Social and Environmental Disclosure by Chinese Firms

Yingjun Lu, Indra Abeysekera

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317753520
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Given the increased social and environmental problems in China, this book looks into the social and environmental (environmental) disclosure practices of socially responsible Chinese listed firms by constructing a stakeholder-driven, three-dimensional, disclosure index.The book contains a three-part study: thefirst part explores the current status of social and environment disclosure practices. The second part empirically examines the relationship between corporate social and environmental disclosure and various influencing factors (i.e. stakeholders' power and corporate characteristics).The third partempirically examines the link between corporate social responsibility (CSR) reporting (i.e. publishing a CSR report and the quality of the CSR report) and socially responsible reputation.

The book findsthat the CSR report provided more stakeholder-relevant social and environmental disclosure than the annual report.It also findsthat corporate characteristics such as firm size, profitability and industry classification are all statistically significant factors influencing social and environmental disclosure of the Chinese firms studied. Shareholders significantly influenced firms' social and environmental disclosure, and creditors significantly influenced firms' disclosure related to their environmental performance. The final part of the study reports that publishing a CSR report and CSR reporting quality had a positive influence on firms' socially responsible reputation and that theCEO/chairman duality negatively influenced firms' socially responsible reputation. The book also highlights that financial performance and firm size were the two corporate characteristics that had a positive influence on corporate socially responsible reputation.

This book will be of interest to those who are keen to learn more about corporate social responsibilities in the context of Chinese firms.

1Introduction

1.1 Introduction

This chapter provides a background to the research and an overview of three research issues that will be addressed in this study. The study layout is also presented for the reader to visualise the structure and to follow the main thread of the study.

The following sections of this chapter present: the motivation for this study; an overview of three related research issues; an overview of research methods used for the study; research contributions; and an outline of the chapter organisation.

1.2 Motivations for considering China

1.2.1 Economic development and its social and environmental effects

China, as the largest developing country, has made great achievements in its economic development over the past three decades. The average annual growth rate of gross domestic product (GDP) has been close to 10 per cent, which is much higher than the world average level (around 3.5 per cent) during the same period (Wei, 2004). This rapid rate of economic growth is due mainly to the dominant status of industrial development in China’s national economy. The Asian Development Bank estimates that, in order to reach the medium term target of China’s economic development, which would see China’s GDP quadruple by 2020 compared to the 2000 level, the average annual growth rate of China’s GDP should be kept at over 7.2 per cent (Wei, 2004). Therefore, China is expected to continue growing and developing at a fast pace. However, along with the rapid economic development, a number of serious social and environmental issues have occurred in China, including energy shortages, environmental pollution, occupational diseases and injuries, and an absence of product liability (Chow, 2007; Chen and Chan, 2010).

Energy is indispensable for economic development. Although China’s total energy reserves are considerable, its energy resources are neither diverse enough nor sufficient to support the rapid economic growth, and its pattern of consumption with a heavy dependence on coal is relatively unitary (Voon, 2007). Following the rapid economic development, China’s energy consumption has ranked in the second highest position in the world in 2007 (National Energy Administration, 2007). Estimated by the US Department of Energy, between 1997 and 2020, China’s energy consumption is expected to increase by 4.3 per cent per annum, compared with 0.9 per cent for industrialised countries and 2.1 per cent for the world average (Klare, 2001). Rapid economic growth and escalating demand for energy have caused a shortage in domestic energy supply; as a result, the Chinese government has adjusted its import and export policies to no longer encourage the export of energy (Voon, 2007).

Rapid economic development has not only caused energy shortages but has also had an adverse effect on China’s natural environment. Air emission, water discharge and solid wastes resulting from industrial production have badly polluted the natural environment and even resulted in many abnormal ecological phenomena (Information Office of the State Council, 2006). Smoke, dust and sulphur dioxide emission from burning coal have heavily impacted the air quality. As a result, acid rain has occurred in cities with a high concentration of industries and population. Domestic living and industrial production have also polluted the water. Conventional pollutants like solid particles and wastes are found in the water. Many factories dump non-conventional pollutants like dissolved metals, both toxic and nontoxic, into the water as by-products of their production process (China Water, 2008). Non-conventional pollutants are difficult to remove because they are dissolved in the water; consequently, the water becomes unusable to humans and animals. Industrial and municipal solid wastes like tailings, coal ash and cotton dust, contain a large number of chemicals, some of which are toxic (UNESCAP, 2000). Pollution has affected human health through skin contact, inhalation or ingestion. For example, more than 100 villagers in southern China were poisoned after drinking water contaminated by arsenic from industrial waste (Xinhua News Agency, 2008).

China’s occupational health and safety (OHS) is another issue of concern. Unsafe working conditions and occupational diseases and injuries in mining and labour-intensive manufacturing industries are often reported in both Chinese and foreign media. It was estimated by the Ministry of Health that in 2005, 16 million enterprises were using toxic and hazardous materials; 200 million workers were engaged in such hazardous jobs; and five of every 1,000 workers in these jobs suffered from occupational diseases (Ministry of Health, 2006).

