Industry Membership Research Articles

Social and Environmental Reporting and the Co-creation of Corporate Legitimacy

This paper extends the legitimacy theory by empirically investigating the extent and context of social, environmental and total voluntary non-financial disclosures across industries. The study uses 312 annual reports of publicly listed Indian companies for the accounting years 2006, 2012 and 2014. We follow a Multivariate Ordinary Least Squares (MOLS) modelling framework to test the hypotheses. Our empirical results indicate that the decision to provide voluntary non-financial disclosure is positively related to a firm’s age, profitability, industrial category and leverage. Our results further indicate that, contrary to legitimacy theory, the decision to provide social and environmental non-financial disclosures by sampled publicly listed companies is found to correlate negatively with consumer proximity, leverage and industrial transport industry membership. Our results add new empirical evidence to support the view that non-financial disclosure by companies is influenced by country-specific characteristics within which the firm operates. Future research could extend the study to other emerging countries and include data from unlisted companies to validate our findings.
 
 To cite this document: Asit Bhattacharyya and Frank Wogbe Agbola, "Social and Environmental Reporting and the Co-creation of Corporate Legitimacy", Contemporary Management Research, Vol.14, No.3, pp. 191-223, 2018.
 
 Permanent link to this document:
 http://dx.doi.org/10.7903/cmr.18247

Why Do Firms in Emerging Markets Report? A Stakeholder Theory Approach to Study the Determinants of Non-Financial Disclosure in Latin America

Even though literature studying the determinants of non-financial disclosure (NFD) is pervasive, Latin America has been overlooked in this tradition. In this sense, scholars have not evidenced which factors compel companies in this context to report this information despite its voluntary nature. Drawing on Stakeholder Theory as a basis, we derive eight possible antecedents of NFD from extant literature and test them in a sample of 643 Latin American firms for a 10 year span (2006–2015). Using a logit panel model, our evidence indicates that firm size, market-to-book ratio, systematic risk, and industry membership are factors that pressure companies to report. However, contrary to our conceptual development we find that profitability and regulatory quality inversely affects NFD. This leads us to posit that Latin America is unique in terms of reporting because agency costs may arise when disclosing data and also that feeble regulations could summon firms to fill this void through NFD. We thus contribute to this strand by revealing that stakeholders in this milieu are essentially different than in developed countries, and therefore the underlying reasons to engage in NFD also differ.

Industry Effects in Firm and Segment Profitability Forecasting

ABSTRACTAcademics and practitioners have long recognized the importance of a firm's industry membership in explaining its financial performance. Yet, contrary to conventional wisdom, recent research shows that industry‐specific profitability forecasting models are not better than economy‐wide models. The objective of this paper is to further explore this result and to provide insights into when and why industry‐specific profitability forecasting models are useful. We show that industry‐specific forecasts are significantly more accurate in predicting profitability for single‐segment firms and, to some extent, for business segments. For multiple‐segment firms, the aggregation of segment‐level data for external reporting of firm‐level financials obliterates the industry effects of their segments.

Predicting stock return correlations with brief company descriptions

ABSTRACTA series of influential papers by Hoberg and Phillips measure the similarity of pairs of companies based on a textual analysis of their business descriptions and show these measures to be useful in a variety of research contexts in finance. Hoberg and Phillips derive the similarity measures from a comparison of word lists extracted from extensive business descriptions contained in US companies’ electronic 10-K filings. Unfortunately, this method is of little use in non-US settings, where lengthy English-language company self-descriptions are not available on a consistent basis. Instead, we use semantic fingerprinting to extract such similarity measures from much shorter but globally available third-party company descriptions. We show that our approach significantly predicts stock return correlations even after controlling for past correlations and for membership in the same industry. Remarkably, company similarity measures based on brief third-party company descriptions predict stock return correlations significantly better than those based on much longer company self-descriptions.

