Corporate social reporting: empirical evidence from Indonesia Stock Exchange

Abstract

PurposeThe purpose of this paper is to investigate the effect of board size, foreign ownership, firm size, profitability, and leverage on corporate social responsibility (CSR) reporting and the possible effect of CSR reporting on a firm's future performance.Design/methodology/approachAnnual reports were analyzed by content analysis method and multiple regression was used to test hypotheses.FindingsEvidence was found that board size has a positive and non‐linear (quadratic and concave) relationship with CSR. This result confirms predictions that a larger board will be able to exercise better monitoring, but that too large a board will make the monitoring process ineffective. Firm size has a positive effect on CSR. This suggests that larger firms have more resources to devote to social activities and a larger asset base over which to spread the costs of social responsibility. They also face more pressure to disclose their social activities for various groups in society. Profitability and leverage, however, do not have significant influence. Little evidence was found of positive impact of CSR on future performance. This result could encourage firms to disclose their CSR activities because there seems to be a positive affect on future performance.Research limitations/implicationsThe measure of CSR may involve subjective judgement and is only limited to annual reports.Practical implicationsThe paper shows that it is important for a company to increase its awareness on corporate social activities and also its disclosure in the annual report.Originality/valueThe paper shows that board size has a positive and non‐linear effect on CSR, which has been rarely examined in previous research.