corporate environmental disclosure in de
TRANSCRIPT
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Corporate Environmental Disclosure inDeveloping Countries: Evidence from
Bangladesh
Dr. Monirul Alam Hossain,
Email: [email protected]
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Corporate Environmental Disclosure inDeveloping Countries: Evidence from
Bangladesh
Abstract
This is an exploratory study designed to investigate the extent and nature of environmental
reporting in corporate annual reports (CARs) and to examine the likely relationship between
the extent of environmental disclosure and several corporate attributes in a developing
country, Bangladesh. A disclosure index comprising twenty items of environmental
information has been developed those are expected to be disclosed in CARs. A sample of
CARs of 82 companies listed on Dhaka Stock Exchange was analysed. This study reports that
a very few companies in Bangladesh are making efforts to provide environmental information
on a voluntary basis, which are qualitative in nature. It was found that the relation between
extent of environmental disclosure and the size of the company has a positive significant
relationship. However, the extent of environmental disclosure was negatively associated with
the subsidiary of multinational company variable. The reasons behind poor disclosure of
environmental disclosure are that the environment protection groups and general public apply
lesser pressure to the companies in Bangladesh and there is a lack of environmental
legislation compelling companies to disclose such information in CARs.
Key Words: Environment Disclosure, Company Characteristics, Corporate Annual Reports,
Social Reporting, Social Accounting, Developing Countries, Bangladesh.
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Corporate Environmental Disclosure inDeveloping Countries: Evidence from
Bangladesh
1.1 Introduction
During the last twenty years, corporate social and environmental reporting became an issue of
interest of researchers. In the decade of 1980, the focus switched over from corporate social
disclosure to corporate disclosure and reporting of environmental information and the trend
continued in the 1990s as well as beyond. Historical events, such as Exxon Valdez oil spill in
Alaska (Patten, 1992) and the Union Carbide gas leak in India (Blacconiere and Patten,
1994), shows that a firm’s activities can have significant impact on the environment.
Environmental disclosure as well as philosophical discussions on environmental accounting
dominated the financial research agenda during 1990s (Belal, 1999). Social performance
information, social audit, social accounting, socio-economic accounting, social responsibility
accounting and social and environmental reporting have been used interchangeably in the
literature. Corporate environmental disclosure is a part of social reporting and the
environmental disclosures are mainly non-financial in nature. The extant literature on
corporate disclosure focuses on the determinants of voluntary disclosure and on the effect of
voluntary disclosures on return-earnings relation (see e.g., Healy and Palepu 2001; Lundholm
and Myers 2002). However, there is a paucity of specific studies regarding Corporate
Environmental Disclosures (CEDs) both in developed and developing countries.
Survey and anecdotal evidence show that corporation are disclosing environment information
in corporate annual reports and has an increase trend over years. It has been argued by the
researchers that the level of Corporate Environmental Disclosure is dependent on several
corporate attributes and there are studies which empirically examine the extent of
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environmental disclosure and measure the relationship between environment disclosure and
several corporate attributes However, most of these studies are concerned with developed
countries (e.g. Europe, Singapore, South Africa and USA). Very few of these studies could
be found in the contact of developing countries (e.g. Korea, Singapore and India) and no such
study has been carried out with special reference to Bangladesh.
It has been argued that corporate environmental disclosure may not apply universally to all
countries which are in various stages of economic development and with corporations having
differing levels of awareness and attitudes towards corporate environmental disclosure.
However as economies grow and outlook become more global, we are likely to see an
increasing convergence in corporate environmental disclosure practices (Ismail and Koh,
1999). Bangladesh has not been experiencing rapid economic growth since its inception in
1971 although a number of industries have been established at an accelerated rate and there is
a demand for a cleaner environment. There are few cases of river pollution caused by a fluent
discharged by some companies in Bangladesh in the recent year which caused even greater
concern about the undesirable environmental outcomes of unregulated development.
However, there is no pressure from private pressure group in Bangladesh in this regard. In
Korea, there are pressure groups which includes the Basic Environment Policy Act of 1990,
the Liability for Environment Improvement Expenses act of 1991, the Environmental
Pollution Damage Dispute Adjustment Act of 1990 and the Natural Environmental
Preservation Act of 1991 (Choi, 1998). The Government of Bangladesh has promulgated an
Act entitled Environment Protection Act 1995.
Corporate awareness of its environmental disclosure can only intensify in the future and there
has also been increasing pressures from government and outside parties for corporations to
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assume greater accountability for their impact on society in general (Ismail and Koh, 1999).
Corporate environmental disclosure is a voluntary disclosure in most of the developing
countries with no guidelines available in the accounting standards or recommendations of the
IASC member countries (Ismail and Koh, 1999). There are many empirical researches on
corporate environmental disclosure in different countries of the world. Most of these studies
belong to developed countries, and a very few can be found covering developing countries.
Corporate environmental disclosure is more prevalent in the United States of America and in
the United Kingdom but less so in Asian countries. Although this paper deals with the
measurement of the extent of corporate environmental disclosure (CED) in Bangladesh, it
will be necessary to place CED in the context of the broader corporate social reporting
discourse. The researcher tries to find out the what is the nature of environmental reporting in
Bangladesh, to what extent the companies are disclosing environmental information, What
factors are responsible for the disclosure or non-disclosure of such environmental disclosure.
The next section provides an overview of the corporate environmental issues including
related prior research. The sample of firms and the methodology employed and discussed in
section three, where a systematic method for quantifying the content of environmental
disclosures made by the companies is developed. Results of both the measured content and
the statistical analyses are presented in section four. Section five of this study contains a
general discussion on the results, followed by a summary and conclusions. The implications
for Bangladeshi environmental accounting policies, recommendation for future research and
limitations of the study are also discussed.
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2.1 Literature Review
Social and environmental disclosure can be referred to as accounting and reporting. However,
there controversy among researchers regarding the underlying needs of such social and
environmental disclosure and reporting in the content of developing countries and there is
lack of agreement and no universally theoretical framework for corporate social and
environmental accounting. Three types of literature can be found in the area of environmental
accounting based on three types of theories – decision usefulness studies, economic theory
studies, and social and political theory studies. Different kinds of competing theoretical
arguments have different justifications as to why companies should and do disclose social
and environmental information in their corporate annual reports. However, there are serious
doubts as to whether the empirical evidence available is enough to establish the superiority of
any of these theoretical perspectives (Hackston and Milne, 1995).
