.004a 0.019a –0.042a

Notes: aSpearman rank correlation coefficientsDue to the significant interdependence between Nat log of market capitalization 1992and the industry classification, the correlations for Nat log of market capitalization1992 and measures of disclosure not reported

Table XI.Correlation coefficientsfor size and disclosurevariables by industry

group

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al., 1995a; Guthrie and Parker, 1990) or because the reporting culture demandsit, companies make more social disclosures in such regulated countries,particularly the USA, Canada and the UK. Now, although companies duallylisted on overseas stock exchanges are not required to make the extra socialdisclosures in their New Zealand annual reports, they may do so anyway, if onlybecause 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) stockexchanges were partitioned from the others. This dummy variable is labelled“overseas listing”. Second, companies with dual listings on North American orUK stock exchanges were partitioned from the others (labelled “overseaslisting” 1). Finally, companies with dual listings on North American, UK orAustralian stock exchanges were partitioned from the others (labelled “overseaslisting” 2). The thinking behind the various partitions is that North Americansocial reporting requirements, followed by UK and then Australia are moredemanding than those in New Zealand.

From the regression results reported in Tables XIII-XV it appears thatoverseas listings may be additionally associated with the amount of socialdisclosures made by New Zealand companies. Comparing the results in TableXIII with those in Table IX shows that the addition of overseas listing, thestrongest partition of overseas listings in terms of social reportingrequirements, 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 theadjusted 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 showthat 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 variabledoes become marginal.

As for the earlier regression model, various runs of the later model were madeusing the three different measures of social disclosure amount, the fourmeasures of profitability, and the three measures of size. In all cases for thedisclosure measures the models remained highly significant and the t-statisticslargely unchanged from those in Table XIII. As with the earlier model none ofthe profitability measures approached significance and are not reported. Again,substituting the market capitalization size measure produces a highlysignificant model in which industry is no longer significantly associated withdisclosure amount. This time, however, comparing Tables XIII and XVI showsthe extra explanation gained from using the market capitalization measure inplace of the sales measure is quite marginal.

ConclusionsThis paper has presented an empirical investigation into the social andenvironmental disclosure practices of a sample of listed New Zealandcompanies. In doing so, the paper provides a more up-to-date description of


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New Zealand, Australia, UK and North America1 Telecom Corporation of New Zealand Ltd3 Fletcher Challange Ltd

New Zealand, Australia and UK4 Brierley Investments Ltd

New Zealand and Australia2 Carter Holt Harvey Ltd5 Lion Nathan Ltd8 Fernz Corporation Ltd

21 Macraes Mining Company Ltd25 New Zealand Oil and Gas Ltd

New Zealand only6 Air New Zealand Ltd7 Wilson and Horton Ltd9 The New Zealand Refining Company Ltd

10 Independent Newspapers Ltd11 Sanford Ltd12 Fischer & Paykel Industries Ltd13 Ceramco Corporation Ltd14 DB Group Ltd15 Progressive Enterprises Ltd16 Fay Richwhite and Company Ltd17 Rank Group Ltd18 Steel & Tube Holdings19 BNZ Finance Ltd20 PDL Holdings Ltd22 Southern Petroleum NL23 Hallenstein Glasson Holdings Ltd24 Donaghys Ltd27 Cavalier Corporation Ltd28 Fortex Group Ltd29 Mair Astley Ltd30 Milburn New Zealand Ltd31 Port of Tauranga Ltd32 Robt Jones Investments Ltd33 Owens Group Ltd34 Huttons Kiwi Ltd35 The Helicopter Line Ltd36 Gulf Resource Pacifics Ltd38 Waste Management NZ Ltd40 Nuplex Industries Ltd41 U-Bix Business Machines Ltd42 Salmond Smith Biolab Ltd43 Michael Hill International Ltd44 Best Corporation Ltd45 Mainzeal Group Ltd46 Shortland Properties Ltd47 Regal Salmon Ltd48 Corporate Investments Ltd49 Reid Farmers Ltd50 Apple Fields Ltd

Table XII.Overseas stock

exchange listings

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such practices. In addition, by using sampling and measurement techniquesmore consistent with those used in other studies, the paper allows somecomparisons with surveys from other countries.

