Date of Award

2006

Document Type

Thesis

Publisher

Edith Cowan University

Degree Name

Bachelor of Business Honours

School

School of Business

Faculty

Faculty of Business and Law

First Supervisor

Dr Theo Christopher

Abstract

This study had two mam objectives. Firstly to measure the level and type of sustainability reporting in companies using the Global Reporting Initiative (GRI) Index. Secondly, to investigate the key characteristics of Australian listed companies that explain the extent of voluntary sustainability information within their annual reports. Based on the positive accounting theory framework and the review of literature six testable hypotheses were developed. The six directional hypothesis developed were related to two aspects of agency and political costs and included ownership diffusion, leverage, audit by big four audit firm, size, profitability and industry type. A stratified sample of 450 companies was selected from the Fin Analysis Database at Edith Cowan University for the 2004 annual year. Content analysis was performed on each of the 450 company annual reports. The number of GRI indicators reported was recorded for each company. Using the Fin Analysis Database further information was collected about the organisational characteristics of sampled companies such as ownership diffusion, leverage, audit firm, size, profitability and industry type. Data was analysed using the Statistical Program for Social Science (SPSS). Descriptive statistics were employed to determine the level and type of sustainability reporting in company annual reports. To provide further descriptive information on the date univariate analysis was performed. Ordinary least square multiple regression was used for the second objective of the study. Namely, to test for key characteristics that explain the extent of voluntary sustainability information within their annual reports. The findings indicate that the level of sustainability reporting in annual reports in low, out of 450 annual reports viewed 100 companies reported on sustainability information. It was identified that companies tend to disclose on common GRI indicators. The most commonly disclosed indicator was a social indicator which referred to health and safety. It was noted that the level of disclosures for social indicators was higher then for environmental indicators. The top nine commonly reported indicators consisted of fourteen social and eight environmental factors. The number of companies disclosing and the level of disclosure differed between industries and companies audited by big four audit firm. Companies from consumer staples, energy, industrials and materials sectors disclosed more information then companies from utilities, telecommunication services, health care and consumer discretionary. Companies audited by big four audit firm disclosed more than companies not audited by big four audit firm. The results from this study indicate that certain variables from positive accounting theory are able to explain the level of voluntary sustainability reporting in annual reports. Variables such as size and industry are highly significant and therefore able to explain the level of sustainability reporting in annual reports of sampled companies. The four variables found to be insignificant in this study include ownership diffusion, leverage, big four audit firm and profitability. These variables are not able to significantly explain the level of sustainability reporting in annual reports. Nevertheless, ownership diffusion and leverage are moderately significant and all variables are in the expected direction. The findings of this study have implications for the users of annual reports, the regulators of financial information in Australia, preparers of annual reports and policy and decision makers. The information is useful for users of annual reports as they now have an insight into sustainability reporting. Users will now be able to associate company characteristics with the extent of voluntary sustainability disclosure. For the regulators of financial information the findings of this study indicate that the preparers of annual reports do not appear to care much about voluntarily disclosing sustainability information. These results indicate that should regulators proceed with the introduction of a sustainability standard they may encounter opposition of preparers of annual reports, thus a lengthy transition period may be required prior to the introduction of a standard on sustainability. Especially if this is based on the GRI index. Furthermore, the implication for preparers include more training, time, hence cost in reporting of this type of information. For policy and decision makers this may mean creating or making changes to the existing policies and guidelines to address all aspects of sustainability reporting.

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