Corporate social disclosure in the timber industry in Western Australia 1989-1998 : A test of legitimacy theory

In recent years, accounting researchers have turned their attention to media agenda setting theory in addition to legitimacy theory as the theoretical framework for researching voluntary social disclosure in the annual report of a company. Their research has tended to show a significant relationship between the extent and change in the number of press media social reports and the extent and level of social disclosure in the annual report of a company based on the same classification of social items. They have also explored the existence of a time lag between the number of press media reports and disclosure in the annual report. A critical review of this literature suggested a number of gaps, some of which were acknowledged, present in this research. The purpose of this study is to replicate, refine and/or extend this recent research in a number of important directions. The refinements and extensions to recent research were carried out over two stages and applied to the annual reports of three Western Australian timber companies, Whittakers Limited, Hunnings Limited, and Wesfarmers Limited over the period 1989 to 1998. These Western Australian companies satisfied the criteria of being in a sensitive industry and being involved in the processing of hardwoods and woodchipping, which are matters of public concern. In the first stage, a structured questionnaire was designed to investigate three matters in relation to the press: (1) whether the press influences disclosure in the annual report; (2) testing aspects of legitimacy theory on disclosure in the annual report; and (3) to ascertain which Australian newspapers directors of these companies were familiar with and the importance rating of them in regard to adverse press media reports on categories of social matters. The questionnaire was mailed/delivered to persons that were former Directors of the three companies over the period of the study 1989-1998. In the second stage, hypotheses from prior research, concerning correlations of positive and total social disclosure with the number of adverse and total number of press media social reports were tested. The purpose of this replication was to ascertain if the results held up in the present study. Refinements and extensions to those hypotheses were made and additional hypotheses formulated and tested. A weighted index of newspaper characteristics comprising location, position, column width, space, and the presence of a visual aid was constructed and correlated with disclosure. Each characteristic of the index was correlated with disclosure. The two correlation groupings used in prior studies, total positive annual report disclosure (TP AR) correlated with total unfavourable media articles (TUMA), and total annual report disclosure (TAR) correlated with total media articles (TMA) were extended to four groupings by the addition of TP AR correlated with TMA, and TAR correlated with TUMA. This allowed for a greater range of legitimacy strategies by management to be examined. In addition, the existence of the same media time lag used in prior research was explored together with an alternative media time lag. All correlations were performed on the four groupings with the exception of characteristics, the number of press media articles and the press media index. Finally, the study was essentially a regional as opposed to a national study and this approach has not been adopted in earlier studies. The results of the first stage, the questionnaire, indicated that while the press was considered important, it did not influence social disclosure in the annual report. However, the replies to reasons given for disclosure, for all categories of social disclosure, were