The basic argument for the decision usefulness approach is that companies release
information on their environmental activities because of the traditional user groups mostly.
Shareholders and creditors find it useful for their investment making (Choi, 1998). Economic
theory approach is based upon ‘agency theory’ which implies that in order to avoid potential
pressure from governmental regulatory bodies which enforce corporate social and
environmental responsibility, companies increase corporate social and environmental
disclosure. Government regulation has been considered as costly and restrictive on business
decision making. These restrictions adversely affect a firm’s wealth by imposing political
costs of reduced flexibility in the adoption of potentially profit maximisation policies of a
firm (Watts and Zimmerman, 1986) and as a result, the large corporations respond by
employing a number of devices including environmental disclosure campaigns to encounter
these governmental interventions (Choi, 1998).
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There are some studies regarding social responsibility disclosure in developed countries.
However, in the developing countries, a few studies which measured the extent of Corporate
Social and Environmental Disclosure. In 1976, Belkaoui tried to find out the problem of
pollution control in association with share price on 50 companies in USA. His study tends to
show that there was a significant relationship between the pollution and the share price of the
sample US companies. Soon after the study of Belkaoui (1976), Spicer (1978) carried on a
study where he examined the possible/likely association between pollution control and
several corporate attributes. The corporate attributes were profitability, price earning
multiples, size, and total and systematic risk. His sample consisted only 78 US listed
companies. Spicer (1978) found that larger companies have better pollution control records
than smaller firms. Further, his study tends to show that the companies with higher
profitability, larger in size, lower total and systematic risk and higher price-earnings multiples
have better pollution disclosure.
Halme and Huse (1997) examine the influence of corporate governance on voluntary
disclosure of environmental accounting. They find that managerial ownership and the
composition of board of directors are significantly related to the level of environmental
disclosures. Further they investigate the differences of disclosures between firms which had
been rated good, mixed or poor in their environmental activities and find that ‘poor firms’
made significantly more disclosures within both the notes and the Management Discussion
and Analysis (MD & A). They conclude that a firm’s strategies play an important role in
environmental disclosure.
Singh and Ahuja (1983) examined annual reports of 40 public sector companies to measure
empirically the extent of social responsibility disclosure (environmental disclosure was a part
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of the study) and try to establish relationship between the extent of social responsibility
disclosure and several corporate characteristics (size, profitability, age and nature of
industry). Their result showed that there was a significant variation between companies in
relation to social disclosure. They found that the age of the company does not have a
significant influence on social disclosure. However, they found that total assets, the earnings
margin, and nature of the study are significantly associated with the level of social disclosure.
Cowen, Ferreri and Parker (1987) measured corporate responsibility disclosure (corporate
environmental disclosure was a part of it) made by 134 companies in the USA. They sub-
divided social responsibility disclosure in six categories where environment and energy were
two important categories. They measured the association between social responsibility
disclosure and a number of company characteristics (viz., size, profitability, industry type and
presence of a social responsibility committee). Their results showed that there was a
significant relationship between corporate size and environment, energy, fair business
practice, and community involvement.
Porwal and Sharma (1991) empirically examined the state of social reporting in India. A
sample of 147 companies was selected. They developed a weighted disclosure index
comprising 47 items of social disclosure information as against each annual report of the
sample company. They found that 46% of the Indian companies made some sort of social
disclosure in their annual report. The extent of social disclosure seems to be higher from the
view point of a developing country. However, this level of disclosure could be the selection
of larger companies only and can not be said to be representative for the Indian companies.
They also reported that the disclosure of social information was made mainly through the
directors’ report and Notes/Schedules to financial statements of which forty two percent
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relied on Notes/Schedules and 40% disclose social information in the directors’ report.
Porwal and Sharma (1991) also reported that forty five percent of the companies made
quantitative disclosure and rest used qualitative disclosure.
Doppegieter and De Villiers (1996) found that companies in energy sector disclose more
environmental information than the average, evidence that industry differences are also
experienced in South Africa. In the 1998, De Villiers conducted another survey among the
three groups covered in the study of De Villiers and Vorster (1995). De Villiers and Vorster
(1995) conducted a survey among managers, auditors and users of corporate annual reports.
62% users found to positive regarding more environmental disclosure corporate in nature as
compared to 49% manager and 48% auditors taken part in the survey. Regarding specific
environmental disclosures 75% of the sample users on an average found to be positive as
compared to 56% and 57% of the sample managers and auditors under study.
A survey conducted by Gamble et al (1995) tends to show that there are differences between
industries and there is a tendency of an exercise in the level of environmental disclosures
over time. They commented that the quality of environmental reporting was lower in general
and they concluded that the information needs of stakeholders were not adequately covered in
the CARs. Gray et al (1995) in their study commented that these type of studies are
unsystematic, related to the company size, industry type, country of reporting and ownership,
and to capital intensity, age of corporation, strategic posture, senior executive attitudes and
the existence of a social responsibility committee. However, they found CSD is not related to
profitability. Gray et al (1995) found that the quality of environmental disclosure was,
“generally low” and argued that the information needs of stakeholders were not covered
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adequately. Subsequent researchers’ evidence tends to show the results are consistent with
Gray et al (1995).
Deegan and Gordon (1996) found that the amount of voluntary environmental
information in Australia is generally low. They also found that the nature of environmental
disclosures is self-laudatory and the amount of environmental information increased
overtime. Their evidence tends to show that the companies in environmentally sensitive
industries are more likely to report on environmental issues, and firm size has an influence on
the amount of disclosure.
KPMG made two surveys (1997a and 1997b) in various countries over the last few years. The
results for the top 100 UK companies tend to indicate an increase in the extent of
environmental disclosure over the years (78% in 1997) although quantifiable targets are only
provide by 18% sample companies. KPMG (1997b) results showed that 71% of the sample
companies disclose environmental information in their CARs. The study found significant
differences in environmental information reporting between industries and the majority of the
disclosed information covers the liabilities and future commitments for site restoration. In
addition, they also reported with empirical evidence that there is a difference in the level of
environmental reporting between sample countries.
