Social and Environmental Disclosure by Chinese Firms

Given the increased social and environmental problems in China, this study is to undertake a study of social and environmental (environmental) disclosure practices of socially responsible Chinese listed firms. Conducted in three parts, this study first explores the current status of social and environment disclosure practices of the firms studied that sets the background to the other two core research questions. Secondly, this study empirically examines the relationship between corporate social and environmental disclosure and various influencing factors (i.e. stakeholders power and corporate characteristics). Thirdly, this study empirically examines the link between corporate social responsibility (CSR) reporting (i.e. publishing a CSR report and the quality of the CSR report) and socially responsible reputation of the firms studied. The sample of firms chosen for this study is drawn from a social responsibility ranking list of Chinese listed firms. A social and environmental disclosure index (SEDI) based on the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines (G3 version) is constructed to assess firms’ social and environmental disclosure in their annual reports and CSR reports. This index comprises three dimensions: the quantity measure, the quality measure relating to disclosure types, and the quality measure relating to GRI disclosure items. The quantity dimension of the index is approached by using content analysis to collect the data about the frequency of 121 GRI disclosure items from firms’ annual reports and CSR reports. The quality dimension relating to disclosure types is approached by conducting a questionnaire survey to collect the data about stakeholders’ perceptions on the preference of different disclosure types identified from the literature. The quality dimension relating to disclosure items is approached by conducting a stakeholder panel consultation to ascertain stakeholders’ perceptions on the relative importance of 121 GRI disclosure items. The model-testing method is then used with relevant statistical techniques to examine the relationship between stakeholder-relevant social and environmental disclosure (SEDI) and various influencing factors identified in this study. Similarly, an empirical model is also designed to examine the link between CSR reporting (publishing a CSR report and the quality of the CSR report) and firms’ socially responsible reputation. The results of the first part indicate that most firms in the social responsibility ranking list published CSR reports for the year 2008 but social and environmental disclosure in their annual reports and CSR reports widely varied among firms. It is also found that the CSR report provided more stakeholder-relevant social and environmental disclosure than the annual report. The results of the second part show that corporate characteristics such as firm size, profitability and industry classification are all statistically significant factors influencing social and environmental disclosure of the Chinese firms studied. Despite a weak influence from various stakeholders on the whole, shareholders significantly influenced firms’ social and environmental disclosure, and creditors significantly influenced firms’ disclosure related to their environmental performance. In the third part of the study, it is found that for socially responsible firms, publishing a CSR report and further the quality of the CSR report had a positive influence on firms’ socially responsible reputation. It is also found that CEO/chairman duality as a measure of corporate governance negatively influenced firms’ socially responsible reputation. The results of this part also indicate that financial performance and firm size are the two corporate characteristics that had a positive influence on corporate socially responsible reputation. This study makes a methodological contribution to the literature by constructing a stakeholder-driven, three-dimensional social and environmental disclosure index. Secondly, this study contributes to the literature by expanding the scope of extant research on corporate social and environmental disclosure to the context of a developing country, China. The findings in the context of socially responsible Chinese firms can contribute to developing and improving social and environmental policies in China. Thirdly, this study also fills a void in current research by examining the link between CSR report (and its disclosure quality) and corporate socially responsible reputation in the context of China, helping Chinese policymakers to formulate strategies to make firms more responsible and reputable. The above contributions should be acknowledged by considering the following limitations in the study. First, the sample of this study is limited to 100 firms with a best practice bias. Secondly, when using questionnaire survey and panel consultation to collect the data about stakeholders’ perceptions on social and environmental disclosure, the results need to be considered in light of potential bias and inaccuracy in the stakeholders’ responses beyond control in a survey setting. Thirdly, an element of subjectivity is unavoidable when using content analysis to collect social and environmental disclosure data and developing proxies for various variables tested in the study. Future studies can overcome these limitations and extend the literature by investigating social and environmental disclosure practices of firms outside the social responsibility ranking list and considering other potential variables and proxies in examining the empirical relationships established in this study.