Determinants of social and economic reportings. Evidence from Australia, the UK and South African multinational enterprises

• Date: 02 May 2017
• Published date: 02 May 2017
• Pages: 177-200
• DOI: https://doi.org/10.1108/IJAIM-01-2016-0003
• Author: Omar Al Farooque,Helena Ahulu
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

Determinants of social and

economic reportings

Evidence from Australia, the UK and

South African multinational enterprises

Omar Al Farooque

UNE Business School, University of New England, Armidale, Australia, and

Helena Ahulu

Department of Accounting, University of Professional Studies, Accra, Ghana

Abstract

Purpose –This paper aims to provide new insights on the determinants of social and economic

sustainability reportings of multinational enterprises (MNEs) in three Anglo-Saxon countries, mainly

Australia, the UK and South Africa, from the perspective of corporate governance, stakeholder and corporate

legitimacy.

Design/methodology/approach –This paper examines stand-alone sustainability reports of 67 large

MNEs from three countries available in the Global Reporting Initiative (GRI) website for the period of

2008-2009. It undertakes two distinct methodological approaches: rst, principal component analysis (PCA) of

GRI guidelines (G3) on social and economic indicators to identify the most appropriate dependent variables,

and second, hierarchical multiple regression for the hypotheses testing and nding determinants of respective

dependent variables on social and economic reportings.

Findings –The results from the PCA of GRI guidelines (G3) provide an alternative way of categorizing

the social and economic indicators when compared to the categories given by the GRI. Again, the results

from hierarchical multiple regression indicate the industry sector as the dominant determinant of social

and economic reportings. In particular, the positive, signicant association of board independence,

assurance and employee performance variables with economic reporting conrms the signicant roles of

corporate governance, stakeholders and corporate legitimacy in determining economic reporting. The

ndings also suggest the complementary nature of relevant theories in corporate voluntary disclosures

relating to economic performance. However, social reporting shows no such relations, which rather relies

more on rm-specic/nancial variables of MNEs including rm size and age.

Research limitations/implications –The sample of this study is limited to two-year periods and large

MNEs available in the GRI website with stand-alone sustainability reports only.

Practical implications –The PCA focuses on most relevant and specic categories of social and

economic reportings as opposed to GRI generic categories. The PCA ndings also suggest the GRI to

contemplate reducing the social and economic indicators for future guidelines. The hierarchical multiple

regression results highlight specic areas of emphasis that MNEs should focus on when reporting social and

economic information.

Originality/value –This study adds value to the existing literature on GRI-based social and economic

reportings as well as the complementary nature of corporate governance, stakeholders and corporate

legitimacy perspectives.

Keywords Agency, Stakeholder and legitimacy theories, Anglo-Saxon countries, GRI guidelines,

Social and economic reportings, Stand-alone sustainability reports

Paper type Research paper

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1834-7649.htm

Social and

economic

reportings

177

Received 26 January 2016

Revised 18 February 2016

Accepted 20 February 2016

InternationalJournal of

Accounting& Information

Management

Vol.25 No. 2, 2017

pp.177-200

©Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-01-2016-0003

1. Introduction and overview

This study empirically examines the determinants of social and economic reportings of

multinational enterprises (MNEs) in Australia, UK and South Africa, following Global

Reporting Initiative (GRI) Guidelines (G3). Principal component analysis (PCA) of G3 is

applied to identify appropriate categories of the social and economic indicators as dependent

variables and the context of relevant theories. Specically, applying “Hierarchal regression”

on a pooled sample data investigates the relationship between a number of social and

economic indices identied through PCA and the factors relating to corporate governance,

stakeholders and corporate legitimacy.

In recent years, corporate sustainability reporting has garnered attention globally across

multiple stakeholders groups including businesses, investors, watch groups and legislative

branches of governments for its far-reaching social and economic implications. It has become

a major challenge for business organizations, in particular for MNEs as part of their

legitimacy and meeting stakeholders’ expectations (Porter and Kramer, 2011;OECD, 2013;

Scherer et al., 2013). The heightened awareness about an entity’s social performance drives

companies to invest increasingly in socially responsible projects and to be transparent and

accountable in their voluntary sustainability disclosure (as important as mandatory

nancial reporting) (UN, 2010;Wong, 2011). Increasingly, companies try to develop their

own social, environment and economic indicators (Clarke-Sather et al., 2011), as they want to

measure, improve and report their sustainability (Daub, 2007).

Despite growing stakeholder interest internationally, until recently, the environmental

stewardship dimension has been a main focus in the literature except for a few studies

(Newson and Deegan, 2002;Lynch, 2010). However, the recent shift in sustainability

reporting toward both environmental and social dimensions is the outcome of increased

demand from stakeholders for such information (Clarkson et al., 2011). Again, since 1990s,

GRI sustainability guidelines (G3 or G4) have become a widely accepted guideline for

sustainability reporting on environmental, social and economic aspects because of its

multi-stakeholder approach (Enquist et al., 2006). Although there remains sparse

consideration in prior sustainability studies to the use of GRI guidelines, previous research is

more aligned to the legitimacy theory rather than the stakeholder theory, in addition to the

agency theory.

This study is motivated to ll these gaps in the literature and accordingly contribute to

the existing knowledge in social and economic reportings. Firstly, recognizing that

legitimacy and stakeholder theories are complementary rather than substitutive, as

suggested by Adams and Whelan (2009), it examines both social (i.e. labor practices and

decent work, product responsibility, human rights and society) and economic (i.e. direct

economic impacts and indirect economic impacts) indicators of sustainability that can

generate mutual benets to stakeholder groups as well as corporate entities. From a

sustainability perspective, it is worth noting that the economic disclosure (voluntary) is

different from the nancial disclosure (mandatory) of companies, as the former is primarily

focusing on donations, community investment or assistance received from government, local

hiring of employees and suppliers, infrastructural investments and services. Following GRI

Guidelines (G3), this paper investigates governance, stakeholder and legitimacy

perspectives on the social and economic sustainability reportings of MNEs in three

Anglo-Saxon countries. These countries are Australia and the United Kingdom, which are

developed markets, and South Africa, which is an emerging market. These countries share

similar legal, nancial disclosure standards (i.e. International Financial Reporting System)

and corporate environments but fairly different institutional settings.

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