Eken (1998) reported of an empirical study describing the degree and manner of
environmental disclosures in the 1996 annual reports of 72 largest Dutch companies. They
constructed an environmental disclosure index comprising twenty items under four different
categories: accounting and financial disclosures, environmental litigation disclosures,
environmental pollution abatement disclosures and other disclosures. He found that 65%
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companies under study provide environmental disclosures. All the reporting sample
companies providing environmental disclosures include environmental information in the
executive directors’ report. In addition 32% sample companies provide environmental
disclosures in the financial statements and in the form of notes.
Belal (1999) measured the extent of corporate social disclosure (which includes environment
disclosure) made by companies in a developing country, Bangladesh. His sample consisted of
30 companies. His sample reflected listed companies of which 6 were subsidiaries of MNCs,
7 listed public sector companies. He further stated that 80% companies did not disclose any
environmental information. In some cases, companies voluntarily disclose information
regarding tree plantations. He found that social disclosures are made in notes to accounts,
chairman’s statement, and directors’ report and in some often parts of annual report. He
concluded that most cases the quantity and quality of disclosures made were unsatisfactory
and poor.
3.1 Research Design
This section deals with selection of sample companies, construction of social and
environmental disclosure index (EDI), scoring scheme of the environmental information
comprising EDI and development of a regression model to measure the relationship between
the extent of corporate environmental disclosure and several corporate attributes.
3.1.1 Sample
The sample covers the annual reports of companies for the year 2002-2003. The sample
represents the whole population of the non-financial companies listed on the Dhaka Stock
Exchange. The planned size of the sample represented approximately 150 companies. The
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researcher collected the address books of companies listed on the Dhaka Stock Exchange
(DSE). Out of 150 companies, the corporate annual reports of 75 non-financial companies
were collected directly from the companies of which 6 companies are multinationals. Data for
evaluating social and environmental information were extract from corporate annual reports
of the sample listed companies.
3.2.1 Information Items Included in the Social andEnvironmental Disclosure Index
Disclosure Index Approach has been used to provide an evaluation of the social and
environmental disclosure in CARs. There is a problem as to the measurement of corporate
social and environmental disclosure. The major task of the present research is to develop a
suitable disclosure index comprising items of social and environmental information that are
expected to be disclosed in corporate annual report from the view point of developing
countries. There is no generally accepted theory to predict users information needs and there
is an absence of an appropriate generally accepted model for the selection of the items of
social and environmental information to be included in a disclosure index. The items of
environmental information included in the disclosure were selected from the study of
Wiseman (1992), Porwal and Sharma (1991), and Singh,and Ahuja (1983) which were
considered essential for complete environmental disclosure. The list of these environmental
disclosure information can be found as Appendix A.
To summarize, the items of social and environmental information included in the social and
environmental disclosure index have been developed based on the following criteria:
i) Items of social and environmental information commonly required by the statutes in
Bangladesh.
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ii) Disclosure items identified in other studies examining disclosure in Bangladesh (if
any) used the social and environmental disclosure index methodology.
iii)
Disclosure indices generally used in developing countries other than Bangladesh (e.g.,
Porwal and Sharma (1991) and Singh,and Ahuja (1983).
iv)
Disclosure indices generally used in developed countries (e.g., Wiseman, 1992).
The disclosure index constructed for this study included 60 items which were used in
environmental index formulations.
3.2.1 Scoring in the Social and Environmental DisclosureIndex
There are various approaches available to develop a scoring scheme to determine the disclosure
level of corporate annual reports from the works of other researchers. Among the alternative
approaches, unweighted disclosure index approach has been used to measure the extent of
disclosure of social and environmental information where an item scores one if disclosed and
zero if not disclosed. An unweighted social and environmental index is the ratio of the value of
the number of items a company discloses divided by total value that it could disclose. Under an
unweighted social and environmental disclosure index, all items of information in the index are
considered equally important to the average user.
In the unweighted social and environmental disclosure index disclosure of individual items has
been treated as a dichotomous variable. Here, the only consideration is whether or not a
company discloses an item of social and environmental information in its corporate annual
report. If a company discloses an item of social and environmental information in its annual
report it will be awarded `1' and if not it will be awarded `0'. The disclosure model for the
unweighted social and environmental disclosure thus measures the total disclosure (TD) score
for a company as additive as follows:
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TD= dii
n
=
∑1
Where,
d = 1 if the item di is disclosed
0 if the item di is not disclosed
n = number of items
3.3.1 The Dependent Variables, Explanatory Variables andHypotheses
The dependent variable used in this study is Social and Environmental Disclosure Index
(EDI) and the disclosure index has been calculated for each of the companies studied. The
explanatory variables used in the study have taken into the account previous studies
undertaken by other researchers. The corporate attributes considered are size (proxied by
sales and assets), profitability (proxied by rate of return on assets and net profit margin),
multinationality (subsidiaries of the multinational companies), industry type, and
international link of the audit firm. The following paragraphs provide a rationale for taking
into consideration the corporate variables chosen as explanatory variables:
1. Size of the company
There are several studies which have been found that a significant positive association
between the size of the company and the extent of corporate social and environmental
disclosure in the corporate annual report in both developed and developing countries.
However, other researchers like Roberts (1992), Ng (1985) and Davey (1982) found that the
size of the company did not significantly explain an association with the level of corporate
social and environmental disclosure and its variability.
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Larger companies may be hypothesised to disclose corporate social and environmental
information in their company annual reports than smaller companies for a variety of reasons.
According to the Agency Theory, social responsibility disclosure campaigns can be used to
reduce political costs, which in turn, could reduce wealth of a firm. As the magnitude of
political costs is highly dependent on firm size, it is inferred that there will be a positive size
and corporate social and environmental disclosure relationship. There are several measures of
size available (e.g., number of employees, total asset value, sales volume, etc.). However,
these three proxies for size are highly correlated. In this study, sales turnover and total assets
will be used as the measures of company size. These two variables were lebelled as ASSETS
and SALES. The following specific hypotheses have been tested regarding size of the firm:
H 1(a): firms with greater total assets disclose social and environmental information to a
greater extent than do those firms with fewer total assets.
H 1(b): firms with greater sales turnover disclose social and environmental information to a
greater extent than do those firms with lower sales turnover.
