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Determinants of corporate social and

environmental reporting in Hong
Kong: a research note
Simon Gao

Accounting Forum

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 Accounting Forum 29 (2005) 233–242

Short communication
Determinants of corporate social and environmental
reporting in Hong Kong: a research note
Simon S. Gao a, ∗ , Saeed Heravi b, 1 , Jason Zezheng Xiao b, 2
a School of Accounting and Economics, Napier University, Craiglockhart Campus, Edinburgh EH14 1DJ,
Scotland, UK
b Cardiff Business School, Cardiff University, Colum Drive, Cardiff CF10 3EU, UK

Abstract

The patterns and determinants of corporate social and environmental disclosure (CSED) in Hong
Kong (HK) are examined by analysing 154 annual reports of 33 HK listed companies from 1993 to
1997. The research finds that industry difference has an impact on the amount, content theme and
location of CSED. There is a positive correlation between company size and the level of CSED. Utility
companies disclose more CSED than property and banking firms.
© 2005 Elsevier Ltd. All rights reserved.

Keywords: Annual reports; Hong Kong; Social and environmental voluntary disclosure

1. Introduction

Corporate reporting practices including corporate social and environmental disclosure

(CSED) are different between countries (Hope, 2003). The literature has provided little
systematic empirical examination of the patterns of CSED in a newly industrialized country.
It would be dangerous to generalize the results of studies on developed nations to newly
developed countries as the stage of economic development is likely to be an important factor
affecting CSED practices (Tsang, 1998). Although anecdotal evidence suggests a low level

∗ Corresponding author. Tel.: +44 131 455 4446; fax: +44 131 455 4460.
E-mail addresses: s.gao@napier.ac.uk (S.S. Gao), haraviS@cardiff.ac.uk (S. Heravi), xiao@cf.ac.uk
(J.Z. Xiao).
1 Tel.: +44 29 20875787; fax: +44 29 20874419.
2 Tel.: +44 29 20875374; fax: +44 29 20874419.

0155-9982/$ – see front matter © 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.accfor.2005.01.002
234 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242

of CSED by HK companies compared to companies in many developed economies, little

evidence is available concerning current CSED in HK. Lynn (1992) provides a study of
CSED in HK, however, Lynn’s study, based on an analysis of the annual reports prepared
for 1989, needs to be updated, as in the 1990s substantial changes took place in HK’s
economy (including the 1997 handling over of HK sovereignty back to China) which have
influenced HK’s corporate behaviour and disclosure practice.
This study aims to investigate the patterns and determinants of current CSED in HK
by examining the amount, content themes and location of CSED through content analysis
of 154 annual reports prepared by HK companies from 1993 to 1997. The findings of this
study, which can be compared with the earlier ones by Lynn (1992), provide an insight into
the changes and current practice of CSED in HK.
HK companies have traditionally faced little external pressures for disclosing social
and environmental information (Lynn, 1992; Ng, 2000). Although Friends of the Earth
established its offices in HK in 1983, it has made little fundamental difference on the way
HK businesses operate. Pollution, safety and many other social problems have accompanied
economic achievements causing the HK government to introduce some environmental and
social related regulations. Enforcement of social and environmental legislation has been
lax. Ng (2000, p. 65) observes: “As yet, Hong Kong does not stipulate regulations on how
to account for environmental factors and include such into financial data”. Jaggi and Zhao
(1996) thus call for making CSED mandatory in HK.

2. Literature review

CSED has attracted considerable academic research since the 1980s (for reviews see
Deegan (2002), Gray (2002), and Mathews (1997)). Research on voluntary disclosure has
attempted to examine the nature and patterns of CSED (e.g., Buhr & Freedman, 2001) and
investigate the determinants, such as size, profit and industry affiliation, of CSED (e.g.,
Cormier & Magnan, 2003). The literature recognizes that CSED practices are different
across countries (Adams, Hill, & Roberts, 1998) and inter alia, between developed and
developing countries (Imam, 2000), and the nature and patterns of CSED vary between
different sectors (Gray, Javad, Power, & Sinclair, 2001). Surveys of CSED practices in
the western developed countries reveal that companies place the greatest emphasis on the
disclosure of human resources (Gray et al., 2001), including employee numbers and remu-
neration, equal opportunities, employee share ownership, disability policy and employee
training. Little disclosure exists in sensitive areas such as trade union activities, pay awards
and redundancy schemes and costs (Adams et al., 1998). The vast majority of disclosures
are qualitative in nature.
Although determinants have been identified, mixed findings are presented in prior studies
for some commonly examined variables such as size, industry classification and ownership
structure. For example, Gray et al. (2001) suggest that large and high-profile companies
disclosed more CSED than other companies, while Cowen, Ferri, and Parker (1987) find that
size is related only for certain areas of disclosure. Lynn (1992) finds no relationship between
company size and the level of CSED. Hackston and Milne (1996) report no relationship
between profit measures and CSED.
 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242 235