Firm characteristics associated with concurrent disclosure of GAAP-compliant financial statements with earnings announcements

Purpose This paper aims to examine the characteristics of firms that voluntary disclose generally accepted accounting principals (GAAP)-compliant statements of income, statement of cash flows (SCF) and balance sheet (BS) concurrently with quarterly earnings releases. Cardinal motivation of the paper stems from the increasing demand over the past decade by professional analysts and the Securities and Exchange Commission for concurrent disclosure of GAAP-compliant financial statements with earnings’ announcements. Design/methodology/approach Using hand-collected archival data, a random sample was identified as disclosing GAAP-compliant SCF and BS with their quarterly earnings releases compared to a control sample identified as non-GAAP-compliant disclosing firms during the 36-month period of 2009-2011, and several hypotheses are tested to determine managements’ incentives to disclose GAAP-compliant versus non-GAAP financials with their earnings releases. Findings The results in this paper suggest that debt financing, corporate governance, operating performance, earnings volatility, industry membership (such as technology and more research and development-intensive) and complexity of operations (number of segments) are significant characteristics of firms electing to concurrently disclose GAAP-compliant SCF and BS with earnings releases. Practical implications The findings discussed in this paper are of special interest to financial reporting policymakers, financial analysts, firm managers and stakeholders and academics. Originality/value The voluntary disclosure literature on quarterly earnings releases is extended by differentiating between GAAP-compliant and non-GAAP-compliant voluntary disclosers. The specific findings of this study may provide valuable input to policymakers as they study prevailing voluntary disclosure rules and practices.

The Influence of Corporate Governance on Environmental Disclosure of Listed Non-Financial Firms in Nigeria

The study investigates the influence of corporate governance on environmental disclosure of non-financial firms listed in Nigeria Stock Exchange (NSE), anchoring on “trinity theory” (agency, stakeholder and legitimacy theories). 86 firm-year observations across 86 companies listed in Nigeria Stock Exchange (NSE) using content analysis, cross-sectional data, OLS regression techniques were used to analyze the influence of board characteristics on the extent of overall environmental disclosure (OED). The results show that board independence, board meeting and the environmental committee were statistically significant while audit committee independence and board size were insignificant. Among the three company attributes used to mitigate spurious result only Firm size significantly influence the quantity of overall environmental disclosure of the sample companies. Auditor type “big 4” (Ernest Young, Deloitte, KPMG and PWC) and industry membership show insignificant relation to environmental disclosure. The findings indicate that the level of environmental disclosure of nonfinancial companies in Nigeria is quite insufficient at an average of 10.5 %. It is not surprising that environmentally sensitive industry and auditor type had no significant influence on the extent of environmental disclosure. This buttress the point that the environment the companies operate is institutionally and legally weak. Hence it calls for improvement on environmental law and implementation as well as harmonized environmental reporting infrastructure and standard to aid comparison.

Federal Judge Ideology: A New Measure of Ex-Ante Litigation Risk

Drawing on the political theory of judicial decision making, our paper proposes a new and parsimonious ex ante litigation risk measure: federal judge ideology. We find that judge ideology complements existing measures of litigation risk based on industry membership and firm characteristics. Firms in liberal circuits (the third quartile in ideology) are 33.5% more likely to be sued in securities class action lawsuits than those in conservative circuits (the first quartile in ideology). This result is stronger after the U.S. Supreme Court’s ruling in the Tellabs case. We next show that the effect of judge ideology on litigation risk is greater for firms with more sophisticated shareholders and with higher expected litigation costs. Furthermore, judicial appointments affect litigation risk and the value of firms in the circuit, highlighting the economic consequences of political appointments of judges. Finally, using our new measure, we document that litigation risk deters managers from providing long-term earnings guidance, a result that existing measures of litigation risk cannot show.