2. Profitability or Corporate Financial Performance
Profitability as well as corporate financial performance was used by a number of researchers
as an explanatory variable for differences in disclosure level. However, the relationship
between corporate financial performance and corporate social and environmental disclosure is
arguably one of the most controversial issues yet to be solved (Choi, 1998). The proponents
argue that there are additional costs associated with the social and environmental disclosure
and, the profitability of the reporting company is depressed.
The results of different studies measuring the relationship between corporate financial
performance and corporate social and environmental disclosure show mixed results. Among
these researchers found a positive association between profitability and the extent of
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corporate social and environmental disclosure (Waddock and Gravess, 1997) whereas Cowen
et. al (1987) found no association between the variables. Again, the results Belkaoui and
Kirkpik (1989) tend to be more intriguing. They showed a significantly pair-wise correlation,
yet an insignificant negative regression co-efficient for return on assets and corporate social
and environmental disclosure. There are researchers those used log of profits and among
these researchers, Roberts (1992) has found a positive relationship between profitability level
of a company and social and corporate environmental disclosure. However, Patten (1992)
fails to find any significant positive relationship between profitability and social and
corporate environmental disclosure.
For profitable companies if the rate of return or return on investment is more than the
industry average, the management of a company has an incentive to communicate more
information (including social and environmental information) which is favourable to it as the
basis of explanations of good news and is likely to disclose environmental information in
their corporate annual reports as a result. In the present study, net profit to sales and rate of
return on assets have been used as the measures of profitability. These two variables are
15abeled as NPMARGIN and ROASSETS. The following specific hypotheses have been
tested regarding profitability:
H 2(a) : firms with higher net profit to sales disclose social and environmental information to a
greater extent than do those firms with lower net profit to sales ratios.
H 2(b): firms with higher rates of return on assets disclose social and environmental
information to a greater extent than do those firms with lower rates of return on assets.
3. Subsidiaries of Multinational Company
The subsidiaries in developing countries of parent multinational companies from developed
countries are likely to disclose social and environmental information than their local
counterparts. The parent companies of these multinationals’ subsidiaries usually operate their
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businesses in developed countries where these parent MNCs in many cases disclose
environmental information in their CARs. Again, it has been argued that the political costs
for these subsidiaries may be more in developing countries than in developed countries and
subsidiaries of multinational companies in developing countries may be considered as
significant in the economies of their host countries and such companies may risk the threat of
government control, even the threat including 16abeled16ization. A dichotomous variable
labeled as MNCS was used with the value of ‘1’ if the company was a subsidiary of a
multinational parent, and ‘0’ otherwise. The following specific hypothesis has been tested
regarding the multinationality:
H 3: firms with the mutinationality connections (subsidiaries of multinational companies)
disclose social and environmental information to a greater extent than do with those of
their domestic counterparts.
4. Audit firm
Several studies have examined empirically the relation between the characteristics of the
audit firm (size of audit firm or international link of the auditing firm) and the extent of social
and environmental disclosure and found positive association between the audit firm size and
the level of disclosure. It is believed to be an important responsibility of auditors to
recommend their client companies to practice socially responsible accounting practices
(Choi, 1998). It is hypothesized that companies under the contract with larger audit firms are
likely to disclose more social and environmental information. This variable is a dummy
variable and labeled as INLINK, and is used in the regression and correlation analyses, ‘1’
for larger domestic audit firms or audit firms having international link with audit firms
including, otherwise a ‘0’. The following specific hypothesis has been tested regarding the
audit firm size or international link of the audit firm:
H 5 : firms that engage international audit firms or larger domestic audit firms disclose social
and environmental information to a greater extent than do those firms that engage
domestic audit firms.
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5. Industry Type
Industry type has been used by a very few number of researchers as an explanatory variable
for differences in disclosure level. This study divides industries into two categories (viz.,
manufacturing and non-manufacturing) for the purpose of analysis. The companies belong to
manufacturing industries were assigned ‘1’, otherwise ‘0’. The following specific hypotheses
will be tested regarding industry type:
H 5 : firms falling with in a specific industry type disclose different amounts of social and
environmental information than do those firms falling with in other industry types.
3.4.1 Multiple Regression Models
Multiple linear regression techniques are used to test hypotheses. The model is created one
using UADI.
SEDI= α + β1 ROASSETS + β2 NPMARGIN + β3 MULTICOM + β4 INDUTYPE
+ β5 SALES + β6 INLINK + β7 ASSETS + β8 AGE + ε .................(1.1)
Where,
SEDI = total score received each sample company under social and environmental
disclosure index;
α = the constant, and
ε = the error term.
The description of the ten independent variables, their labels and expected signs and
relationships are present in Table 1.
Insert Table 1 about here
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4.1 Results of the Study
The results of the study are presented in three sections. In the first section, the nature and
extent of the corporate social and environmental disclosure has been analysed and discussed.
The second section focussed on the discussion on multivariate analysis of correlation co-
efficient and results of multiple regression model of the corporate social and environmental
disclosure and six corporate attributes are presented in the third section. Spearman Rank
Correlation Co-efficient, and Ordinary Least Square (OLS) regression were used to test the
hypotheses of the study.
4.1.1 Analysis of the Environmental Disclosure Made by theSample Companies
It is interesting that the sample companies who reported that they have invested money in
purchasing equipment for environment control (e.g., effluent treatment plant). However, a
careful review of the annual reports of these companies confirmed that these companies
actually did not disclose whether they have bought such components and the cost associated
with environment control. Again, “Past and current operating costs of pollution control
equipment and facilities” was disclosed by two companies and a scrutiny of the profit and
loss statement of the companies in CARs along with notes to accounts did not provide any
information regarding this. As a result, in any of the cases, the companies under study did not
provide quantitative information as to the environmental items in their CARs which is
consistent with the findings of Belal (1999). It has found that there are some environmental
information which were not disclosed by any of the sample companies under study. The
environmental information not disclosed by the sample companies are presented in Table 2.
Insert Table 2 about here
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It has also found that there are some environmental information which were disclosed by the
sample companies under study. The environmental information disclosed by the sample
companies are presented in Table 3.
