Date of Award

2013

Degree Type

Thesis

Degree Name

Master of Accounting by Research

School

School of Accounting, Finance and Economics

Faculty

Business and Law

First Advisor

Dr Theo Christopher

Second Advisor

Dr Yun Hsing Cheung

Abstract

As the environmental and social disclosing systems have been developed over decades, the climate of corporate environmental and social responsibility is becoming mature nowadays globally. What and how environment-sensitive companies (i.e. companies that are more likely to do environmental damages) disclose such information voluntarily are extensively concerned by the public, especially in China, where strong debatable issues constantly raise as a result of the rapid economic growth. Corporate environmental and social responsibility is no longer an international obligation but a domestic demand for China. This study will enhance our understanding of a very important issue in arguably the world's most vibrant economy.

The thesis has contributed the literature in a number of ways. First, this study aimed to measure the type and extent of both corporate environmental and social reporting across the Chinese environmental sensitive industries’ annual reports, which include mining, electricity supply, and chemical industries. A dichotomous method was employed and the Global Reporting Initiative third edition (G3) was selected as a benchmark. In addition, the characteristics of the companies that voluntarily disclose environmental and social information in their annual reports were to be examined under legitimacy theory. Seven hypotheses that developed seven predictor variables based on legitimacy theoretical framework with one of three industries examined each time. The variables were government ownership, management role, member of industrial association, profitability, operating leverage, company age, and firm size. Finally, results in differences across industries were to be discussed and compared.

This study aimed to measure the type and extent of corporate environmental and social reporting across the Chinese mining, electricity supply, and chemical industries' annual reports, using the Global Reporting Initiative third edition (G3) as a benchmark. In addition, the characteristics of companies that voluntarily disclose environmental and social information in their annual reports were to be examined under legitimacy theory. There are seven hypotheses that developed seven predictor variables based on legitimacy theoretical framework with one of three industries examined each time. The variables were government ownership, management role, member of industrial association, profitability, operating leverage, company age, and firm size. Finally, results in differences across industries were to be discussed and compared.

There were a total of 193 sample companies selected from the Shenzhen Stock Exchange database, and content analysis was applied to review and examine their annual reports in 2010. The G3 guidelines were used to indicate the extent of environmental and social performances by the sample companies. Companies’ specific characters for the predictor variables were also obtained from the Shenzhen Stock Exchange database. In order to accomplish the first aim of the study, descriptive statistics were used to determine the type and extent of environmental and social disclosures in the sample industries' 2010 annual reports. In addition, to accomplish the second aim, which is to examine the determinants of corporate environmental and social disclosure under legitimacy theory, univariate statistics and multiple regressions analysis were adopted. The comparisons across the sample industries were conducted after the regression analysis.

Research findings from environmental disclosure analysis showed that although mining industry disclosed slightly more information than electricity supply industry, the extent of environmental reporting for all three industries were typically low because information disclosed was limited to several categories. It was found that Chinese mining, electricity supply, and chemical industries are more likely to disclose information regarding energy and materials, which were the most concerned aspects in the Chinese society. Environmental disclosure regression analysis indicated that most of the predictor variables from legitimacy theory are able to explain the extent of environmental reporting in the sample industries. The results indicated that member of industrial association, company age, company size and profitability were significant to the extent environmental reporting across the three sample industries. However, government ownership was found to be insignificant in the study.

Results from social disclosure analysis indicated that electricity supply industries disclosed slightly more information than mining and chemical companies in their 2010 annual reports. Interestingly, all of the sample companies disclosed at least one item from the G3 social guidelines; however, the information disclosed was narrow in only a few categories, and the extent of social disclosure in the sample industries was typically low. The disclosure analysis found that Chinese mining, electricity supply, and chemical industries were more likely to disclose labour practices and decent work, and human rights information. The regression analysis showed that company size, profitability, leverage and management role have become the most significant factors, whereas member of industrial association was found to be insignificant in the sample industries.

This study concludes that on the basis of legitimacy theory, the amount of environmental and social information disclosed in the Chinese mining, electricity supply, and chemical industries’ annual reports was almost the same, and the firm specific predictor variables have similar influences across industries both environmentally and socially.

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