산업특성 및 기업수명주기가 조세회피에 미치는 영향

산업특성 및 기업수명주기가 조세회피에 미치는 영향

The relationships between reporting format, environmental disclosure and environmental performance

PurposeThe purpose of this paper is to assess whether European companies issue standalone environmental reports in an attempt to gain and maintain legitimacy with relevant stakeholders. This is achieved by creating and empirically testing a model of the relationships between corporate reporting format, industry membership, environmental disclosure, and environmental performance.Design/methodology/approachData are collected from 100 large European companies in carbon and non-carbon-intensive industries. Hypothesis testing is conducted via structure equation modeling.FindingsEvidence exists that companies which disclose environmental information in standalone environmental reports tend to provide higher levels of environmental information than companies which combine financial and environmental disclosure in annual reports. The findings support greenwashing as a new perspective of legitimacy theory: companies in carbon-intensive industry use standalone environmental reports to pose as good corporate citizens even when they are not.Research limitations/implicationsThe sample companies are large European companies and this could limit the generalizability of research findings. The authors call for longitudinal studies examining how the relationship between reporting format and environmental disclosure changes.Practical implicationsThis paper suggests that reporting format be considered a proactive, strategic communication-driven activity rather than a decision that managers passively make in response to external scrutiny.Originality/valueThe paper contributes to the literature by adding to the scarce evidence of the relationship between reporting format and environmental disclosure. Greenwashing as a new perspective of legitimacy theory is used to develop research hypotheses.

Sharing Good Practice Throughout the Responder Community: Ten Years of the Global Response Network

Abstract The Global Response Network (GRN) is a collaboration of industry funded Oil Spill Response Organisations (OSROs) created to share good practice for the wider benefit of the oil industry. Created in 2005, the GRN was originally conceived as a mechanism to facilitate the sharing of trained response personnel at a time when the global pool of responders was much smaller than now and spills were becoming less frequent, thanks to improvements in ship design, operation and regulation. Personnel sharing arrangements under the GRN were designed to enable individual responders to gain valuable spill experience more easily and thereby enhance experience levels across the global pool. It was also envisaged that the cooperation among participating OSROs would enable the sharing of specialised equipment resources for the benefit of the collective industry membership. Although the core membership of the GRN has remained largely unchanged since its creation, the purpose and modus operandi of the GRN has evolved considerably in that time. Today the key added value provided by the GRN comes from sharing knowledge and information more than sharing people and equipment. This is particularly evidenced by the industry action which followed in the wake of the Montara (2009) and Macondo (2010) incidents. The international oil industry undertook a Joint Industry Project (JIP) to coordinate this unprecedented effort to apply the lessons from these incidents in order to improve the management and technical aspects of spill response. Today the challenge is to integrate and harmonise the various outputs from this effort throughout the responder community and the GRN is playing a key role in this. One way this is being achieved is through the “Confident Ambassador” programme, whereby responders are familiarised with the JIP outputs and the accompanying communications toolkit. A slide deck has been created for OSRO use to help responder organisations achieve deeper understanding of the science of response within their own organisations and, more importantly, to help disseminate consistent messages about industry approaches to oil spill preparedness and response to a wide range of external stakeholders that the responder community engages with. This paper explores this and other facets of the evolution of the GRN through its first ten years, from a resource enabling organisation to a knowledge and information sharing organisation befitting the post-Macondo paradigm. The paper also considers future trends that may shape the next phase of evolution for the GRN.

The Participation of Vietnamese SMEs in Regional Economic Integration: Survey Results of Three Manufacturing Industries

Small and medium enterprises are prevalent in Vietnam. They are also the predominant type of enterprise in the three manufacturing industries surveyed: food; apparel; and wood products. These have been the emerging export sectors in the last decade. The survey shows that SMEs in these sectors are highly aware of ASEAN’s plan for SME development and perceive that the ASEAN Economic Community is beneficial to business. However, the share of SMEs that have business relations with firms in other ASEAN economies is small. There is also limited awareness of Vietnam’s Free Trade Agreements. The regression analysis reveals that foreign ownership and productivity are the two most important determinants of Vietnam SMEs’ participation in production networks. Product innovation, process innovation and membership in business associations also significantly increase the probability that SMEs participate in production networks. The analysis suggests that policies to develop SMEs, increase labour productivity, and intensify international integration will facilitate SMEs’ participation in regional production networks. Government can also craft policies to promote innovation, encourage membership in industry and business associations, and raise awareness of ASEAN’s SME development plans, the AEC and other business related issues.

