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Procedia Economics and Finance 7 (2013) 213 220

International Conference on Economics and Business Research 2013 (ICEBR 2013)

The Influence of CSR Disclosure Structure on Corporate

Financial Performance: Evidence from Stakeholders
Perspectives
Haslinda Yusoffa*, Siti Salwa Mohamad, Faizah Darus
Accounting Research Institute (ARI) and Faculty of Accountancy, University Teknologi MARA, Shah Alam 40450, Malaysia
,cFaculty of Accountancy, University Teknologi MARA, Shah Alam 40450, Malaysia

Abstract
This study aims to understand the potential influence of CSR disclosure structure on corporate financial performance.
Content analyses had been carried out on the 2009-2011 annual reports of the leading 30 public listed companies in
Malaysia. For terms of methodology, sentence count was used as a unit of analysis to measure disclosure depth, while a
finer-grained analysis of the CSR disclosure structure was performed to measure disclosure breadth and disclosure
concentration. There was found to be a significant relationship between CSR disclosure structure and the corporate
financial performance in the subsequent year. The results suggest that good financial performers are those companies that
display a relatively high breadth of disclosure, while at the same time demonstrate the ability to disclose a concentrated
structure of CSR disclosure to the definitive stakeholders. The findings of this study imply that it is not the volume of
disclosure that matters, but the variety of items disclosed and concentration to the definitive stakeholders. On one hand,
the study findings generally offer insights into the workings of successful reporting strategies for business organisations in
Malaysia, while on the other hand, the study does provide inputs pertaining to the betterment of the CSR framework, for
Bursa Malaysia and the relevant regulatory bodies to deliberate upon.
2013
byby
Elsevier
B.V.

2013 The
TheAuthors.
Authors.Published
Published
Elsevier
B.V. Selection and peer-review under responsibility of ICEBR 2013.
Selection and peer-review under responsibility of ICEBR 2013

Keywords: CSR; disclosure structure; financial performance; stakeholder

1.

Introduction
Corporate social responsibility (hereafter, CSR) awareness amongst companies in Malaysia can generally

* Corresponding author.
Email address: hasli229@salam.uitm.edu.my

2212-5671 2013 The Authors. Published by Elsevier B.V.

Selection and peer-review under responsibility of ICEBR 2013
doi:10.1016/S2212-5671(13)00237-2

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Haslinda Yusoff et al. / Procedia Economics and Finance 7 (2013) 213 220

be regarded as lagging rather far behind the global best practices benchmark. Specifically, a majority of the
publicly listed companies in the country have low CSR performance and disclosure practice (Bursa Malaysia,
2012). To a certain extent, this indicates low corporate awareness on CSR and sustainability concepts, and
high uncertainty about the potential importance of disclosing CSR information (see Ramdhony and OogarahHanuman, 2012). Such a condition demands local initiatives to improve CSR disclosure (CSRD hereafter)
practice in Malaysia. This is because CSRD is an essential component of information that will impact on
internal decision-making (Vurro and Perrini, 2011) and useful to manage companys external relationships
(Waddock and Bodwell, 2004). Furthermore, satisfying stakeholders explicit and implicit information
demands, maintaining their support, while at the same time avoiding threats, would likely improve companys
financial performance (Balabanis et al.,1998).
It is therefore interesting to understand whether CSRD structure is a contributing factor to a companys
financial performance. The findings of this study will contribute ideas relating to formulating a strategy for
effective CSRD practice with a view to augmenting corporate financial performance, hence sustaining
national economic growth. Following that, the aim of this study is twofold: 1) investigate CSRD structure;
depth, breadth and concentration; 2) provide insight into how CSRD practice may influence a companys
subsequent year financial performance.
2. Literature review and generation of hypotheses
2.1 CSRD structure
Prior studies have confirmed that socially responsible companies clearly exhibited the inclination to
provide a high quantity of CSRD, which can be equated with disclosure depth (see Aras et al., 2010; Janggu et
al., 2007; Naser et al., 2002). Previously published literature have also found that companies strategize to
structure the breadth of stakeholder-related CSR information (Vurro and Perrini, 2011; Oeyono et al., 2011;
Saleh et al., 2011). The concentration structure of CSRD signifies the heterogeneity of stakeholders demands
and illustrates how a company would respond to these conflicting demands, by either endeavoring to commit
equal attention to all stakeholder groups or to accord priority to the dominant stakeholders (Roberts, 1992).
2.2 Stakeholder theory, CSRD structure and corporate financial performance
Previous studies have used the stakeholder theory as the underpinning theory in understanding management
behaviour (e.g. Yusoff and Lehman, 2008; Balabanis et al., 1998; Roberts, 1992). Prevailing literature also
have furnished significant evidence on the positive relationship between CSRD structure and future corporate
financial performance (e.g. Siregar and Bachtiar, 2010; Teoh et al., 1998), while other studies also found
inconsistent results (e.g. Fauzi et al., 2007; Teoh et al., 1998; Belkaoui and Karpik, 1989), which disproves
the relationship theory.
A company that increased the quantity of CSRD intended for their key stakeholders (Masruki et al., 2012).
Naser et al., 2002, found a positive association between financial performance and the depth of CSRD; hence
CSRD is deemed as a strategic tool in ensuring the continued existence of the company. The study also found
that enhanced positive information about employees would attract the interest of potential employees, as well
as improve the goodwill of existing employees. This would then contribute to higher productivity and
consequently result in profitable financial outcomes. Therefore, it is hypothesized that:
H1:

The higher the depth of CSRD, the higher a companys financial performance in the
subsequent year.

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Balabanis et al., 1998, found that a combination of high CSR performance and high disclosure could lead
to a positive effect on firms overall profitability. The research findings indicate a companys preference to
extend their disclosures, by covering a wide range of stakeholder-related themes, as well as offering up a
positive corporate image. This study put forward the idea that, if CSR is viewed as a management strategy
focused on improving financial performance, more companies will then be able to expand the scope of their
social and environmental responsibilities over a broad set of stakeholders and related issues (disclosure
breadth), and thereby enhancing their financial performance. Thus, this study hypothesized that:
H 2:

The larger the breadth of CSRD, the higher a companys financial performance in the
subsequent year.

In line with the stakeholder theory, companies should be able to consider the interest of all legitimate
stakeholders equally because of their intrinsic value (Donaldson and Preston, 1995) in order to be seen as
responsible. Nevertheless, in reality, companies may incline to prioritize some stakeholder claims at the
expense of others. For instance, Mitchell et al., 1997, suggest that management should account for stakeholder
salience or focus on certain stakeholders groups for the survival of the company. Similarly, in this study,
concentration was used to mirror such a disproportionate weight of attention to the stakeholders. Pfarrer et al.,
2008, indicate that disproportionate attention to more definitive stakeholder groups could help the company to
gain legitimacy thus gaining better financial performance. Therefore, it is hypothesized that:
H 3:

The more concentration in the dissemination of CSRD to definitive stakeholders, the higher
the companys performance in the subsequent year.

3. Methodology
This study focused on a sample of the leading 30 companies listed on Bursa Malaysia based on their market
capitalization as at 31 December 2009. Company data obtained for the two years (2009 and 2010), yielded a
final sample size of 60 company-year observations. All data were gathered from the respective corporate
annual reports.
Corporate financial performance was used as a dependent variable for this study to reflect the monetary
benefits a company could potentially gain as a result of their CSRD practices (also Aras et al., 2010; Fauzi et
al., 2007). The proxy used to represent corporate financial performance encompasses the sum of relevant
accounting-based measures i.e. return on assets (ROA), return on equity (ROE) and return on sales (ROS)
(also Orlitzky et al., 2003; Teoh et al., 1998). The data had been gathered from DataStream online for the
period 2010 2011. The one year lapse between the dependent and independent variables was designed to
assess the impact of the companys CSRD structure on the subsequent years financial performance. The
related measurement approach and formulas for the study variables are as elaborated in Table 1.

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Table 1: Measurement approach for study variables

Definition
Measurement
Return on assets (ROA), return on
Dependent variable:
equity (ROE), return on sales
Corporate financial performance
(ROS).
Independent variables:
Sentence count as a unit of
1. CSRD depth
analysis and converted into
weighted index.
(volume of CSRD presented by
company i at time t)

Formula
DV= ROA + ROE + ROS

Disclosure depth index

m
i 1

stk jit

stk
stk
n
i 1

m
j 1

jit

n
i

,
jit

where
stkji

= number of sentences disclosed

by company i for stakeholder j at time t
m
= the number of stakeholders
included in the analysis (i.e. the eight
stakeholder groups)
n
= the number of companies under
review

2.

