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30 May 2017

Corporate Social Disclosures by Indonesian Listed Companies

Juniati Gunawan, 2008
Edith Cowan University

Abstract

The issue of corporate social disclosure (CSD) has been of growing concern among businesses and communities globally, including those in Indonesia. As one of the big developing countries which offers a large domestic market and workforce, Indonesia is exposed to this issue.

This study examines the extent of CSD in Indonesian listed companies by applying the content analysis method to company annual reports for the years 2003 to 2006. Prior studies have focused on exploring the theoretical framework, seeking the motivation for disclosures and obtaining certain stakeholder’s opinions regarding CSD. However, those studies were limited to developed countries and to select stakeholder groups for their perceptions. For these reasons, the current study proposes to enrich research into CSD, particularly by providing evidence from a large developing country in Asia, with an expanded research corpus. First, the practice of CSD in Indonesian listed companies was examined, including the trend and discussion about the nature of disclosures from the content analysis. Second, the importance of CSD information for stakeholders was investigated through the examination of a broader range of stakeholders (shareholders, employees, suppliers, customers, communities, and investors). Third, top management representatives of the listed companies were questioned to elicit company motivations and identify the most influential party to practise CSD. Finally, some variables, including the company’s type and size, financial performance, percentage of ownership, creditors’ and auditors’ influences, and corporate age were examined to establish their relationships to the extent of CSD.

 A pilot study was undertaken prior to the main study as this research area is considered relatively new for Indonesia. The samples, including the issues of data collection, questionnaires, and hypotheses were initially tested and the results were then used to redesign the main study. The main study findings indicate that the majority of hypotheses can be accepted and suggest that: (1) Every stakeholder group has significantly different perceptions of the importance of CSD information, but ‘product’ was identified as the most important information; (2) ‘community’ was considered as the most influential party and ‘creating a positive image’ was the greatest motivation for companies to practise CSD; (3) There were significant positive trends in CSD quantity and quality from 2003 to 2006; (4) there were also significant differences between ‘state’ and ‘non-state’ companies in the extent of CSD; and (5) company size, financial performance, age, and auditor’s influences were found to have a significant positive effect on the extent of CSD quantity and quality. ‘Company type’, however, did not influence CSD significantly, and ‘owners’ influence’ correlated positively rather than negatively to CSD, contradiction prior expectation. Mixed results were provided by the ‘solvency ratio’ as this variable had a significantly positive influence on CSD quantity, but not quality. The overall correlations between predictor and criterion variables are considered to be low to moderate, varied from 0.463 to 0.607 for correlation coefficients (R) and 0.215 to 0.368 for determination coefficients (R2) in the regression model.

One of the major implications of this study underlines the significant and consistent influence on the extent of CSD by ‘state owned’ companies in Indonesia when compared with that of ‘non-state owned’ companies. This appears to be an important variable and should be studied further. In addition, both stakeholder and legitimacy theories have been used to explain certain areas of CSD practices in Indonesia. The role of these theories may be sharpened or combined with other theories to build a clearer picture of the practices, especially to explain the gap that exists between stakeholder's and company's perspectives'. The findings on the items of CSD that were perceived as important by the Indonesian stakeholders can also be helpful in developing a CSD list for evaluating social reporting. The content analysis results provide valuable insights into the extent and nature of CSD, and thus, this study motivates further research to re-assess the factors that influence CSD, the theoretical foundation, and the current issues affecting CSD practices in Indonesia. 

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