Consistent with companies from the USA, UK and Australia, New Zealandcompanies make most social disclosures on human resources, with environmentand community themes also receiving significant attention. The vast majorityof the disclosures made by New Zealand companies tend to be declarative(narrative) and good news. The amount of social disclosure made by NewZealand companies averaged about three-quarters of an annual report page.Compared with US and UK companies’ voluntary disclosures, New Zealand

Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Overseas listing 1t Sig t

Nat log of sales 1992 3.0470 0.0039Industry 3.3340 0.0018Overseas listing 5.1630 0.0000


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 orUK listings, 0 = others; n = 47

Table XIV.Regression results:Nat log of sales 1992 + Overseas listing 1

Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Overseas listingB SE B Beta t Sig t

Nat log of sales 1992 0.17266 0.04151 0.33104 4.1590 0.0000Industry 0.32074 0.11704 0.19924 2.7400 0.0089Overseas listing 2.42985 0.32206 0.61282 7.5450 0.0000Constant 2.92290 0.78974 –3.7010 0.0006


Notes:B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardizedregression coefficient; Industry = industry classification – dummy variable with 1 = highprofile, 0 = low profile; Overseas listing = overseas listing classification – dummy variable with1 = US or Canadian listing, 0 = others; n = 47

Table XIII.Regression results: Nat log of sales 1992 +Overseas listing


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companies make much lower social disclosures on average, but it should beremembered they are also much smaller companies. Moreover, althoughinteresting, such comparisons should always be made with extreme cautionuntil such time as a standardized set of sampling and measurement techniquesare universally adopted.

As well as investigating the disclosure practices, the study also examinedsome potential relationships between corporate characteristics and disclosureidentified in other studies. Results are reported which, consistent with otherstudies, show both size and industry are significantly associated with amountof disclosure, while profitability is not. In addition, the results indicate that the

Measured pages = a1 + b1Nat log of sales 1992 + b2Industry + b3Overseas listing 2t Sig t

Nat log of sales 1992 4.3330 0.0001Industry 1.8560 0.0703Overseas listing 2 2.6520 0.0112


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 orAustralian listings, 0 = others; n = 47

Table XV.Regression results:

Nat log of sales 1992 + Overseas listing 2

Measured pages = a1 + b1Nat log of market capitalization 1992 + b2Overseas listingB SE B Beta t Sig t

Nat log of market capitalization1992 0.30406 0.05502 0.44643 5.5270 0.0000

Overseas listing 2.25089 0.32029 0.56769 7.0280 0.0000Constant –5.31251 1.05069 –5.0560 0.0000


Notes:B = regression coefficient; SE B = standard error of regression coefficient; Beta = standardizedregression 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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size-disclosure relationship is much stronger for the high-profile industrycompanies than for the low-profile industry companies.

The interaction between size and industry is interesting because it suggestsrelative size alone is not a sufficient indicator of disclosure amount. It may be, forexample, that the size-industry-disclosure relationships support the argumentthat New Zealand companies are responding to the information needs ofinvestors who wish to know about the companies’ potentially risky activities.While size may be a good proxy for the relative (perceived) magnitude andfrequency of such activities, it may not be such a good proxy for the relative(perceived) risk of such activities. Industry type, however, may be capturing thisrelative risk. For example, because some industries face much more stringentregulatory environments than others, firms in such industries may consider itnecessary to reassure existing and potential investors that all is well.

Alternatively, or perhaps in addition, and equally as plausible, the size-industry-disclosure relationships could support the argument that New Zealandcompanies are attempting to mitigate the effects of large and noticeable impactson the environment and society. In doing so, they attempt to ward off eitherperceived or real pressure from social and environmental activists. Again,industry type may be an indicator of the relative pressure (real or potential) whichcompanies face from social and environmental activists, and the constituencieswithin the New Zealand population from which such activists derive theirsupport.

In addition to the size and industry relationships, this study also provides sometentative evidence that dual and multiple overseas listings may be associated with greater social disclosure. Whether this relationship isparticular to New Zealand is a matter for further investigation. It may be that dual and multiple overseas listings only have an impact when the countriesin which the companies are listed have largely different social reportingrequirements. Moreover, it would be interesting to know whether any impactworked in both directions. For example, would overseas companies also listed onthe New Zealand stock exchange report differently in New Zealand from NewZealand companies listed on those same overseas stock exchanges?