CSRD breadth
(diversity of stakeholder-related
themes covered by company i at
time t to represent the quality of
CSRD from stakeholders
perspectives)

3.

CSRD concentration
(measuring emphasis of disclosure
to a selected group of influential
stakeholders)

The existence and non-existence

of specific stakeholder-related
themes

e.g. if company i satisfied seven themes for human

resources, four out of seven themes for
shareholders, and six themes fulfilled for
customers, the disclosure breadth score is equal to:
(7/14 + 4/7 + 6/7)

Gini coefficient was applied in

which data relating to disclosure
depth in all stakeholders level was
used.

Gini coefficient

1 2

 y1  2 y 2  ....  mym 
m m 2 y
where
y1 ym

= a sequence of disclosure levels

for the stakeholders covered by
company i in decreasing order of size

= the mean disclosure level for each

stakeholder in firm i
m
= the number of stakeholder groups
included in the analysis

Control variable:
Size of company

Market capitalization

4. Analysis and results

4.1 Descriptive statistics
Table 2 displays the descriptive statistics of the variables. This study found that the greater the CSRD
depth, the more pronounced the quantity of CSR information disclosed (mean score of 244.49). With respect
of CSRD breadth, the results suggest that companies in Malaysia were able to expand their CSRD,

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encompassing 59.13 per cent of the stakeholder-related themes and attaining a mean score of 4.73/8.0. The
CSRD concentration score, meanwhile, suggests that companies in Malaysia tend to practice a concentrated
structure of CSRD, as reflected by the mean score of 0.77. According to the Gini coefficient, CSRD
concentration will only range from zero to 1; whereby a zero score corresponds with perfect equality, meaning
that a company has distributed an equal number of CSRD to every stakeholder and a score of 1 corresponds
with perfect inequality, signifying a disclosure of a large volume of CSRD to a lesser number of stakeholder
groups (concentrated structure).
Table 2. Descriptive statistics
Variables
Corporate financial performance
CSRD depth
CSRD breadth
CSRD concentration
Size of company (millions)

Mean
0.44
244.49
4.73
0.77
18.93

Minimum
-0.01
76.24
2.64
0.63
1.54

Maximum
3.17
559.21
7.38
0.84
68.30

Std. Deviation
0.52
133.18
1.00
0.04
17.60

Prior to conducting the multiple regression analysis, it was vital to ensure that all initial assumptions were
complies with. At first, there exists a violation of normality for the variable relating to corporate financial
performance as the skewness and kurtosis values were not within the acceptable range i.e. +/- 1.96 for
skewness and +/- 2 for kurtosis (see Abdul Rahman and Mohamad Ali, 2006). Corrective measures were
subsequently adopted in which the outliers were removed, resulting in only 57 cases studied. Additionally,
relevant tests were then carried out to examine the probable existence of multicollinearity. As a result of the
above, the degree of multicollinearity of the study variables was found to be acceptable ; with all tolerance
values shown to be higher than 0.194, whereas the VIF values were lower than 5.154 (refer to Table 3).
Table 3. Multicollinearity test: Tolerance and Variance Inflation Factor (VIF)
Variable
Market capitalization
CSR Disclosure depth
CSR Disclosure breadth
CSR Disclosure concentration

Tolerance

VIF

0.472
0.194
0.198
0.276

2.119
5.154
5.038
3.617

N = 60

4.2 The influence of CSRD structure on companies financial performance

A multiple regression analysis was then performed to investigate the relationship between CSRD structures
and corporate financial performance in Malaysia. The regression model used is as follows:
CFP = 0 + 1(CSRD_depth) + 2(CSRD_breadth) + 3(CSRD_concentration) + 4 (SIZE) + t
where:
CFP
CSRD_depth
CSRD_breadth

= corporate financial performance,

= CSRD depth index,
= CSRD breadth,

According to Field, 2009, multicollinearity is expected to exist when tolerance is less than 0.1 and VIF is greater than 10.

