Institutional Ownership

Prior research indicates that institutional ownership mitigates the likelihood of REM by

improving the overall monitoring procedure and assumes that, through the institutional

ownership, the level of QCSRD is more likely to be improved (e.g. Cho et al., 2013; Abernathy,

2014). Furthermore, to ensure the financial disclosure quality, institutional ownership can play

a role in determining the companies’ voluntary disclosure policy. Due to their fiduciary duty

toward institutional investors, outside directors are more likely to protect the interest of

investors by ensuring transparency (Osterland, 2004). Prior studies have shown that companies

with a higher proportion of institutional ownership have more incentive to disclose CSR

information (e.g.Zeghal and Ahmed, 1990 Saleh et al., 2010;Cho et al., 2013). In addition,

empirical studies found that institutional ownership has a positive relationship with voluntary

disclosure (e.g. Ho and Wong, 2001; Barako, 2007). Thus, institutional ownership is used as a control variable for the link between QCSRD and EM. Following prior studies, institutional

ownership was measured through the institutional ownership percentage at the beginning of

the same year (e.g. Zang, 2011; Abernathy, 2014).

Board effectiveness

Board independence

CEO duality Board size

Board meetings

If all four audit committee characteristics are presented in the company i at year t, then the audit committee is considered to be effective and it scores one.

103 4.7.1.4 Blockholder Ownership

The second proxy of ownership is blockholder ownership, which consists of different types of

investors, such as individuals, mutual and pension funds, corporations and banks. (Cronqvist

and Fahlenbrach, 2009). Prior literature indicates that blockholder ownership has a significant

impact on controlling managers’ behaviour (e.g.Lasfer, 2006; Habbash, 2013), and suggests two such possible impacts. Firstly, it is argued that a higher concentration of ownership could

achieve effective corporate governance mechanisms through reducing opportunistic activities;

this is more likely to be found in environments that have strict regulations and investors’ protection (Habbash, 2013). Secondly, it is argued that the major shareholders may influence

managerial action against minority investors to maximise their wealth. This might be found in

a market which has weak investor protection, weak rules and regulation and poor accounting

disclosure (Shleifer and Vishny 1997). Prior studies also indicate that blockholder ownership

plays a significant role in the increase or decrease of CSR disclosure (e.g.Ching et al., 2006;

Prior et al., 2007; Barnea and Rubin, 2010; Barnea and Rubin, 2005). Thus, blockholder

ownership is used as a control variable for the relationship between QCSRD and EM.

Following prior studies, the current study measures the blockholder ownership through the

proportion of ownership more than or equal to 0.05 (e.g. Habbash, 2013; Edmans, 2014).

4.7.1.5 Big 4 Auditors

The auditors’ role is to ensure proper application of principles and polices of accounting. Francis (2008) argued that good quality auditing is more likely to prevent companies

misreporting and show a positive impact on the reputation of firms. Using Big 4 auditors may

ensure higher reliability of the reported accounting information (e.g. Krishnan, 2003; Cohene

et al., 2008). Prior studies provide evidence that earnings reported by companies which are

audited by Big 4 auditing firms are of a higher quality compared to earnings of companies that

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(1987), the Big 4 accounting firms develop and ensure uniformity across the globe through

standardised staff training practices, and international application of uniform auditing methods,

which improves their reputation. Based on this perspective, the distinctive behaviour of Big 4

firms when dealing with their global clients is to enforce higher earnings quality. A number of

studies have found a negative relationship between Big 4 and AEM, indicating that these

auditing companies use their expertise to constrain AEM (e.g. Cohen et al., 2008; Francis,

2008;Jordan and Clark, 2011). Thus Big 4 is used as a control variable for examining the link

between QCSRD and EM. It is measured by assigning the value of 1 if a company is audited

through Big4 and 0 if otherwise.