Insert Table 3 about here
In the methodology section, the researchers argued that the subsidiaries of MNCs disclose
environmental information in their CARs with supportive justifications why these MNCs
should disclose environmental information in CARs. However, this study reports that there is
empirical evidence that no one of these subsidiaries of MNCs disclose environmental
information at all (see Table-4). This give rises the question, “do the subsidiaries of MNCs
spend or invest money or different purposes of environment at all?” Another question comes
next, why the subsidiaries is of MNCs in Bangladesh do not disclose environmental
information in their CARs. The sample companies were ranked on the basis of descending
order of disclosing of environmental information. Table-4 shows the companies disclosing
environmental information.
Insert Table 4 about here
The companies disclosing environmental information belong to manufacturing companies in
general and covers only chemical, textile and food and allied industries in Bangladesh.
Companies belong to other industry sectors did not disclose any environmental information in
their CARs.
[Munka move the section 4.1.2 to the appendix B]
4.1.2 The Nature of Environmental Disclosure in Bangladesh
As regards the environmental disclosure, a very few companies make statements in their
corporate annual reports. The environmental information can only be found either in the
Chairman’s Review or Directors’ Report. However, the companies disclosing environmental
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information, do not disclose hard quantitative facts on expenditure incurred, and targets set
and achieved. A few sample extracts follow
1.
Extract from Annual Report of Square Pharmaceuticals Ltd. For the year 1998- 99
Under the head “Environmental Role” in the Directors’ Report the company mention
The company continuously and consciously endeavours to improve
environmental impact on the society. It is discharging chemical effluents
after proper treatment and processing. The management is fully responsive
to the environmental role of the company and participants in all national programs for pollution on control and other hazards.
2. Extract from annual report of Beximco Pharmaceuticals Ltd. For the year 1998-99
The Chairman’s Review contains page on “Caring for Environmental” which states
Discharge of conventional substances from the company’s
manufacturing plant is subject to stringent controls. Regular environmental
monitoring is carried out. Effluent treatment plant reduces the hazardousimpact of the emissions to a minimum. Solvents used in the synthesis
processes are recovered in efficient recovery plants. Wherever, practicable,BPL works to reduce the impact of operations on the environment. BPL
continuously strives to improve performance and optimise the use of allmaterial and human resources, thereby minimising adverse impacts on
environment.
The company continuously and consciously endeavours to improve
environmental impact on the society. It is discharging chemical effluents after
proper treatment and processing. The management is fully responsive to the
environmental role of the company and participants in all national programs
for pollution on control and other hazards.
3.
Extracted from the annual report of Alpha Tobacco Manufacturing Company Ltd. of
1998-99
Under the head “Environment” in the Chairman’s Statement, the company states
Environment
The pollution in the factory has been brought into the reasonable
level of control by carrying out a series of measures like central dustcollection system., isolation of D.R.F. unit and control of acoustics. These
measures have enabled us to obtain the environment control certificate from
the concerned department.
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4.2.1 Correlation analysis
To examine the correlation between the dependent and independent variables, Pearson
product moment correlation coefficients (r) were computed. A correlation matrix of all the
values of r for the explanatory variables along with the dependent variables was constructed
and is reported in Table 5. The Pearson product-moment coefficients of the correlation
between INLINK and MNCS and between INLINK and SALES variables are higher than the
coefficient of the correlation between every two of the other corporate attributes. Table 5
shows a noteworthy collinearity ( p ≤ 0.01) between certain variables (i.e., between INLINK
and MNCS variables (.335), and between INLINK and SALES variables (.336). However,
Kaplan (1982) suggests that multicollinearity may be a problem when the correlation between
independent variables is 0.90 and above whereas Emory, (1982) considered more than 0.80 to
be problematic. It is evident from the table that the magnitude of the correlation between
variables seems to indicate no severe multicollinearity problems.
Insert Table 5 about here
4.3.1 Results of Regression Analysis
It was hypothesised that for the sample companies, INLINK, SALES, ROASSTES,
NPMARGIN, MNCS and INDUSTRY variables would be positively associated with the
extent of environmental disclosure. However, it was found that only the relation between
environmental disclosure and the mutinationality variable was negatively (subsidiary of a
multinational company) and sales turn over was positively significant at 5% level (see Table
6. The association between environmental disclosure and international link of the audit firm
(INLINK) variable was found to be significant only at a 10% level. The relationship between
environmental disclosure and other three variables were found not to be significant.
Insert Table 6 about here
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The R 2
under the model was .314, which indicates that the model is capable of explaining
31.40% of the variability of the disclosure of environmental information in the sample
Bangladeshi companies under study. The adjusted R 2 indicate that 26.40 percent of the
variation in the dependent variable in the model used here is explained by variations in the
independent variables. The F-ratio indicates that the model significantly explains the
variations in environmental disclosure of annual reports in Bangladesh Table 7 indicates that
the actual sign of one of the variables were not in the direction predicted.
Insert Table 7 about here
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5.1 Summary and Conclusion
It is very interesting to note that at least some of the companies in Bangladesh are making
efforts to provide environmental information on voluntary basis in their CARs. The study
shows that only 5% companies disclose environmental information in their corporate annual
reports. These companies made environmental information on a voluntary basis which was
purely qualitative in nature. Contrary to the developed and some developing countries, the
disclosure of environmental information made by the listed companies in their corporate
annual reports in Bangladesh is very disappointing. According to the Environmental
Protection Act 1995 in Bangladesh, it is not compulsory for the companies to disclose
environmental disclosure in their CARs.
This paper has reported the results of multiple linear regression to test the association
between a number of corporate attributes and the extent of environmental disclosure in
company annual reports for a developing country, Bangladesh. The extent of environmental
disclosure was measured using unweighted environmental disclosure index. The results
showed that corporate environmental disclosure levels are associated with some company
characteristics. For Bangladesh, the only variable that was found to be significant in
determining disclosure levels is size of the company (Sales Turnover). Which means that the
companies with larger sales turnover discloses more environmental information than the
small companies. However, it was found that the relationship between corporate
environmental disclosure was negatively associated with the subsidiary of a multinational
company variable at 5% level. This means that the subsidiary companies in Bangladesh does
not disclose information in their corporate annual reports. In Pakistan, many of the subsidiary
companies in their corporate annual reports, have made references to their environmental
safety measures. However, it is not clear why the sample subsidiaries of multinational
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companies in Bangladesh did not disclose any environmental information at all. This calls for
further investigation.
