Industry Affiliation

Industries have been considered as one of the key determinants of CSRD (see Chan et al., 2014; Haniffa and Cooke, 2002; Mirfazli, 2008; Rizk et al., 2008). Therefore, the impact of industry affiliation on CSRD has been considered in numerous studies (e.g. Branco and Rodrigues, 2008; Gray et al., 2001; Mahadeo et al., 2011). From the institutional perspective, organisations generally model themselves on businesses that have been deemed or perceived to be successful (DiMaggio and Powell, 1983). As a result, industry affiliation could play an important role in defining a firm’s CSRD practices (see Hackston and Milne, 1996; Patten, 1991). The relationship between industry affiliation and CSRD could also be explained by legitimacy theory in which companies with high public visibility or greater impact on the environment were found to provide more CSRD than their counterparts (see Adams et al., 1998; Clarke and Gibson-Sweet, 1999; Gao et al., 2005). In this study, in order to examine the impact of industry affiliation on CSRD, following previous studies (see Branco and Rodrigues, 2008; Wang, Song and Yao, 2013), the two proxies, environmental sensitivity and consumer proximity, are used. Theoretical and empirical arguments for these two variables are provided as follows.

(i) Environmental sensitivity

Previous studies have argued that firms from industries in which their manufacturing process has a negative impact on the environment tend to disclose more CSR information than counterparts from other industries (see Gao et al., 2005; Harte and Owen, 1991; Patten, 1991; Reverte, 2009) because firms from these industries are exposed to higher risks of criticism for CSR matters (Reverte, 2009). In contrast, industries with lower environmental impact would receive less stakeholder pressure and therefore more likely to display a lower level of disclosure (Reverte, 2009). Empirical findings in a number of CSRD studies have provided evidence for the negative relationship between industry’s environmental sensitivity level and CSRD (see Gao et al., 2005; Patten, 1991; Reverte, 2009). Industrial sectors, such as oil and gas, basic materials (mining, forestry and paper, industrial metals and chemicals), industrials (construction and materials), and utilities (electricity, gas and water distribution), are classified as exhibiting high environmental sensitivity based on previous literature (e.g. Branco and Rodrigues, 2008; Patten, 1991; Reverte, 2009). Other sectors are considered less environmentally sensitive. A dummy variable with

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one/zero value is used to designate firms from these industries: one if a company operates in more sensitive industry and 0 if it is from less sensitive industries.

(ii) Consumer proximity

Similar with companies from industries with high environmental sensitivity, companies with high public visibility tend to disclose more CSR information than the others, due to the public pressure and attention they receive (Clarke and Gibson-Sweet, 1999; Wang et al., 2013). With increased visibility, companies might use CSRD as a technique to avoid pressures and criticisms from external parties (Patten, 1991). One of the characteristics that define a company’s level of public visibility is consumer proximity or consumer visibility (Roberts, 1992). According to Cowen et al. (1987), consumer-oriented firms are expected to demonstrate higher levels of CSR to improve sales and enhance corporate reputation. According to Branco and Rodrigues (2008), a company has higher public visibility when it operates in the industries that are closer to the general public. Empirical results of previous studies remain mixed with both significant and insignificant findings (see Lu and Abeysekera, 2014; Wang et al., 2013). In this study, consistent with previous literature (Lu and Abeysekera, 2014; Wang et al., 2013), consumer proximity is measured by dummy variables with the value of 1 if a company operates in industries with a high profile, and 0 if a company is from a low-profile industry. High-profile industries, following the classification of Branco and Rodrigues (2008), are consumer goods (personal and household goods), retailers, telecommunication services and banks. All other industries are classified as low-profile.

The measurement and data source of all the variables considered in this study are presented in table 10. It is important to note that as the six countries have their own currency, all of the company’s financial figures were converted into a common currency, the US dollar, before applying the measurements.

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Table 10: Measurement and data source of all the variables

Variables Measurement Data source

Dependent Variable

CSRDI CSRD checklist includes 30 items. For each disclosed item, a value of 1 is awarded and 0 otherwise. The CSRDI is calculated by the ratio of the number of disclosed items to the maximum number of relevant items a company may disclose.

Annual reports

Independent Variables – CG mechanisms

BS The total number of inside and outside executive on board. In the case of two-tier boards, board size is calculated by the total number of both Board of Directors and Supervisory Board

Annual reports

IND Ratio of independent directors on board. Annual reports FED Ratio of female directors on board. Annual reports DUAL 1 if the Chairman and CEO position are held by the same person, and 0

otherwise

Annual reports BLOC The percentage of ordinary shares held by large shareholders who have

more than 5% ownership

Annual reports and information on the stock exchanges COMT 1 if a company has CSR committee on board and 0 otherwise Annual reports

Independent Variables – Institutional variables

LEG 1 if a company from a country with common law origin and 0 if a company from a country with civil law origin

Literature (Hope, 2003; Kouwenberg et al., 2014; CIA, n.d.) MD 1 if a company from country with CSRD requirement in annual reports

and 0 otherwise

CSR legal framework (Chapter 3, section 3.3.2.1)

UA 1 if a company from country with high uncertainty avoidance (the country score is equal or higher than the mean score of 50) and 0 if a company from country with law uncertainty avoidance (the country score is lower than the mean score of 50)

Hofstede (2005)

MAS 1 if a company from country with high masculinity (the country score is equal or higher than the mean score of 50) and 0 if a company from country with low masculinity (the country score is lower than the mean score of 50)

Hofstede (2005)

GRI 1 if a company follows GRI reporting standard and 0 otherwise GRI’s website and annual reports CSRA 1 if a company is member of the associations promoting CSR at

national level (Appendix 3), and 0 otherwise

The associations’ websites

Control Variables

FSIZE Natural log of total assets Annual reports LEV Ratio of total debt to total assets Annual reports PROF Ratio of net income to total assets Annual reports AGE The number of years from establishing to 2013 Annual reports and

178 Continuation table 10

Variable Measurement Data source

BIG4 1 if a company was audited by one of the Big 4 auditing firms (including Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG), and 0 otherwise

Annual reports

ES 1 if a company operates in high sensitive industry and 0 otherwise Annual reports CP 1 if a company operates in highly visible industry to consumers, and 0

otherwise

Annual reports

Notes: CSRDI denotes CSRD index; BS denotes board size; IND denotes board independence; FED denotes board gender diversity; DUAL denotes CEO duality; COMT denotes CSR committee; BLOC denotes block ownership; LEG denotes legal origin; MD denotes mandatory disclosure; UA denotes uncertainty avoidance dimension; MAS denotes masculinity dimension; GRI denotes the adoption of GRI standard; CSRA denotes the membership of CSR-related associations; FSIZE denotes firm size; LEV denotes leverage; PROF denotes profitability; AGE denotes firm age; BIG4 denotes audit firm size; CP denotes consumer proximity; ES denotes environmental sensitivity.