4.7.1.6 Profitability of Company

Previous studies indicate that Profitability is related to EM (Hassan and Ahmed, 2012). It is

argued that more profitable firms might choose accounting policies that lead to a reduction

in earnings to mitigate political pressure (Piot and Janin, 2007). Yang et al. (2013) found a

significant and positive relationship between profitability and EM. Similarly, Jo and Kim

(2007) provide evidence that high profitability is statistically significant and positively related

to EM. Prior research has also documented that profitability is related to CSR disclosure

(Bushee and Noe, 2000; Aras et al., 2010). Kiattikulwattana (2014) indicates that the

likelihood of CSR disclosure is higher among profitable companies than those companies with

lower profits. Thus, the current study uses the companies’ profitability as a control variable, due to its impact on both EM and QCSRD (Ahmed and Courtis, 1999; Sonnier, 2007;

Alkhatib and Marji, 2012; Lu and Abeysekera,2014) In line with Ioannou and Serafeim

(2015), the current study measures the companies’ profitability as a ratio of income from operations to total assets (ROA).

105 4.7.1.7 Firm Size

Company size as a determinant of disclosure has received greater attention in prior literature,

and several empirical studies have found that size has an impact on companies’ disclosure (Chih et al. 2008;Beretta & Bozzolan, 2008; Urquiza et al., 2009; Sun et al., 2010; Kim et al.

2012),. Jennifer& Taylor, (2007) generally argue that larger companies are likely to disclose

more CSR information since these companies have higher agency costs. Richardson (2000)

also argued that larger companies have more incentive to engage in EM since these companies

may be exposed to more market pressure than smaller ones. A number of empirical studies

have reported that company size is significantly associated with EM (Kim et al. 2012; Martínez

et al.,2015). Thus, company size was used as a control variable for regression models that are

used to examine the relationship between EM and QCSRD in the current study. Consistent

with previous literature (Urquiza et al., 2009; Kim et al. 2012; Martínez et al.,2015 ), the current

study used the natural logarithm of lagged total assets to measure the company size.

4.7.1.8 Financial Leverage

Previous literature has used financial leverage as a proxy for evaluating a company’s debt structure. (e.g. Prior et al., 2008;Yip et al., 2011). Companies with a higher gearing ratio have

more incentive to decrease discretionary accruals (Chih et al., 2008; Sun et al., 2010; Yip et

al., 2011). According to Watts and Zimmerman (1990), companies with difficulties related to

financial leverage tend to avoid violation of debt covenant by managing earnings upwards to

increase income. Thus, financial leverage is expected to be positively related to EM.

Hussainey and Walker (2009) provided evidence that the financial leverage ratio is related to

CSR disclosure. They argue that leveraged companies may provide more information requested

by other stakeholders and are likely to offer more details of disclosure to meet those needs.

Previous literature indicates that financial leverage is statistically related to CSR disclosure

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variable for regression models that are employed to measure the relationship between EM and

QCSRD in this study. Following Jo and Kim (2007), leverage was measured by long-term debt

to total assets ratio.

4.7.1.9 Industry Type

Industry type is indicated by prior research as a determinant variable of CSR disclosure (e.g.

Beretta & Bozzolan, 2008; Beattie et al., 2004). Annual reports disclosure may not be similar

in all sectors (Camfferman & Cooke, 2002), therefore an assumption has been made for the

similarity of disclosure practices among firms that belong to the same sector. This is due to the

existence of regulated industries, adherence to international capital markets’ needs and

industry sensitivity (Boutin and Sacaris, 2004; Ghazali & Weetman, 2006; Jennifer & Taylor,

2007). Ahmed and Courtis (1999) report evidence that there is a significant relationship

between industry type and disclosure for Swedish and Canadian companies. Salama et al.

(2012) reveal that industry type among the UK companies has a significant influence on CSR

disclosures. As a result, the current study uses industry type as a control variable for the

regression models to examine the link between EM and QCSRD in the present study. To

identify the industry type, the present study used the classification of the Bombay Market for

the top 500 Indian listed companies.