An examination of the quality of social and environmental disclosures by Nigerian oil companies

• DOI: https://doi.org/10.1108/CG-05-2015-0065
• Date: 04 April 2016
• Pages: 400-419
• Published date: 04 April 2016
• Author: Odhiambo Odera,Albert Scott,Jeff Gow
• Subject Matter: Strategy,Corporate governance

An examination of the quality of social

and environmental disclosures by

Nigerian oil companies

Odhiambo Odera, Albert Scott and Jeff Gow

Odhiambo Odera is

based at Masinde Muliro

University of Science and

Technology, Kakamega,

Kenya. Albert Scott is

based at the School of

Commerce, University of

Southern Queensland,

Toowoomba, Australia.

Jeff Gow is based at the

School of Commerce,

University of Southern

Queensland,

Toowoomba, Australia,

and Department of

Agricultural Economics,

Stellenbosch University,

Stellenbosch, South

Africa.

Abstract

Purpose –This study seeks to examine the quantity and quality of social and environmental

disclosures (SEDs) of Nigerian oil companies. The study aims to analyse SED activities as reported by

the oil companies in their annual reports.

Design/methodology/approach –The study analyses annual reports through content analysis. SED

quantity is measured by alternative two units: number of sentences and number of pages. A two-point

scale system to assess SED quality is used as follows: 1 ⫽if SED is quantitative and reports specific

activities of a company concerning its social and environmental responsibility; 0 ⫽otherwise.

Correlation analysis is performed among the different SED categories to identify the relationships

among them. Kolmongrov–Smirnov and Shapiro–Wilk tests for normality are utilised.

Findings –SED activities are reported by most of the companies, and by quantity, employee

information is found to be the most common type of disclosure. SED quantity and quality in the

environment category is found to be overwhelmingly low despite the large-scale public concern

expressed about the levels of the environmental degradation caused by oil company operations.

Research limitations/implications –The data collected for this study are based on one country,

which controls diversity but limits the generalizability of the findings. The study is limited by the sample

which includes mainly quoted companies, as they are believed to make improved disclosures because

of their investor orientation and statutory obligations.

Originality/value –The study extends SED research by focusing on social disclosures such as

employee-, community- and health- and safety-related disclosures. The study also investigates the

motivations of SED providers and establishes a link between stakeholder demands/engagement and

the level of disclosure.

Keywords Nigeria, Motivations, Oil companies, Political economy theory,

Social and environmental disclosures, Stakeholder demands

Paper type Research paper

Introduction

The most distinguishing feature of social and environmental disclosures (SEDs) by

companies is its voluntary nature. Consequently, these disclosures are characterised by

diversity in terms of both quantity and quality (Aburaya, 2012). SED has several roles,

including measuring, reporting on and assessing the effectiveness of social and

environmental programs (Jenkins and Yakovleva, 2006). SED has been developed to

measure socially and environmentally induced financial impacts (Guo, 2005). SED

therefore, first, gives an account of companies’ social and environmental activities to all

those affected by their activities; second, when a company’s perception of corporate social

responsibility (CSR) is in conformity with those of its customers (Lou and Bhattacharya,

2006); and third, when companies have an objective to maximise shareholders wealth and

this objective coincides with its CSR goals (Poitras, 1994). This study, therefore, seeks to

examine SED quantity and quality of Nigerian oil companies. It further aims at analysing

SED activities as reported by oil companies in their annual reports.

Received 23 May 2015

Revised 22 January 2016

Accepted 29 January 2016

PAGE 400 CORPORATE GOVERNANCE VOL. 16 NO. 2 2016, pp. 400-419, © Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-05-2015-0065

The level of SED is influenced by the different stages of social and economic development

in a given country which prompts varied demands (Xiao et al., 2005). People in developed

economies are less concerned about their basic material needs, but more concerned

about social and cultural needs, quality of life, equity, justice and issues arising from

polluted air, water, land, etc. They are more aware of and sensitive to social and

environmental issues, when compared with citizens in developing countries (Xiao et al.,

2005).

The literature suggests that SED research should focus on the reasons for disclosure, the

issues faced by the disclosing organisation and distinguishing SED from other reports

(Schaltegger et al., 1996). There is a need for the companies to disclose their performance

on SED to enable the society to evaluate the fulfilment of their social contract. Despite the

benefits, the level of SED in developing countries is low, general and descriptive in nature

(Xiao et al., 2005). Simms (2002) sums up three potential problems of SED:

1. Many companies do not clearly understand what SED is.

2. SED activities are largely defensive.

3. Many SED are not independently audited with limited potential for comparability.

The study extends SED research by focusing on social disclosures such as employee-,

community- and health- and safety-related disclosures. Furthermore, this study will

investigate the motivations of SED providers and establish a link between stakeholder

demands/engagement and the level of disclosures in addition to making suggestions on

how to improve SED.

Literature review

In the absence of legislative requirements, voluntary disclosure demonstrates a

commitment to the society (Azim, 2010). Van der Laan (2009) asserts that voluntary SED

provides information to the public regarding the company’s activities that relates to the

community and environment. However, the company decides what to report on, how to

report and what level of detail is reported (Gray, 2001). Hassan (2010) states that the

analysis of SED motivations is a major consideration. The evidence in the literature is

inconsistent as to the motives for providing SED (Murthy and Abeysekera, 2008). Other

literature suggests that SED motivation is viewed from the business-case rationale, that is,

what is in it for companies and their shareholders (Bebbington et al., 2008;Spence, 2007),

as well as from moral and ethical justification as part of the organisations’ responsibilities

(Unerman et al., 2007). The influence of stakeholders that directly affects the companies’

activities, including SED, becomes significant through factors such as risk to reputation and

investor relation (Deegan, 2002).

Consequently, larger companies usually have more stakeholders who might be interested

in SED (Murcia and de Souza, 2009). Cho et al. (2010) suggest that larger companies

(presumably due to higher visibility) tend to disclose more SED. Many previous studies

have found company size to be a good motivating factor of SED (Chau and Gray, 2010;

Ismail and Ibrahim, 2008;Hossain and Reaz, 2007). Additionally, as SED is a way to

manage pressure from the public, the longer a company has been listed on the Stock

Exchange, the more likely the company will disclose more information (Zhang, 2013). A

number of studies used company age as one of the most important factors that can affect

SED (Liu and Anbumozhi, 2009;Rettab et al., 2009). Moreover, profitable companies

disclose SED to legitimise their existence by demonstrating their contribution to the

society’s well-being (Haniffa and Cooke, 2005). A company’s proprietary costs such as

leverage and profitability are significant motivators of a company’s SED (Cormier and

Magnan, 2003).

Several studies have pointed to the importance of stakeholder pressure in affecting

company’s behaviours as to their SED strategies. These studies assert that the level of SED

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