The issue of product liability also creates great concerns. In 2008, milk powder produced by some Chinese firms was declared by both Chinese and foreign media as poisonous to human health. As a result, it damaged the reputation of China’s food exports, with at least 25 countries stopping all imports of Chinese dairy products (UNESCAP, 2010). This serious reputation crisis has made corporate social responsibility (CSR) a priority for the Chinese government, which has realised that when operating in a globalised society it is essential to do so in a socially responsible manner in order to ensure and propel China’s economic growth.

1.2.2 Sustainable development in China

Facing social and environmental problems as a result of rapid economic development, the Chinese government has made sustainable development a priority national strategy. In China, energy conservation work has been developed to address energy shortages and global climate change issues in a variety of ways such as, optimising energy sources, enhancing the utilisation efficiency of energy, encouraging a recycling economy, undertaking energy substitution, and exploiting new renewable energy (Wei, 2004). The government has developed favourable financing and tax policies to encourage energy suppliers and users to actively take energy saving actions. In order to reduce pollution and environmentalhouse gas emissions, the government has also actively encouraged energy substitution and strengthened the research and application of renewable energy such as solar energy, wind energy, geothermal energy and biogas (Wei, 2004).

To address environmental pollution issues, the Chinese government has enacted various laws and regulations regarding environmental protection. Environmental protection authorities have been established under the government at all levels, which has resulted in a comprehensive environmental control system that strengthens the government’s role in environmental supervision and administration. In China, environmental education has been popularised to citizens so as to enhance the whole nation’s consciousness of the environment. The government treats the prevention and control of industrial pollution as the key to environmental protection. A series of measures have been taken such as readjusting the industrial structure; closing up factories with laggard technology, heavy pollution and high energy consumption; raising efficiency in the use of raw materials and energy; reducing pollutant discharge and developing technical transformation. As a result, although industrial production has increased year by year, the pollutant discharge has declined steadily in recent years (Information Office of the State Council, 2006). At the same time, the government has also encouraged research in environmental science and technology; developed and popularised practical technologies for environmental pollution prevention and control; and fostered the growth of environmental protection industries. In addition, the Chinese government has actively promoted international communication and cooperation with other countries and international firms in the field of environmental protection through participating in international environmental activities and signing a series of bilateral or multilateral environmental conventions and agreements, such as the Basel Convention, Montreal Protocol and Kyoto Protocol (Information Office of the State Council, 2006).

In order to address the issue of occupational diseases and injuries, the Chinese government has improved a series of relevant laws and regulations. The State Administration of Work Safety in conjunction with its agencies at provincial, city and county levels are in charge of the implementation of relevant laws and regulations as well as the monitoring and supervision of work safety. Additionally, many large state-owned enterprises (SOEs) have developed viable OHS systems, worker-management OHS committees, regular health and safety inspections, and workers’ and trade unions’ oversight and supervision (Chen and Chan, 2010). For example, a nationwide survey of almost 20,000 enterprises in 2002 found that 78 per cent of SOEs provided workers with personal protective equipment, and 57 per cent of SOEs provided medical examinations for workers exposed to occupational hazards (Zhi, 2003).

The Chinese government has also improved laws and regulations regarding product quality control and product liability. The government agency, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is in charge of the implementation of relevant laws and regulations as well as the supervision of certification, accreditation and standardization of the product. Many Chinese enterprises have established quality control, quality assurance and product testing systems to ensure their product liability to consumers (Li, 2006).

1.2.3 Development of corporate social and environmental disclosure in China

Social and environmental disclosure is a relatively new practice for Chinese firms. Prior to 2005, a very limited number of Chinese enterprises published social and environmental reports (including environmental reports, CSR reports, or sustainability reports). With sustainable development as a priority national strategy, the Chinese government has made great efforts to encourage Chinese enterprises to become more socially and environmentally responsible to their stakeholders. In response, the Shenzhen Stock Exchange (SZSE) promulgated the social responsibility guidelines for listed firms in 2006. The Shanghai Stock Exchange (SSE) also issued guidance documents in 2008 to urge listed firms to publicly disclose social and environmental information in their annual or CSR reports. Consequently, more and more Chinese listed firms started to publish CSR reports or sustainability reports. According to the SSE, in 2008, 290 firms out of about 980 firms listed on the SSE published CSR reports in addition to their financial reports, and of these, 282 firms published them for the first time (China Securities Journal, 2009).

1.3 Three research issues

Within the context described above, this study investigates corporate social and environmental disclosure practices in China, covering three interrelated research issues. The first research issue (considered as the first stage of the study), is to undertake an empirical observation on the current state of corporate social and environmental disclosure practices in China. To achieve this objective, the study focuses on socially responsible Chinese listed firms, identified by a widely published social responsibility ranking list in China, and their social and environmental disclosure is examined across two reporting media – annual reports and CSR reports. The primary motivation for this stage of the study is that, despite quite a few studies investigating corporate social and environmental disclosure practices in developed countries (Guthrie and Mathews, 1985; Guthrie and Parker, 1989, 1990; Harte and Owen, 1991; Gray et al., 1995a; Deegan and Gordon, 1996; Campbell, 2004; Frost et al., 2005), there is a general lack of research focusing on developing countries, and in particular, economically rapidly expanding China.