Using various measures of size, profitability and disclosure demonstrated therelative robustness of the relationships reported in this study, and also providedsome answers to questions surrounding the methods of measuring disclosureamount. Finding that market capitalization appears significantly related toindustry classification (at least for the sample in this study), however, illustratesthat an arbitrary choice of measure for a variable may have an impact on theresults. Further work is required to see if the market capitalization measure andindustry relationship is an aberration peculiar to large New Zealand companies orwhether it is more widespread.

This study establishes an important benchmark in that the size-industry-disclosure relationships found in other overseas studies (in particular, the USA)also hold for New Zealand companies when comparative sampling andmeasurement techniques are used. Further, this study also demonstrates that


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the relationships found are relatively robust to different measurement choices.From such a starting point, social disclosure research in New Zealand can moveon to more specific explanations for the relationships found in this study.

Notes1. 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 relativelysmaller companies. All those studies reporting positive relationships either sample the“top” companies in various countries or do not draw random samples. Davey’s (1982)study, and Ng’s (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 100rectangles (each side of the A4 sheet is divided into 10). The grid is laid over eachhighlighted sentence in the annual report and the number of hundredths assessed(rounding up). These hundredths were finally summed to produce a total for each annualreport.

4. The liquor and communication industries in New Zealand, for example, are bothdominated by major players. At times, the intense competition has resulted in cases beentaken to the New Zealand Commerce Commission – a body responsible for policing anti-competitive behaviour. The meat and by-products industry, although classified along withthe food industry as low-profile, could have been classified along with agriculture as high-profile. In the event, the results are not significantly affected by either treatment.

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self-reported disclosures as a method of measuring corporate social involvement”, Academyof Management Journal, Vol. 22 No. 3, pp. 501-15.

Andrews, B.H., Gul, F.A., Guthrie, J.E. and Teoh, H.Y. (1989), “A note on corporate socialdisclosure practices in developing countries: the case of Malaysia and Singapore”, BritishAccounting Review, Vol. 21 No. 4, pp. 371-6.

Belkaoui, A. and Karpik, P.G. (1989), “Determinants of the corporate decision to disclose socialinformation”, Accounting, Auditing & Accountability Journal, Vol. 2 No. 1, pp. 36-51.

Bowman, E.H. and Haire, M. (1976), “Social impact disclosure and corporate annual reports”,Accounting, Organisations and Society, Vol. 1 No. 1, pp. 11-21.

Cowen, S.S., Ferreri, L.B. and Parker, L.D. (1987), “The impact of corporate characteristics onsocial responsibility disclosure: a typology and frequency-based analysis”, Accounting,Organisations and Society, Vol. 12 No. 2, pp. 111-22.

Davey, H.B. (1982), “Corporate social responsibility disclosure in New Zealand: an empiricalinvestigation”, unpublished working paper, Massey University, Palmerston North.

Dierkes, M. and Preston, L.E. (1977), “Corporate social accounting and reporting for the physicalenvironment: a critical review and implementation proposal”, Accounting, Organisations andSociety, Vol. 2 No. 1, pp. 3-22.

Ernst & Ernst (1978), Social Responsibility Disclosure, 1978 Survey, Ernst & Ernst, Cleveland,OH.

Friedman, M. (1962), Capitalism and Freedom, The University of Chicago Press, Chicago, IL.Gray, R., Kouhy, R. and Lavers, S. (1995a), “Corporate social and environmental reporting: a

review of the literature and a longitudinal study of UK disclosure”, Accounting, Auditing &Accountability Journal, Vol. 8 No. 2, pp. 47-77.

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Gray, R., Kouhy, R. and Lavers, S. (1995b), “Methodological themes: constructing a researchdatabase of social and environmental reporting by UK companies”, Accounting, Auditing andAccountability Journal, Vol. 8 No. 2, pp. 78-101.

Gray, R., Owen, D. and Maunders, K. (1987), Corporate Social Reporting: Accounting andAccountability, Prentice-Hall, London.

Gray, R., Owen, D. and Maunders, K. (1988), “Corporate social reporting: emerging trends inaccountability and the social contract”, Accounting, Auditing & Accountability Journal, Vol. 1No. 1, pp. 6-20.

Guthrie, J. (1983), “Corporate social accounting and reporting: an Australian empirical study”,unpublished paper, AAANZ Conference, Brisbane.