Four dedicated studies of CSED in HK have been published, but of these, only Lynn’s
(1992) research covers both social and environmental reporting. Based on 264 HK pub-
lic companies’ annual reports for 1989, he finds that HK had the lowest rate of CSED
of any jurisdiction; only 17 companies made disclosures with an average history of dis-
closure of 2.5 years. HK’s reporting was not under pressure from consumers and other
interest groups. The political arrangement at the time made social issues a less impor-
tant topic. The market and the whole economy “were traditionally considered a casino”
(p. 109), which paid little attention to public interests. HK society was family-centred;
family responsibility overwhelmed corporate responsibility. Lynn finds that industry mem-
bership had a significant relationship with CSED. While the property and construc-
tion companies disclosed least, two-thirds of utility companies account for more than a
third of all those making disclosures. Lynn also finds that size had no impact on CSED
in HK.
Ho, Ng, and Ng (1994) finds a low level of environmental disclosure made by HK
companies, and comment: “. . . it is very disappointing to find that very few companies indeed
disclose such information to the public through their annual reports. Also the disclosures
are crude and limited to non-financial narrative statements expressing the firm’s support
on environmental protection and reporting on progress of environmental project” (p. 62).
Jaggi and Zhao (1996) reports that, among 100 sampled HK companies, only 13 had been
consistently disclosing environmental information from 1992 to 1994, only 3 provided
quantitative information, and most companies did not disclose any financial information on
their environmental activities. All disclosures were located in the directors’ report, the annual
review, or the chairman’s statement. Their study indicates the existence of an expectation
gap between what the managers believe should be disclosed and what was actually being
disclosed.
Ng (2000) finds that 9% of the 200 HK listed companies reported environmental in-
formation in the published accounts and no company disclosed financial data concerning
environmental performance. Disclosures were contained in either the directors’ report or
the chairman’s statement. The disclosures were found to be general statements indicating
company support for environmental protection and describing projects undertaken to reduce
pollution and save energy and resources.
Williams and Pei (1999) compare Web-based CSED in Australia, Singapore, HK, and
Malaysia and find that the level of disclosure is higher in the first two countries. They suggest
that CSED is heavily influenced by national rather than global factors and concerns. Their
study also finds that HK companies disclose more social information than environmental
information.

3. Hypotheses and research design

3.1. Hypotheses

3.1.1. Size effect on CSED

Prior studies (e.g., Cormier & Magnan, 2003) have found a positive relationship between
company size and the overall level of disclosure in a number of countries. However, the
236 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242

size effect has not been studied recently in the context of HK’s CSED. Hence the following
hypothesis follows.

H1. There is a positive association between company size and the level of CSED.

3.1.2. Industry effect on the level of CSED

Industry memberships have been identified by many theoretical and empirical researchers
as a factor that affects CSED (e.g., Cormier & Magnan, 2003). Different industries have
different characteristics, which may relate to risks to society, potential growth, employment
opportunities, competition and government interference. These may provide scope for dif-
ferential CSED policy between sectors. There is much evidence to suggest that the level and
type of CSED are industry-specific. For instance, corporations in high profile industries are
expected to have higher levels of social responsibility disclosures (Roberts, 1992). Harte and
Owen (1991) suggest that industry sensitivity towards the environment influences the level
of CSED. For example, environment-sensitive companies are more likely to provide infor-
mation about their environmental performance than less environment-sensitive companies.
Hence the following hypothesis follows.

H2. There is a significant difference in the level of CSED among different industries.

3.1.3. Location of CSED

The literature (e.g., Bartlett & Chandler, 1997; Lee & Tweedie, 1975a,b) suggests that
investors consider some sections of the annual report more important than others. It is
argued that the location of CSED in different sections of the annual report (e.g., Mission
statement, Chairman’s statement, Directors’ report, Operations review, Financial statement,
Separate environmental and social activities section, and Notes to the accounts) might reflect
the perceived level of importance that a company attaches to its social and environmental
activities and performance (Roberts, 1990). Accordingly, we test the following hypothesis
to examine whether industries differ in the location of CSED in the annual report sections.

H3. There is a significant difference in the level of CSED in different annual report sections.

