Investigating social and environmental disclosure practices by listed Indian textile firms

Abstract

Using legitimacy theory, this study investigates the extent of social and environmental disclosure (SED) of Indian textile firms over the 2010-2012 period and the factors that explain such disclosure practices. Firm-level characteristics and corporate governance variables are incorporated as key predictors for these important disclosures. This study reveals a relatively low extent of 13.57% of SED in annual reports of Indian textile firms. This finding of low overall voluntary disclosure is largely consistent with the previous studies particularly in the emerging economies setting. The results show that firm size, international brand, audit committee independence, CEO duality, profitability, international certification obtained and year of reporting are statistically significant factors in explaining the variation in extent of SED. Potential concern may arise from such a lack corporate communication related to social or environmental activities and risks as it may lead to questions whether firms domiciled in India and their international brand-name affiliations have been transparent and accountable regarding their production and supply activities. The theoretical contribution of this study is the successful testing of legitimacy theory in the context of an emerging economy. This study highlights the influence of international exposures such as brand development and corporate governance attributes have on the SED communication practices. The dearth of social and environmental disclosure by Indian textile firms has implications for foreign purchasers of branded products as international companies have been implicated in sub-optimal social or environmental practices or incidents. Such international brand-name companies may be responsible for such breaches and face significant adverse publicity if negative social or environmental impacts or breaches of rules or regulations are found subsequent to the supply of these textile products. Significant negative media publicity may have unfavourable consequences on the reputation of these firms and their directors as well as their long-term financial performance. Firms with branded textile products likely use disclosure as an important means to promote an image of them being forward thinking socially and environmentally responsible entities for preserving their legitimacy status. This research offers empirical evidence in regard to social and environmental (SED) practices that may assist regulatory bodies to introduce more focused and effective non-financial disclosure guidelines and regulations.