Guthrie, J. and Mathews, M.R. (1985), “Corporate social accounting in Australasia”, in Preston,L.E. (Ed.), Research in Corporate Social Performance and Policy, Vol. 7, pp. 251-77.

Guthrie, J. and Parker, L.D. (1990), “Corporate social disclosure practice: a comparativeinternational analysis”, Advances in Public Interest Accounting, Vol. 3, pp. 159-75.

Heinze, D.C. (1976), “Financial correlates of a social involvement measure”, Akron Business andEconomic Review, Spring.

Holmes, S.L. (1976), “Executive perceptions of corporate social responsibility”, Business Horizons,Vol. 19 No. 3, pp. 34-40.

Kelly, G.J. (1981), “Australian social responsibility disclosure: some insights into contemporymeasurement”, Accounting and Finance, Vol. 21 No. 2, pp. 97-104.

Kimberly, J.R. (1976), “Organisational size and the structuralist perspective: a review, critique, andproposal”, Administrative Science Quarterly, Vol. 21, pp. 571-97.

Krippendorff, K. (1980), Content Analysis: An Introduction to its Methodology, Sage, London.Lindsay, R.M. (1995), “Reconsidering the status of tests of significance: an alternative criterion of

adequacy”, Accounting, Organisations and Society, Vol. 20 No. 1, pp. 35-53. Ng, L.W. (1985), “Social responsibility disclosures of selected New Zealand companies for 1981,

1982 and 1983”, Occasional paper No. 54, Massey University, Palmerston North.Ostlund, L.E. (1977), “Attitudes of managers toward corporate social responsibility”, California

Management Review, Vol. 19 No. 4, pp. 35-49.Pang, Y.H. (1982), “Disclosures of corporate social responsibility”, The Chartered Accountant in

Australia, July, pp. 32-4.Patten, D.M. (1991), “Exposure, legitimacy, and social disclosure”, Journal of Accounting and

Public Policy, Vol. 10, pp. 297-308.Patten, D.M. (1992), “Intra-industry environmental disclosures in response to the Alaskan oil spill:

a note on legitimacy theory”, Accounting, Organisations and Society, Vol. 17 No. 5, pp. 471-5.Preston, L.E. (1978), “Analysing corporate social performance: methods and results”, Journal of

Contemporary Business, Vol. 7 No. 1, pp. 135-50.Ramanathan, K.V. (1976), “Toward a theory of corporate social accounting”, The Accounting

Review, Vol. 51 No. 3, pp. 516-28.Roberts, R.W. (1992), “Determinants of corporate social responsibility disclosure: an application

of stakeholder theory”, Accounting, Organisations and Society, Vol. 17 No. 6, pp. 595-612. Scott, W.A. (1955), “Reliability of content analysis: the case of nominal scale coding”, Public

Opinion Quarterly, Vol. 19, pp. 321-5. Trotman, K. (1979), “Social responsibility disclosures by Australian companies”, The Chartered

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Appendix 1: Checklist of categories of social disclosure

The following is a taxonomy of the types of corporate social disclosure that form the substanceof the content analysis of annual reports. The list is intended to represent an exhaustiveitemization of information with social importance. Adaptations to the original list used by Ng(1985) are shown in italics.

Environment(1) Environmental pollution

• pollution control in the conduct of the business operations; capital, operating andresearch and development expenditures for pollution abatement;

• statements indicating that the company’s operations are non-polluting or that theyare in compliance with pollution laws and regulations;

• statements indicating that pollution from operations has been or will be reduced;• prevention or repair of damage to the environment resulting from processing or

natural resources, e.g. land reclamation or reforestation;• conservation of natural resources, e.g. recycling glass, metals, oil, water and paper;• using recycled materials;• efficiently using materials resources in the manufacturing process;• supporting anti-litter campaigns;• receiving an award relating to the company’s environmental programmes or

policies;• preventing waste.

(2) Aesthetics• designing facilities harmonious with the environment;• contributions in terms of cash or art/sculptures to beautify the environment;• restoring historical buildings/structures.

(3) Other• undertaking environmental impact studies to monitor the company’s impact on the

environment;• wildlife conservation;• protection of the environment, e.g. pest control.