There is no waste recycling activities in Bangladesh and industries are not required to install,
operate and maintain air-pollution control equipment to comply with emission standards. It
may be the fact that the users of CARs Bangladesh are not financially literate enough for the
very positive attitude regarding increased environmental disclosure in the CARs of
companies. As a result, the audience in Bangladesh is not getting more environmental
information than the amount they really require in foreseeable future. However, it may be
suggested that efforts should be made by the companies to disclose environmental
information in their corporate annual reports.
The Korean Securities Exchange Commission (KSEC) followed suit by enacting in 1996 a
provision in the Corporate Accounting Standards (CAS) which requires the inclusion of
environmental disclosure in the form of footnote to the corporate financial reports.
Bangladesh can share the experiences of Korea, Singapore, Malaysia and other developing
countries and necessary steps can be made so that the Securities and Exchange Commission
(SEC) in Bangladesh enact a provision in the Securities and Exchange Rules 1987 or
Companies Act 1994 which may require the inclusion of environmental information in the
form of accompanying footnote, the Chairman’s Review or Directors’ Report in the
Corporate Annual Reports (CARs). This will definitely provide a valuable momentum for the
Bangladeshi companies as incorporate social environmental perspectives into the financial
statements in Bangladesh.
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All the companies should disclose environmental information in one section of the CARs. As
all environmental information is not quantifiable, both quantitative and qualitative
information should be included in CARs. The companies in Bangladesh should consider the
fact that response to negative results may not be as bad as might have been anticipated. The
Institute of Chartered Accountants of Bangladesh (ICAB) should develop proper standards
and formats for the presentation of corporate environmental information particularly for the
large corporations in Bangladesh.
This study considers the annual reports for a single year (i.e. 1999). Further research can be
undertaken to measure the extent of environmental disclosure longitudinally to determine
whether quality of disclosure has improved over time. Such a study would provide additional
insights on corporate disclosure practices in Bangladesh. This study does not concentrate on
any particular industry type. Further research can be undertaken based on particular industry
type (e.g., the pharmaceutical industry and textile industries in Bangladesh). The number of
environmental disclosure items was limited to 20 items. The results may be different if the
number of environmental information were increased or another set of environmental
disclosure items were examined.
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Table 1List of independent variables, their labels and expected signs and
relationships in the regression
Variable
Labelsin the OLS
Variables Expected sign and relationship
INTLINK International link of auditing firms INLINK has a significant positiverelationship with the level of environmental
disclosure
SALES Total of sales SALES has a significant positive relationshipwith the level of environmental disclosure
NPMARGIN Net profit margin NPMARGIN has a significant positive
relationship with the level of environmentaldisclosure
ROASSETS Rate of return on total assets ROASSETS has a significant positive
relationship with the level of environmental
disclosure
MNCS Multinationality of companies(Subsidiary of a multinational
company)
MULTICOM has a significant positiverelationship with the level of environmental
disclosure
ASSETS Total assets ASSETS has a significant positiverelationship with the level of environmental
disclosure
INDUSTRY Industry Type INDUSTRY a significant positive relationshipwith the level of environmental disclosure
Table-2
Items of environmental items of information not disclosed by any sample companies
Item
Number
Item of information
3 Future estimates of expenditures for pollution control equipment and facilities.
4 Future estimates of operating costs for pollution control equipment and facilities.
5 Financing for pollution control equipment or facilities.
7 Water discharge information.
11 Conservation of natural resources.
12 Recycling plant of waste products
14 Anti-litter and conservation campaign
18 Energy conservation
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Table-3
Items of environmental items of information disclosed by any sample companies
Item No. Item of Environmental Information DisclosedNot
Disclosed
% of
disclosure
1 Past and current expenditure for pollutioncontrol equipment and facilities.
4 16 20%
2Past and current operating costs of
pollution control equipment and facilities. 2 18 10%
6Air emission information.
2 18 10%
8Solid waste disposal information.
2 18 10%
9Compliance status of facilities.
1 19 5%
10Environmental policies or companyconcern for the environment. 6 14 30%
13Installation of effluent treatment plant
2 18 10%
15Land reclamation and forestation
programmes 2 18 10%
16Pollution control of industrial process
2 18 10%
19
Raw materials consevation
1 19 5%
20Support for public or private action
designed to protect the environment. 1 19 5%
Table-4
Ranking of the Companies Disclosing Environmental Information
Number Name of the companies No. of items
disclosed
Rank under EDI
1 Beximco Pharmaceuticals Ltd. 7 1
2 Square Pharmaceuticals Ltd. 6 2
3 Shaiham Textile Mills ltd. 6 2
4 Alpha Tobacco Manufactuting Ltd. 6 2
5 Aramit Ltd. 5 5
6 Shinepukur Holdings Ltd. 2 6
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Table 5
Spearman Rank Correlation
VARIABLES NPMARGIN ROASSETS INDUSTRY INLINK ASSETS MNCS SALES
NPMARGIN1.000
ROASSETS -.012 1.000
INDUSTRY -.067 .184 1.000
INLINK -.195 .063 -.041 1.000
ASSETS .256* .067 -.049 .267* 1.000
MNCS -.195 .063 -.041 .335** .121 1.000
SALES .031 .033 -.158 .366** .256* .147 1.000** coefficient of correlation significant at 1% level or better (p ≤0.001)
*coefficient of correlation significant at 5% level or better (p ≤0.05)
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Table 6
Summary of the regression output
Coefficient of multiple regression (Multiple R) .564
Coefficient of determination (R ) .314
Adjusted R .264
Standard Error .2248
Analysis of Variance
D.F. Sum of Squares Mean Squares
Regression 6 1.771 .295
Residual 75 3.790 5.054
F ratio = 5.840
------------------ Variables in the Equation ------------------
Unstandardized Coefficients Standardized
Coefficients
Variable B Standard Error Beta T Sig T
(constant) 8.971E-03 .053 .170 .865
NPMARGIN 4.78E-07 .000 .064 .648 .519
INDUSTRY 2.559E-02 .058 .044 .442 .660
INLINK .114 .067 .144 1.695 .094
SALES 5.660E-08 .000 .481 4.614 .000
MNCS -.206 .095 -.221 -2.174 .033
ROASSETS 6.245E-08 .000 .004 .041 .964
Table 7
Relationship between corporate environmental disclosure and corporate attributesfor Bangladeshi Sample companies
Variable labels Expected sign Actual sign Significance levelNPMARGIN + +
ROASSETS + +
INDUSTRY + +
INLINK + + *
MNCS + − **
SALES + + **
* Significance level at 5%
** Significance level at 1%
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Appendix AEnvironmental Disclosure Index
1.
