Recent evidence gathered both from developed, and developing nations indicates that corporate social disclosures (CSD) have been receiving increased attention from corporations and stakeholders in these corporations throughout the world. CSD is one of the primary means by which corporations can disclose how they are responding to an ever-widening array of social, environmental and economic issues. By definition, a corporate social disclosure is one where information concerning companies’ interactions with society is made public. Corporate activities have an impact on employee related issues, community involvement, environmental concerns, and a myriad of ethical issues. By making a CSD, the corporation tries to reflect their awareness and competency of addressing these to the public. These activities are most commonly referred to as corporate social responsibility (CSR) activities, and CSDs are the most prominent method of disclosing CSR activities.
Even though CSD has enjoyed increased popularity with companies, regulators, stakeholders and academicians alike, not all companies have decided to make such disclosures of social information. Some companies (e.g., Henkel, BHP, Johnson and Johnson) have long been industry leaders in reporting non-financial information, but the majority of companies report only limited information, or in some cases, no information at all.
Prior studies have revealed that larger companies disclose more information than smaller ones. More established companies also have greater pressure from various stakeholders, political parties, and regulators which influence the degree of detail that their disclosures have as well as the decision to disclose more information upon request or not. Contrary to the findings of these studies, a recent South African study found no relationship between size and CSD. Profitable companies are assumed to disclose more voluntary information than those that are financially in trouble. Previous studies have theorized and found that profitable companies would be more likely to implement CSR disclosures. However, some researchers findings suggested a negative association between the extent of disclosure and profitability whereas others suggested no association between profitability and CSD at all. Accordingly, the association between profitability and CSD is inconclusive due to the conflicting results of the current literature.
In regard to the association between financial leverage and CSD, a University of Chicago study found that companies with higher financial leverage have higher levels of social disclosure (SD). Furthermore, in terms of corporate voluntary disclosure, it has been found that highly leveraged firms disclose more information than those that retain primary ownership of their company. This same study found that the size of a corporation’s customer pool in relation to the total customer base is a significant explanatory variable for CSD, although profitability was not taken into account. This has not been disputed and has only been confirmed by other studies. An investigator mentions that “this study examines whether differences in profitability impact the level of social information included in annual reports. The previous studies examined whether the level of SD had any impact on a company’s profits”. Ultimately, it has been determined that size and industry are in some ways associated with SD, but such correlations have yet to be fully realized.
The findings of the study provide evidence that utilities and industrial firms are not avoiding SD in their annual reports during financial crisis, rather the amount of disclosure increased during the global financial crisis (GFC) compared to before the GFC, although this was not the case for all companies studied it was a general theme. However, despite recent increases, the extent of CSD still remains lower than would be ideal. Corporations have disclosed information regarding how they deal with GFC, in terms of whether the GFC had any adverse impact on these companies or whether company strategy or objectives have changed in regards to social activities. Government and regulators can encourage and provide a framework for the companies to provide more information to the public during unfavorable economic periods as many companies might have suffered from it. More social information can make stakeholders well aware of the corporations’ social activities during economic crises.
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