SOME DETERMINANTS OF SOCIAL AND ENVIRONMENTAL DISCLOSURES IN ANNUAL REPORTS BY FRENCH FIRMS

This study develops and empirically tests a model on determinants of social and environmental disclosures (hereafter SED) in annual reports by CAC40 listed companies in France before and after the application of the new law related to social and environmental reporting called “nouvelles régulations économiques” (hereafter NRE) in 2002. First, the related literature is reviewed. Second, variables are defined before presenting the empirical tests. This study hypothesized that SED are correlated with the size, the industry’s reputation, the financial performance, the stakeholders’ salience and the NRE application. The model of total SED tested over the entire sample period shows that hypothesis related to the size, the industry’s reputation, the NRE application and the diffuse stakeholders’ salience are confirmed. Results indicate also, that the level of voluntary SED increases when the company has a bad industry’s reputation and a high diffuse stakeholders’ salience but it decreases if the company is subjected to the social and environmental reporting law. Finally, we conclude that the level of mandatory SED have a positive relationship with the size and the industry’s reputation in the period following the application of the French law. Social and environmental disclosures, voluntary, mandatory, NRE, stakeholder theory 1 Correspondence address: Salma Damak-Ayadi, IHEC Carthage, Département Comptabilité, Tunisie, Tel: (00216) 71774720, Fax: (00216) 71775944, e-mail: salmadamak@yahoo.fr Some determinants of social and environmental disclosures in annual reports by French firms Vol. 8, No. 3 325 INTRODUCTION Social and environmental reporting has been steadily increasing in both size and complexity over the last three decades. Research attention over the years has attempted to codify, explain and understand an area of corporate activity, which appears to lie outside the conventional domains of accounting disclosure. The recent explosion of interest in social and environmental issues has been seen again in the emergence of different practices related to social and environmental reporting, which reports impacts of the firm’s activity on society and natural environment to different stakeholders. Social and environmental reporting practices can take almost an infinite range of forms. The most common is reporting in annual reports and reporting through stand-alone social or environmental reports. It can take place also through advertising, product packaging, conferences and company websites. Most studies in the literature are related to voluntary information disclosed in annual reports because some companies has anticipated legislations in many countries for many reasons, which vary according to the theoretical foundation of the research; to develop corporate image; to legitimize current activity; to distract attention from other areas; to discharge accountability and to forestall legislation (Gray & Bebbington, 2001). This study develops a model on determinants of SED in annual reports based on stakeholder theory in the French context. Social and environmental reporting have been regulated in France since 2002 with a new law “or NRE” that mandates all listed French corporations to report on the sustainability of their social and environmental performance. So this study distinguishes between mandatory and voluntary SED. This paper is structured as follow: the first section provides a brief review of prior researches that have explored factors influencing social and environmental reporting. The second section presents our hypotheses and models about which this paper is principally concerned. This study hypothesizes that SED are correlated with the size, the industry’s reputation, the financial performance, the stakeholders’ salience and the NRE application. Finally, results and conclusions, which give support to these hypotheses, are analyzed for total, voluntary and mandatory SED. Furthermore, additional analyses are produced to detect eventual changes due to the NRE application. 1. LITERATURE REVIEW Although corporate social and environmental reporting has been the subject of substantial academic accounting research since three decades, literature does not possess an overall coherence (Gray et al., 1995). Social and environmental reporting may take place through different media. Most researchers into such disclosure tend to focus on data contained within the corporations’ annual reports; Accounting and Management Information Systems Vol. 8, No. 3 326 a wide range of other different media may be employed: advertising, focus groups, employee councils, booklets, school education and so forth (Zeghal & Ahmed, 1990). Three types of empirical studies characterize the research into corporate social and environmental reporting. The first related to “descriptive studies” 1 reports on the nature and the extent of SED with some comparisons on media, countries or periods. The second related to “explicative studies” focuses on determinants of social and environmental reporting and includes sometimes the first type of studies. The third is interested by the “impact of social and environmental information” 2 on various users mainly on market reaction. Our study adopts the second subject. In this context, we can distinguish between three approaches, which try to explain the social and environmental reporting practices’: rational, conformist and moral approaches. The first approach considers that ethic attitudes are the result of a rational process of decision. So social and environmental reporting is practiced in order to fulfill organizational targets. Agency theorists have seen this phenomenon as a mean to reduce agency costs (Gray & Bebbington, 2001) and to increase profits (Bowman & Haire, 1975). The second approach integrates a conformist idea and suggests that social and environmental reporting helps firms to manage the divergent interests of stakeholders (Henriques & Sadorsky, 1999; Neu et al., 1998; Roberts, 1992; Tilt, 1994). The last approach is moral. There are few studies in this context. Moral issues and social values are then the origin of the corporate social and environmental reporting. Gray and Bebbington (2001) and Adams and Kuasirikun (2000) think that the culture is the main factor that can justify the development of social and environmental reporting. A lack of sufficient theoretical support to explain these practices leads to inconsistent, even contradictory, results. So the factors examined in previous literature have been broken down into three categories: Corporate characteristics (industry membership, size, country domicile, financial performance, ownership status) External factors (external concerns, legal concerns, public pressures, community concern, stakeholder importance, environmental challenges, and social concerns) Internal factors (processes of reporting, views and attitudes of key corporate players to aspects of reporting, presence of a social responsibility committee) Some determinants of social and environmental disclosures in annual reports by French firms Vol. 8, No. 3 327 Table 1. Studies on determinants of SED Studies Context and sample Factors studied Abbott & Monsen (1979) Fortune 500 companies (1964-1974) Financial performance and employment size Adams et al. (1998) 25 companies from six European countries France, Germany, the Netherlands, Sweden, Switzerland and UK Industry membership, size and country domicile Adams (2002) 3 British and 4 Germany companies Internal factors (processes of reporting and views and attitudes of key corporate players to aspects of