3.1.4. Content themes of CSED

It is argued that different industries place different emphasis on the content of CSED.
Environmental sensitive sectors like electricity/utility companies are more likely to disclose
environmental issues (e.g., waste recycling, energy conservation and pollution control) as
a result of greater public influence. In the financial and banking industry, human resources
are regarded as one of the most important assets. To boost a good public image, banks and
financial service companies tend to disclose more employee-related issues (e.g., training
and development program, pay and benefit scheme, pension scheme and employee share
ownership scheme). Accordingly, a significant difference is anticipated in the disclosure
content between industries. Hence the following hypothesis follows.

H4. There is a significant difference in the content themes of disclosure.

 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242 237

4. Research design and methodology

4.1. Content themes

This study uses content analysis with word count. Based on the mainstream literature,
this study considers six content categories/themes, i.e., Environment, Energy, Health and
safety, Human resources, Community involvement, and Fair business practices. Table 1

Table 1
CSED content themes and sub-themes
Content themes Sub-themes
(1) Environment Pollution control (air, water, land, noise, visual)
Prevention of environmental damage
Waste recycling
Conservation of natural resources
Research and development
Environmental audit
Environmental policy
Other environmental disclosure
(2) Energy Conservation and energy saving
Development/exploration of new sources
Use of new sources
Other energy-related disclosure
(3) Health and safety Health and safety at work
Customer safety
Product safety
Accidents rate
Compensation
Other health-related disclosure
(4) Human resources Employee development/training programs
Pay and benefits (profit sharing scheme)
Pension scheme
Loan to employee
Employee share ownership scheme
Sport and recreation
Other employee related disclosure
(5) Community involvement Charitable donation and service
Political donation and service
Social activity sponsorship
Other community activity disclosure
(6) Fair business practices Employment of women (sexual equality)
Employment of minority (racial equality)
Employment of disabled people
Customer complaints
Legal proceedings, litigation and liabilities
Quality/ISO
Other fair business practice disclosure
238 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242

provides the details of these categories and subcategories. “Sport and Recreation”, and
“Quality/ISO” are two new sub-categories that have not been previously examined. They
are included because companies increasingly recognise their employees’ health as a direct
cost arising from employees’ sick leave and medical insurance (Sin & Cheng, 1995) and
because Quality/ISO has also become a ‘label’ for companies with quality service and
product (Chin, Tummala, & Chan, 2002).

4.2. Sampling

The top 100 companies listed on the Hong Kong Stock Exchange were selected as
the sampling frame. Only three sectors were examined: property (including land de-
velopment and property construction), banking and utilities. Property companies ac-
count for a significant percentage of total market capitalization in HK, and the bank-
ing industry plays a dominant role in HK’s economy. Utilities were selected because
they are more sensitive towards the environment. Thirty-eight companies in prop-
erty, banking and utilities were in the top 100. After screening for mergers, changes
in accounting dates and registration outside HK, a final list of 33 companies were
selected.
The annual reports for 5 years (1993–1997) were obtained for each company. The pe-
riod commenced with 1993 to update Lynn’s (1992) study which covered both social and
environmental reporting. In total, 154 reports were collected, 47 from 10 banks, 78 from
17 property companies, and 29 from 6 utility firms.

4.3. Measurement for CSED and data analysis

Some previous studies measured CSED on the dichotomous basis of disclosure/non-

disclosure (e.g., Lynn, 1992). This method fails to indicate the degree or extent of the
reporting entity’s involvement in CSED. Alternative units of analysis tend to include
counts of sentences, lines and pages. While these approaches show the amount/level of
CSED and provide an overall picture of CSED patterns, they have limitations regarding
the comparison of reports with different fonts, page margins and components (pictures
and graphs). Also, one sentence, line or page may contain more than one category of in-
formation and the researcher may have difficulty in categorizing the sentence/line/page.
Word counting is used in this study because words lend themselves to a more control-
lable analysis. In this study, two pieces of information were obtained: the number of words
disclosed and the location of the disclosure. To enhance the reliability of analysis and
measurement, two coders were employed, as suggested by Milne and Adler (1999). The
reliability test revealed an average variance of 0.68% between the first time coding and the
re-analysis.

5. Research findings

All 33 companies had disclosed CSED over the years. Plate 1 shows that for all the
industries there are increasing trends in the mean disclosure.
 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242 239

Plate 1. Trends of mean disclosure in CSED in HK.