Past and current expenditure for pollution control equipment and facilities.
2.
Past and current operating costs of pollution control equipment and facilities.
3.
Future estimates of expenditures for pollution control equipment and facilities.
4.
Future estimates of operating costs for pollution control equipment and facilities.
5. Financing for pollution control equipment or facilities.
6.
Air emission information.
7.
Water discharge information.
8.
Solid waste disposal information.
9.
Compliance status of facilities.
10. Environmental policies or company concern for the environment.
11.
Conservation of natural resources.
12.
Recycling plant of waste products
13.
Installation of effluent treatment plant
14.
Anti-litter and conservation campaign
15. Land reclamation and forestation programmes
16. Pollution control of industrial process
17.
Research on new methods of production to reduce environmental pollution
18.
Energy conservation
19.
Raw materials conservation
20. Support for public or private action designed to protect the environment.
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References
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Organizational Behaviour on the Market”, Financial Management , (Winter): 26-31.
Belkaoui, A. and Karpik, P. G. 1989. Determinants of the Corporate Decision to Disclose
Social Information, Accounting, Auditing and Accountability Journal , Vol. 2, No. 1:.36-51.
Bowman, E.H. and Haire, M. 1975. “A Strategic Posture Towards Corporate Social
Responsibility”, California Management Review, (Winter): 49-58.
Choi, J. S. 1998. “An Investigation of the Initial Voluntary Environmental Disclosures Made
in Korean Semi-Annual Financial Reports”, A conference paper accepted for the Second
Asian Pacific Interdisciplinary Research in Accounting, Osaka University, Japan.
Cowen, S., Ferrari, L. and Parker, L. 1987. The Impact of Corporate Characteristics on
Social Accounting Disclosure: A Topology and Frequency Based Analysis. Accounting,
Organisations and Society. Vol. 12. No. 2: 111-122.
Davey, H.B. 1982. “Corporate Social Responsibility Disclosure in New Zealand: An
Empirical Investigation”. Unpublished Working Paper , Massey University, Palmerston
North, New Zealand.
De Villiers, C. J. (1998), “The Willingness of South Africans to Support More Green
Reporting” South African Journal of Economic and Management Science, Vol. 1, No.1: 145-
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Deegan, C. and Gordon, B. 1996. A Study of The Environmental Disclosure Practices of
Australian Corporations. Accounting and Business Research, Vol. 26. No. 3: 187-199.
Doppegieter, J.J and Devlliers, C.J. 1996. “Environmental Reporting Practices in African
Energy Sector”, Management Dynamics, Vol. 5, No.1: 15-42.
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Gamble, G. O., Hsu, K, Jackson, C. and Tollerson, C. D. 1996. Environmental Disclosure in
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Gamble, G. O., Hsu, K, Kite, D. and Radtke, R. R. 1995. “Environmental Disclosures in
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Hackston, D. and Milne, M. J. 1996, “Some Determinants of Social and Environmental
Disclosures in New Zealand Companies”, Accounting, Auditing and Accountability Journal ,
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University of Manchester.
Ismail, Z and Koh, B. E. 1999. “Corporate Social Responsibility Disclosure in Singapore”, a
paper presented in Third International Conference on International Accounting and
Nanagement Issues, Bangalore, India.
Kaplan, R. 1982. Advanced Management Accounting. Englewood Cliffs, NJ: Prentice-Hall
KPMG. 1997a. UK Environmental Reporting Survey, KPMG: London.
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Lundholm, R. J. and L. Myers (2002), ‘Bringing the Future Forward: The Effect of Disclosure
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Zealand.
Patten, D. M. 1991. “Exposure, Legitimacy, and Social Disclosure”, Journal of Accounting
and Public Policy, Vol. 10: 297-308.
Porwal, L. S. and Sharma, N. 1991. “Social Responsibility Disclosure by Indian Companies”,
The Chartered Accountant (India), Vol. XXXIX, No 8, (February): 630-634.
Preston, L.E. 1978. “Analysing Corporate Social Performance: Methods and Results”,
Journal of Contemporary Business, Vol. 7: 135-149.
Roberts, R. W. 1992. Determinants of Corporate Social Responsibility Disclosure.
Accounting, Organisations and Society. Vol. 17. No. 6: 595-612.
Robertson, D.C and Nicholson, N. 1996. Expressions of Social Responsibility in UK Firms,
Journal of Business Ethics, Vol. 15: 1095-1106.
Singh, D. R. and Ahuja, J. M. 1983. "Corporate Social Reporting in India." International
Journal of Accounting Education and Research, (Spring): 151-69.
Spicer, B. H. 1978. “Investors, Corporate Social Performance and Information Disclosure:
An Empirical Study”, The Accounting Review, Vol. 53 No.1: 178-185.
Waddock, S.A. and Graves, S.B. 1997. “The corporate Social Performance-Financial
Performance Link.”, Strategic Management Journal, Vol. 18, No. 4: 303-319.
Watts R. L. and Zimmerman, J L. 1986. Positive Accounting Theory, Englewood Cliffs, N.J:
Prentice Hall Inc.
Wiseman, J. 1982. An Evaluation of Environmental Disclosure Made in Corporate Annual
Reports. Accounting, Organisations and Society. Vol. 7. No. 1: 53-63.
-
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35
References (Alternative)
Belal, A. T. (1999), “Corporate Social Disclosure in Bangladesh Annual Reports”, The
Bangladesh Accountants, ICAB, Vol 27, No. 1, January-March, pp. 76-81.
Belkaoui, A (1976), “The Impact of the Disclosure of the Environmental Effects of
Organizational Behaviour on the Market”, Financial Management , Winter, pp. 26-31.
Belkaoui, A. and Karpik, P. G. (1989) Determinants of the Corporate Decision to Disclose
Social Information, Accounting, Auditing and Accountability Journal , Vol. 2, No. 1. pp. 36-
51.
Bowman, E.H. and Haire, M (1975) “A Strategic Posture Towards Corporate Social
Responsibility”, California Management Review, Winter, pp.49-58.