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CSRD_concentration
SIZE
t

= CSRD concentration,
= size of company
= error

The results achieved in Table 4 indicate significant positive relationship between CSRD breadth and
subsequent CFP. Such a finding is in line with the stakeholder theory which suggests that when a company is
perceived to be proficient in managing their stakeholders related issues, the level of loyalty among the
stakeholders will facilitate the growth in sales, thus leading to higher profitability. Similarly, the significant
positive relationship between CSRD concentration and subsequent corporate financial performance indicate
that, an increased concentration on definitive stakeholders will lead to greater financial performance in the
subsequent year. The results also imply that an increase in the sentence relating to CSR information may lead
to a decrease in companys profitability. Company size was found to yield a positive and significant influence
on a companys subsequent years financial performance.
Table 4. Multiple regression results
Dependent variable: Corporate financial performance (CFP)
R Square = 0.197, Adjusted R = 0.135, F = 3.189, Sig. = 0.02
Variables

Coefficient (Beta)

t-statistics

P-value

(Constant)
0.340
0.000
CSRD depth
-0.875
-3.101
0.003***
CSRD breadth
0.621
2.228
0.030**
CSRD concentration
0.701
2.965
0.005***
SIZE
0.361
1.995
0.051*
Notes: ***Significant at 0.01 level, ** Significant at 0.05 level, *Significant at 0.1 level

VIF

Tolerance

0.194
0.198
0.276
0.472

5.154
5.038
3.617
2.119

4.3 The strength of CSRD structure in influencing corporate financial performance

This study then further extended its objective to investigate the strength of each CSRD structure in
influencing corporate financial performance. In this regard, analysis on partial correlation was counted on to
provide evidence to support or disprove the three predicted hypotheses. Accordingly, the said analysis was
undertaken and the results are as shown in Table 5.

Table 5. Partial correlation analysis

CSRD depth

CSRD breadth

CSRD concentration

Control variables: SIZE

Corporate financial performance (CFP)

-.239

-.175

.216

Control variables: SIZE and others

Corporate financial performance (CFP)

-.395**

.295*

.380**

Pfarrer et al., 2008, stated that definitive stakeholders are those who possessed the power, legitimacy and urgency claims against the
company.

Haslinda Yusoff et al. / Procedia Economics and Finance 7 (2013) 213 220

Notes: Ns = not significant (p >.05), *p < .05, **p < .01, ***p < .001, (1-tailed)

The results outlined in Table 5 confirm that there is a low, negative and partial correlation between CSRD
depth and CFP when SIZE, CSRD breadth, CSRD concentration are controlled. CSRD depth will highly
influence CFP in a negative way if other variables do not exist. Hence, Hypothesis 1 is rejected. On the other
hand, Hypothesis 2 is accepted, as evidenced by the minimal, positive and partial correlation between CSRD
breadth and CFP, when the effects of SIZE, CSRD depth, CSRD concentration were controlled. In summary,
disclosure breadth alone could strongly influence the financial performance in a positive direction without the
presence of CSRD depth and CSRD concentration and SIZE. Finally, to top it all up, there is also a low,
positive and partial correlation between disclosure concentration on definitive stakeholders and the companys
subsequent financial performance. Therefore, Hypothesis 3 cannot be rejected.
5. Discussion and conclusions
The empirical evidence gathered in the course of undertaking this study, suggest the formation of the
building blocks to further evaluate the link between CSRD structure and corporate financial performance. The
results indicated that efficient financial performers were those who increased the breadth of their CSRD in
which they enhanced the coverage of disclosure to multiple stakeholders as well as those who provided higher
concentration to the definitive stakeholders. Greater concentration on the definitive stakeholder groups could
expedite the revitalizing of a companys legitimacy and consequently increasing its financial performance. By
proficiently managing the interests of more stakeholders, a company would be seen as being more socially
responsible. As a result, it would gain better support from stakeholders thereby deriving uplift in the
companys financial performance. The overall concept of the current study is consistent with the stakeholder
theory which underpins its theoretical framework (CSRDcorporate financial performance) (see Fauzi et al.,
2007; Waddock and Graves, 1997). The study findings also suggest that the stakeholder theory is a relevant
premise in the attempt of understanding the relationship between CSRD structure and corporate financial
performance (e.g. Aras et al., 2010; Ramasamy et al., 2007) in Malaysia.
In light of the findings that have been discovered earlier, two significant implications can be observed.
Firstly, this study offers a new methodological perspective relating to a finer-grained analysis on CSR
disclosure structures and practices. Secondly, this study provides positive insights into an improved CSR
related disclosure framework, in which related regulatory bodies such as Bursa Malaysia and other
public/private sector organizations can benefit in developing future reporting policies.
Acknowledgement
The researchers would like to thank the Ministry of Higher Education Malaysia (MOHE) and Universiti
Teknologi MARA for the research grant received.
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