Based on the findings of the first stage of the study, two additional relevant research issues are considered. The findings of the first stage show that social and environmental disclosure varies widely across firms. Therefore, the research objective of the second research issue is to examine what factors influence these firms to make social and environmental disclosure in the reporting period. To achieve this objective, a connection between stakeholders’ power, corporate characteristics, and the social and environmental disclosure of these firms is explored. The primary motivation for this stage of the study is that, despite a growing amount of social and environmental disclosure literature that focuses on developing countries (Teoh and Thong, 1984; Andrew et al., 1989; Disu and Gray, 1998; Tsang, 1998; Choi, 1999; de Villiers and van Staden, 2006), there is a general lack of empirical evidence on examining the determinants of corporate social and environmental disclosure in developing countries, and in particular China.

The findings of the first stage of the study also show that the CSR report is a more valuable source of social and environmental disclosure compared to the annual report. Based on this finding, the research objective of a third research issue is considered: to examine the link between publishing a separate CSR report (and the quality of disclosure in the CSR report) and the socially responsible reputation of firms studied. To achieve this objective, a relationship between publishing a CSR report, corporate governance attributes, corporate characteristics, and the socially responsible reputation of firms is explored. The primary motivation for this stage of the study derives from the fact that there is a general lack of empirical evidence in the social and environmental accounting literature on exploring the link between CSR reporting (i.e. publishing a CSR report and the quality of disclosure made in the report) and corporate socially responsible reputation.

1.4 An overview of research methods used for this study

Typically, research can be conducted using quantitative or qualitative methods or a combination of both. To achieve the research objectives of this study, mixed methods were used to approach the research issues from different points of view by using various data sources. They included content analysis, a questionnaire survey, and a panel consultation to collect various data, and the findings were analysed by using nonparametric tests, t-test and linear regression statistical techniques.

The first stage of the research analysed the current state of Chinese listed firms’ social and environmental disclosure practices through constructing a stakeholder-driven SEDI as the proxy for a firm’s social and environmental disclosure in this study. Constructing the disclosure index was aided by three research methods – content analysis, a questionnaire survey, and a panel consultation. This index comprised three dimensions: the quantity measure, the quality measure on disclosure types, and the quality measure on the importance of disclosure items. The quantity dimension of the index was approached by using content analysis to count the frequency of items that are covered in the Global Reporting Initiative (GRI) reporting framework, disclosed in firms’ annual reports and CSR reports. The quality dimension of the index relating to disclosure types was approached by conducting a questionnaire survey to collect data about stakeholders’ perceptions on the preference of different disclosure types pre-determined from the literature. The quality dimension of the index relating to the importance of disclosure items was approached by conducting a stake-holder panel consultation to collect the data relating to stakeholders’ perceptions on the relative importance of the disclosure items covered in the GRI reporting framework. By doing so, this study provided insights into sample firms’ social and environmental disclosure from stakeholders’ perspectives rather than only from the researcher’s perspective.

The second stage of the research designed and tested an empirical model to ascertain the relationship between corporate social and environmental disclosure (SEDI) and various influencing factors identified in this study. Similarly, an empirical model was also designed in the third stage of the research to examine the link between publishing a CSR report and a firm’s socially responsible reputation.

The details of the research methods pertaining to each stage of the study will be further explained in Chapter 4.

1.5 Research contributions

This study intends to make contributions to the extant social and environmental accounting literature in the following ways. First, this study makes a methodological contribution to the literature by constructing a stakeholder-driven SEDI with three dimensions. The index comprises a quantity dimension and two quality dimensions – disclosure types and disclosure items’ importance. Second, this study contributes to the knowledge of corporate social and environmental disclosure practices by expanding the scope of prior research to the context of China, aiding Chinese policymakers to gain a better understanding of factors contributing to corporate social and environmental disclosure. Third, while there is limited research on investigating the relationship between CS...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Acknowledgements
• 1 Introduction
• 2 Literature review
• 3 Theoretical framework
• 4 Research methodology and methods
• 5 Empirical results – the current social and environmental disclosure practices of socially responsible Chinese listed firms
• 6 Empirical results – stakeholders’ power, corporate characteristics, and social and environmental disclosure
• 7 Empirical results – CSR report, corporate governance and corporate reputation
• 8 Conclusions
• Appendix 1: 2008 and 2009 Chinese listed firms’ social responsibility ranking list
• Appendix 2: Standard disclosure items of the GRI (G3) sustainability reporting guidelines
• Appendix 3: Social and environmental disclosure measurement in the literature
• Appendix 4: Questionnaire
• Appendix 5: Rating criteria of the Chinese listed firms’ social responsibility ranking list
• Appendix 6: Nonparametric tests for context disclosure types
• Appendix 7: Nonparametric tests for performance disclosure types
• Appendix 8: Importance of SEDI items
• References
• Index