Energy• conservation of energy in the conduct of business operations;• using energy more efficiently during the manufacturing process;• utilizing waste materials for energy production;• disclosing energy savings resulting from product recycling;• discussing the company’s efforts to reduce energy consumption;• disclosing increased energy efficiency of products;• research aimed at improving energy efficiency of products;• receiving an award for an energy conservation programme;• voicing the company’s concern about the energy shortage;• disclosing the company’s energy policies.

Employee health and safety• reducing or eliminating pollutants, irritants, or hazards in the work environment;• promoting employee safety and physical or mental health;• disclosing accident statistics;

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• complying with health and safety standards and regulations;• receiving a safety award;• establishing a safety department/committee/policy;• conducting research to improve work safety;• providing low cost health care for employees.

Employee other(1) Employment of minorities or women

• recruiting or employing racial minorities and/or women;• disclosing percentage or number of minority and/or women employees in the

workforce and/or in the various managerial levels;• establishing goals for minority representation in the workforce;• programme for the advancement or minorities in the workplace;• employment of other special interest groups, e.g. the handicapped, ex-convicts or

former drug addicts;• disclosures about internal advancement statistics.

(2) Employee training• training employees through in-house programmes;• giving financial assistance to employees in educational institutions or continuing

education courses;• establishment of trainee centres.

(3) Employee assistance/benefits• providing assistance or guidance to employees who are in the process of retiring or

who have been made redundant;• providing staff accommodation/staff home ownership schemes;• providing recreational activities/facilities.

(4) Employee remuneration• providing amount and/or percentage figures for salaries, wages, PAYE taxes,

superannuation;• any policies/objectives/reasons for the company’s remuneration package/schemes.

(5) Employee profiles• providing the number of employees in the company and/or at each branch/

subsidiary;• providing the occupations/managerial levels involved;• 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 qualifications of employees recruited.

(6) Employee share purchase schemes• providing information on the existence of or amount and value of shares offered to

employees under a share purchase scheme or pension programme;• providing any other profit sharing schemes.

(7) Employee morale• providing information on the company/management’s relationships with the

employees in an effort to improve job satisfaction and employee motivation;


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• providing information on the stability of the workers’ jobs and the company’sfuture;

• providing information on the availability of a separate employee report;• providing information about any awards for effective communication with

employees;• providing information about communication with employees on management styles

and management programmes which may directly affect the employees.(8) Industrial relations

• reporting on the company’s relationship with trade unions and/or workers;• reporting on any strikes, industrial actions/activities and the resultant losses in

terms of time and productivity;• providing information on how industrial action was reduced/negotiated.

(9) Other• improvements to the general working conditions – both in the factories and for the

office staff;• information on the re-organization of the company/discussions/branches which

affect the staff in any way;• 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 about support for day-care, maternity and paternity leave.

Products(1) Product development

• information on developments related to the company’s products, including itspackaging, eg. making containers reusable;

• the amount/percentage figures of research and development expenditure and/or itsbenefits;

• information on any research projects set up by the company to improve its productin any way.

(2) Product safety• disclosing that products meet applicable safety standards;• making products safer for consumers;• conducting safety research on the company’s products;• disclosing improved or more sanitary procedures in the processing and preparation of

products;• information on the safety of the firm’s product.

(3) Product quality• information on the quality of the firm’s products as reflected in prizes/awards received;• verifiable information that the quality of the firm’s product has increased (e.g. ISO

9000).Community involvement

• donations of cash, products or employee services to support established communityactivities, events, organizations, education and the arts;

• summer or part-time employment of students;• sponsoring public health projects;• aiding medical research;• sponsoring educational conferences, seminars or art exhibits;

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• funding scholarship programmes or activities;• other special community related activities, e.g. opening the company’s facilities to the

public;• supporting national pride/government sponsored campaigns;• supporting the development or local industries or community programmes and activities.

Others

(1) Corporate objectives/policies: general disclosure of corporate objectives/policies relating to thesocial responsibility of the company to the various segments of society.

(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.

Appendix 2: Decision rules for social disclosures• Discussion of directors’ activities are not to be included as a discussion on employees.• All sponsorship activity is to be included no matter how much it is advertising.• All disclosures must be specifically stated, they cannot be implied.• Good/neutral/bad classifications to be determined from perspective of the stakeholder

group involved.• 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 StandardsOrganisation ISO 9000 quality series standard.

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