Choi, J. S (1998) “An Investigation of the Initial Voluntary Environmental Disclosures Made
in Korean Semi-Annual Financial Reports”, A conference paper accepted for the Second
Asian Pacific Interdisciplinary Research in Accounting, Osaka University, Japan.
Cowen, S., Ferrari, L. and Parker, L. (1987) The Impact of Corporate Characteristics on
Social Accounting Disclosure: A Topology and Frequency Based Analysis. Accounting,
Organisations and Society. Vol. 12. No. 2, pp. 111-122.
Davey, H.B. (1982) “Corporate Social Responsibility Disclosure in New Zealand: An
Empirical Investigation”. Unpublished Working Paper , Massey University, Palmerston
North, New Zealand.
Deegan, C. and Gordon, B. (1996) A Study of The Environmental Disclosure Practices of
Australian Corporations. Accounting and Business Research, Vol. 26. No. 3. pp.187-199.
De Villiers, C. J. and Vorster, Q (1995), “More Corporate Environmental Reporting in South
Africa”, Meditari, pp.44-66.
De Villiers, C. J. (1998), “The Willingness of South Africans to Support More Green
Reporting” South African Journal of Economic and Management Science, WS, Vol. 1, No.1,
pp.145-1265.
Doppegieter, J.J and Devlliers, C.J (1996) “Environmental Reporting Practices in African
Energy Sector”, Management Dynamics, Vol. 5, No.1 pp.15-42.
Eken, R.C.W (1998), “Environmental Disclosure in the Annual Report: An Analysis by
Branch of Business in Netherlands, paper presented on the European Accounting Conference,
1998.
Emory, E. 1982. Business Research Methods. Homewood, IL: Irwin.
-
8/18/2019 Corporate Environmental Disclosure in De
37/38
36
Fekat, A. M., Inclan, C., and Petroni, (1996) Corporate Environmental Disclosures:
Competetive Disclosure Hypothesis Using 1991 Annual Report Data. The International
Journal of Accounting, Vol. 31 No. 2, pp. 175-195.
Gamble, G. O., Hsu, K, Jackson, C. and Tollerson, C. D. (1996) Environmental Disclosure in
Annual Reports: An International Perspective. The International Journal of Accounting . Vol.
31. No. 3. pp. 293-331.
Gamble, G. O., Hsu, K, Kite, D. and Radtke, R. R.(1995) “Environmental Disclosures in
Annual Reports and 10-Ks: An Examination.” Accounting Horizons, Volume 9, No. 3, pp.
34-54.
Gray, R., Owen, D. and Maunders, K (1987), Corporate Social Reporting: Accounting and
Accountability, Prentice-Hall, Homel Hempstead.
Gray, R. H., Kouhy, R and Lavers, S. (1995) Corporate Social and Environmental Reporting:
A Review of the Literature and Longitudinal Study of UK Disclosure. Accounting, Auditing
and Accountability Journal , Vol. 8. pp. 47-77.
Gray, R. H., Kouhy, R and Lavers, S. (1995b) Constructing a Research Database of Social
and Environmental Reporting by UK Companies: A Methodological Note”. Accounting,
Auditing and Accountability Journal , Vol. 8. pp. 78-108.
Guthrie, J. and Parkar, L (1990) Corporate Disclosure Practice: A Comparative International
Analysis. Advances in Public Interest Accounting . Vol. 3. Pp.159-175.
Hackston, D. and Milne, M. J. (1996), “Some Determinants of Social and Environmental
Disclosures in New zealand Companies”, Accounting, Auditing and Accountability Journal ,
Vol. 9 N0. 1, pp 77-108.
Hossain , M. A (1999) Disclosure of Information in Corporate Annual Reports of Listed Non-
financial Companies in Developing Countries: A Comparative Study of India , Pakistan and
Bangladesh, Unpublished Ph.D. Thesis, School of Accounting and Finance, The Victoria
University of Manchester.
Ismail, Z and Koh, B. E (1999), “Corporate Social Responsibility Disclosure in Singapore”, a
paper presented in Third International Conference on International Accounting and
Nanagement Issues, Bangalore, India.
Kaplan, R. 1982. Advanced Management Accounting. Englewood Cliffs, NJ: Prentice-Hall
Emory (1982)
KPMG (1997a) UK Environmental Reporting Survey, 1997, KPMG, London.
KPMG (1997b) The KPMG Survey of Environmental Reporting , 1997, KPMG, London.
Ng, L. W. (1985) “Social Responsibility Disclosures of Selected New Zealand Companies for
1981, 1982 and 1983. Occasional Paper No.54. Massey University, Palmerston North, New
Zealand.
-
8/18/2019 Corporate Environmental Disclosure in De
38/38
Patten, D. M. (1991), “Exposure, Legitimacy, and Social Disclosure”, Journal of Accounting
and Public Policy, Vol. 10, pp. 297-308.
Porwal, L. S. and Sharma, N (1991), “Social Responsibility Disclosure by Indian
Companies”, The Chartered Accountant (India), Vol. XXXIX, No 8, February, pp.630-634.
Preston, L.E (1978), “Analysing Corporate Social Performance: Methods and Results”,
Journal of Contemporary Business, Vol. 7, pp.135-149.
Roberts, R. W. (1992) Determinants of Corporate Social Responsibility Disclosure.
Accounting, Organisations and Society. Vol. 17. No. 6, pp. 595-612.
Robertson, D.C and Nicholson, N (1996) Expressions of Social Responsibility in UK Firms,
Journal of Business Ethics, Vol. 15, pp.1095-1106.
Singh, D. R. and Ahuja, J. M (1983). "Corporate Social Reporting in India." International
Journal of Accounting Education and Research, Spring , pp. 151-69.
Spicer, B. H. (1978), “Investors, Corporate Social Performance and Information Disclosure:
An Empirical Study”, The Accounting Review, Vol. 53 No.1, pp. 178-185.
Watts R. L. and Zimmerman, J L. (1986) Positive Accounting Theory, Englewood Cliffs,
N.J: Prentice Hall Inc.
Wiseman, J. (1982) An Evaluation of Environmental Disclosure Made in Corporate Annual
Reports. Accounting, Organisations and Society. Vol. 7. No. 1, pp. 53-63.