Determinants of the quality of internet investor relations – a study of companies listed on the JSE#

Investor relations is the field of management that is concerned with the relationships between companies and investors, and as such involves a wide variety of information types, for example mandatory, voluntary, financial, non-financial, qualitative and quantitative. While South Africa has recently been ranked number one for the strength of its auditing and reporting standards for the seventh consecutive year (IRBA, 2016), investor relations as a wider and voluntary concept, is largely un-researched in South Africa. The purpose of the study was to establish the determinants of Internet investor relations (IIR).The quality of IIR was measured for a sample of 85 JSE-listed companies using a measurement instrument that consists of 346 attributes. From the literature, as discussed in the literature review, 15 company characteristics were identified that could explain IIR quality. Stepwise regression model-building was used to develop a regression model that best explains IIR quality.Company size, leverage, being audited by a big four audit company, JSE industry membership, free float and dual listing status were found statistically significant independent variables, explaining 68.76% of the variation in the dependent variable, IIR. Contributions to the body of knowledge, study limitations and the need for further research are discussed in the conclusion.

Determinants of firm performance in knowledge-intensive industries: a comparative study of two emerging economies, China and Taiwan

In light of predictions and statistics on the increasing importance of knowledge-intensive industries in China and Taiwan, this research utilizes these two emerging economies’ business context to examine whether a firm’s performance in knowledge-intensive industries derives from industry effects or firm effects. In this study, the approach is to use multiple measures of performance, including an intellectual capital measure of performance (value added intellectual coefficient), an economic-based measure (economic value added), and an accounting based measure (return on assets). Findings suggest that firm effects greatly impact knowledge-intensive industries, in particular for value-added intellectual coefficient (VAIC). In this sense, it is proposed that organizational strategies which leverage human capital are critical to the continuous development of firms in Chinese and Taiwanese knowledge-intensive industries. Concurrently, industry effects also influence economic performance, suggesting overall that industry membership is an important indicator of a knowledge-intensive firm's capability in value added by capital invested. This paper contributes to a scarcity of variance decomposition studies examining the sources of variation in firm performance emphasizing on knowledge-intensive industries in developing countries.

What Factors are Causal to Survival of a Startup?

A summary of a qualitative and quantitative investigation into what factors are present at time zero that increase the probability that a startup will achieve long term sustainability. The findings of this study will empower advisors and founders on how to improve startup survival rates. Survival rates for startups in the United States (U.S.) are disappointingly low and economically inefficient. The data shows that the U.S. clearly lags its peer countries in the survival rates of startups. The U.S ranked an unacceptable 11th of 14 among its peer countries in first-year survival rates in recent years. Startup failure does not only impact the entrepreneur; it also impacts creditors, vendors, community stakeholders, and employees (Astrachan & Shanker, 2003). While it is commonly acknowledged that entrepreneurial businesses contribute to economic growth, the influential impact survival can have on economic growth within the community is often understated (Frick, 2016). Guzman and Stern (2016) clearly demonstrate the importance of improving startup survival rates. In their recent study, it was demonstrated that a doubling of entrepreneurial success led to an increase of 6.8% of the Gross Domestic Product. The economic impact of startups on the community makes this area of research even more vital. To avoid failure and improve the sustainability of startups requires an in-depth understanding of the factors that are causal and non-causal to sustainability. While there has been significant investment and support by communities, government, and private foundations, startup failure rates remain virtually unchanged in the last two decades. In spite of the many years of research in the field of entrepreneurship, U.S. failure rates within the first five years average 53% (DOL 2016), regardless of the industry membership or economic cycles (SBA Office of Advocacy, 2012). Identifying factors that are causal and non-causal to the sustainability of emerging businesses is crucial to the founders and stakeholders. Within this study, both internal and external factors that may be causal to the macro survival rate of U.S. startups were studied. The external factors were studied quantitatively, using data published by the Bureau of Labor Statistics (BLS), Federal Reserve Economic Data (FRED) and the Brookings Institute. A protocol of regression analysis and visual analytics were applied to evaluate the quantitative data. It demonstrated that external factors such as the change in real gross domestic product (RGDP), interest rates, and expansion of accelerators have had no significant effect on U.S. macro startup survival rates. Further, the findings confirm that neither geographic location nor industry membership impacted U.S. macro startup survival rates.