5.1. Size effect (H1)

Company size is measured by HK$ turnover for utility and property firms, and by interest
received and receivable for banks. Pearson correlation between company size and the amount
of disclosure is calculated as 0.548 (N = 33), significant at 0.01. Therefore, H1 is supported.
This finding is consistent with prior studies on CSED in other countries (e.g., Cormier
& Magnan, 2003) but contradictory to Lynn’s (1992) study, which finds no size effect
in HK.

5.2. The amount of disclosure by industry (H2)

Table 2 reports the amount of information disclosed by the companies in the three sectors.
Utility firms publish the largest amount of CSED measured in the number of words and
property companies disclose the least. The ANOVA results, with or without controlling for
firm size, indicate a significant difference in the amount of CSED between the industries.
Thus, there is sufficient evidence to support H2. This finding is similar to Lynn’s (1992) in
that the industry sector has a significant impact on the amount of disclosure. This supports

Table 2
Disclosure by INDUSTRY and ANOVA results
Industry Number of companies Mean of word count Standard deviation
Banking 10 1712 855
Property 17 1438 1415
Utility 6 3063 1577
Total 33 1817 1403
F ratio (one-way ANOVA) 3.486*
F ratio (ANOVA with size control) 4.465*
∗ Significant at the 0.05 level.
240 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242

Table 3
ANOVA with LOCATIONS, INDUSTRIES and interactions between LOCATIONS and INDUSTRIES
F ratio F ratio (size control)
INDUSTRY (between subjects) 3.486* 4.465*
LOCATION (within subjects) 14.837** 6.277**
LOCATION × INDUSTRY (interaction) 2.183** 2.219**
∗ Significant at the 0.05 level.
∗∗ Significant at the 0.01 level.

the argument that different industries consider corporate social and environmental issues
differently.

5.3. The location of CSED (H3)

To test H3, an ANOVA was undertaken. The results are displayed in Table 3. With or
without controlling for company size, consistent results for “INDUSTRY, LOCATION and
interaction between LOCATION and INDUSTRY” are obtained. All F ratios are statistically
significant at least at 0.05. Therefore, H3 is supported. Further ANOVA results show that
industries do not differ significantly in the amount of disclosure in a particular location
(as none of the F ratios are statistically significant). Moreover, the most likely sections of
the annual report for CSED are “Operations review” and “Notes to the accounts”. This
suggests that social and environmental information did not feature highly in HK firms’
annual reports.

5.4. Content themes (H4)

To test H4, an ANOVA was performed on INDUSTRY, content THEME and the interac-
tion between INDUSTRY and THEME. The results are shown in Table 4, which indicates
that the amount of disclosure between content themes is significantly different at 0.01. Also,
the interaction between INDUSTRY and THEME has a significant effect on the amount of
disclosure. These results remain unchanged when company size is controlled. In addition,
HK businesses disclosed little or no information on those themes strongly sensitive to the
environment (i.e., Environment, Energy, and Health and safety). This finding supports H4.
In order to investigate the impact of industry membership on a particular theme of
disclosure, one-way ANOVA was carried out. The results show that utilities disclosed more
information on “Environment” and “Human Resources” than banks and property companies.

Table 4
ANOVA with content THEMES, INDUSTRIES and interactions between content THEMES and INDUSTRIES
F ratio F ratio (size control)
INDUSTRY (between subjects) 3.486* 4.465*
THEME (within subjects) 58.89** 34.52**
THEME × INDUSTRY (interaction) 4.06** 4.10**
∗ Significant at the 0.05 level.
∗∗ Significant at the 0.01 level.
 S.S. Gao et al. / Accounting Forum 29 (2005) 233–242 241

The difference is statistically significant at 0.05. In addition, the amounts of disclosure on

“Community” and “Fair Business Practices” are not statistically different between the three
sectors. No companies in the three sectors disclosed information on “energy”.

6. Conclusion

This research note has investigated the patterns and determinants of CSED in HK. There
are five main findings. First, HK companies have increased CSED between 1993 and 1997.
Second, size has an impact on the level of CSED in HK. Third, the three sectors did not differ
significantly in the amount of disclosure in a particular location of annual reports and in
the amount of disclosure on “Community” and “Fair Business Practices”. Fourth, the level
of CSED is influenced by industry membership. Utility firms publish the largest amount
of CSED and property companies disclose the least. Finally, HK businesses disclosed little
information on those themes such as “Environment” and “Health and Safety”, which are
strongly sensitive to the environment, and no industry disclosed information on the “Energy”
theme.

Acknowledgements

The authors would like to acknowledge Yuk Cheung for her assistance at the earlier
stages of the work and Glen Lehman (the editor) and John Courtis (the referee) for their
useful comments on an earlier version of the paper. All errors remain the responsibility of
the authors.

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