РАЗВИТИЕ МЕТОДОЛОГИЧЕСКИХ ОСНОВ МОДЕЛИРОВАНИЯ СОЦИАЛЬНО-ЭКОНОМИЧЕСКИХ СИСТЕМ В КОНТЕКСТЕ УПРАВЛЕНИЯ РАЗВИТИЕМ

Complexity of economic systems modeling for ef-ficiency assessment of their functioning and elabora-tion of development forecasts can be explained by a number of factors. One of them is heterogeneity of economic systems, significant dependence of their structure and principles of key elements interaction on the management level, industry membership, the scope of system work. Vector and development dynamics of socio-economic system are determined, on the one hand, by internal potential of its elements , each im-plements its own development trajectory on the micro-level, and on the other hand – by opportunities of the external environment which is characterized by a com-plex mix of macroeconomic, political, social, technolo-gical and natural factors.
 Analysis of the existing development 
 methods of economic systems models at different levels allows marking out several modeling technologies among which the most promising from the point of view of application in real management practice can be considered the technology of imitation modeling based, in turn, on three methodological approaches.
 For the solution of a modeling problem of regional socio-economic system combined approach application appears to be the most effective within which external macroprocesses are modeled by means of system dynamics, and internal – socio-economic processes are formalized by agent-based modeling methods.

Corporate ecological transparency: theories and empirical evidence

PurposeThe purpose of this paper is to investigate how firm- and country-level determinants affect corporate ecological transparency.Design/methodology/approachThe study utilizes multiple theories that are commonly used by corporate social responsibility studies to explain the corporate ecological transparency. Based on a sample of 243 Global 500 firms, the authors examine the impact of shareholders’ interest in ecological information, creditors’ concern, firm size, industry membership, the presence of emission trading scheme (ETS), stringency of environmental regulations on corporate ecological transparency.FindingsThe paper documents evidence that larger firms, firms in GHG-intensive sectors, and highly leveraged firms tend to produce more ecological disclosures. In addition, ecological transparency is higher in countries with an ETS and increases with more stringent environmental regulation. Finally, the authors find little evidence that shareholders of these firms are concerned with this information.Research limitations/implicationsThe sample is restricted to the largest firms with relevant carbon profile information. Thus, caution should be exercised when generalizing the inferences.Practical implicationsSustainability has become one of the most importance topics in business agenda. Firms’ attitude and decision about the ecological transparency will affect internal firm performance, external stakeholder engagement, and policy makers’ attention. It determines the firms’ long-term operation and development.Originality/valueThe study contributes to the literature by utilizing multiple theories to explain ecological transparency. Each of the theories provided only a partial explanation for ecological transparency. Thus, we need to consider the firms’ behaviors from multiple dimensions. In particular, stakeholder theory and institutional theory are the dominant perspectives accounting for managers’ propensity to disclose a firm’s ecological footprint.

Financial Disclosure Incentives and Organizational Form Changes

This study investigates the factors that induce an organizational form change in a private corporation into a limited company (LC) from the disclosure incentive perspective. Using 1500 firm-year observations from 2007 to 2012, we find that private corporations with low leverage, non-clean audit opinions, high foreign ownership, high abnormal profits, and high-technology industry membership are more likely to change their organizational form into LCs. This finding suggests that if private corporations have low incentives for financial disclosure, then they initiate organizational form changes into LCs to avoid the costs incurred from the disclosure requirement mandated by law.

Analisis Pengungkapan Triple Bottom Linedan Faktor yang Mempengaruhi; Lintas Negara Indonesia dan Jepang

ABSTRACT.Current firm performance is not only measured by economic term (single bottom line) but alsoby social and environmental (triple bottom line). Purposes of this research are analyzing of TBL disclosureand influences factors, by using sample of companies in Indonesia and Japan.This paper investigates Triple Bottom Line (TBL) disclosure of 50 of the largest Indonesian andJapanese companies by using secondary data. Twenty two disclosure criteria were developed for each of theTBL disclosure areas: economic, social, and enviromental. Disclosure information was examined in annualreports, separate or stand-alone report and company‟s website. Regression analysis has been used to examinethe determinants of TBL disclosure practice empirically.Our result indicated that, for total of TBL disclosure (combining economic, social and environmentalcatagories), the extent of reporting is higher for firm with larger size and higher liquidity, and special forenvironmental disclosure for firm with membership in the manufacturing industry for Indonesian companies.Futher analysis indicated that the results of the total TBL disclosure are primarily driven by non-economicdisclosures. We also found that the extent of overall TBL disclosure is higher for Japanese firms, withenvironmental disclosure being the main key. This result could be attributed to the different national culturesand to the regulation environment between Indonesian and Japan.Keywords: TBL, economic, social, environment, Indonesia, Japan

Effect of IFRS adoption on financial reporting quality

Purpose The purpose of this paper is to investigate whether International Financial Reporting Standards (IFRS)-based data improve bankruptcy prediction over Australian Generally Accepted Accounting Principles (AGAAP)-based data. In doing so, this paper focuses on intangibles because conservative accounting rules for intangibles under IFRS required managers to write off substantial amounts of intangibles previously capitalized and revalued upwards under AGAAP. The focus on intangibles is also motivated by empirical evidence that financially distressed firms are more likely to voluntarily capitalize and make upward revaluations of intangibles compared with healthy firms. Design/methodology/approach This paper analyses a sample of 46 bankrupt firms and 46 non-bankrupt (healthy) firms using a matched-pair design over the period 1991 to 2004. The authors match control firms on fiscal year, size (total assets), Global Industry Classification Standard-based industry membership and principal activities. Using Altman’s (1968) model, this paper compares the bankruptcy prediction results between bankrupt and non-bankrupt firms for up to five years before bankruptcy. In the tests, the authors use financial statements as reported under AGAAP and two IFRS-based data sets. The IFRS-based datasets are created by considering the adjustments on the AGAAP data required to implement the requirements of IAS 38, IFRS 3 and IAS 36. Findings This paper finds that, under IFRS, Altman’s (1968) model consistently predicts bankruptcy for bankrupt firms more accurately than under AGAAP for all of the five years prior to bankruptcy. This greater prediction accuracy emanates from smaller values of the inputs to Altman’s model due to conservative accounting rules for intangibles under IFRS. However, this greater accuracy in bankruptcy prediction comes with larger Type II errors for healthy firms. Overall, the results provide evidence that the switch from AGAAP to IFRS improves the quality of information contained in the financial statements for predicting bankruptcy. Research limitations/implications Small sample size and having data available over the required period may limit generalizability of findings. Originality/value Although bankruptcy prediction is one of the primary uses of accounting information, the burgeoning literature on the benefits of IFRS adoption has so far neglected the role of IFRS data in bankruptcy prediction. Thus, this paper documents a new benefit of IFRS adoption. In this paper, the authors demonstrate how the restrictions on the ability to capitalize and revalue intangibles enhance the quality of information used to predict bankruptcy. These results provide evidence to international standard setters of what they can expect if their efforts to remove non-restrictive accounting practices for intangibles are abandoned.

Are Fat Cats Copycats? Evidence from Director and Consultant Network Dynamics

Prior literature identifies great similarity in executive compensation packages of firms and has succeeded in hypothesizing but not in substantiating the responsible channel or channels. We introduce dynamic stochastic network techniques to directly analyze the following three possible channels simultaneously for the first time: sharing directors, sharing compensation consultants, and sharing industry membership. Using the dynamic technology, we show that package similarity is achieved by sharing directors and industry membership rather than by sharing compensation consultants. Moreover, boards with fewer females are more likely to include higher proportions of options compensation, and higher fixed compensation deters tie formation.