assessing corporate social and financial performance in china

Assessing corporate social and financialperformance in China

Denise Luethge and Helen Guohong Han

Abstract

Purpose – This study aims to examine corporate social responsibility disclosure (CSD) in China.

Design/methodology/approach – The paper examines the extent to which firm size and financial

performance impacts social disclosure by examining published financial information and social

disclosure information in annual reports.

Findings – Results indicate a positive relationship between firm size and disclosure but no relationship

between firm profitability and disclosure.

Research limitations/implications – Only 2008 annual reports with a relatively small sample size are

used. Longitudinal studies in the future may be warranted.

Practical implications – CSD has become widespread in the west but is only now taking hold in the

east. As many global firms expand operations in China, this paper will add to research in the area

addressing CSD in that country.

Originality/value – Most studies have examined CSD in the west. This study makes a contribution to the

corporate social responsibility literature by investigating an emerging market in China.

Keywords Corporate social disclosure, Firm size, Financial performance, China, Disclosure

Paper type Research paper

Turning on the television or radio, chances are that we will hear the words ‘‘going

green’’. Indeed, green management has become so popular that it is not only a

pressing media item, but has also become an important academic construct. In the

management literature, it is considered part of corporate social responsibility (in short, CSR,

Klein and Dawar, 2004). According to McWilliams and Siegel (2001), corporate social

responsibility is defined as ‘‘actions that appear to further some social good, beyond the

interests of the firm and that which is required by law’’ (p. 117).

There are many companies, such as the Body Shop, Marks & Spenser, Starbucks and

Whirlpool, that truly impact their employees’ lives, the communities in which they operate

and the world at large with a variety of CSR activities ranging from civic involvement to

environmental stewardship to corporate philanthropy. These companies see CSR as much

more than a cost in the business environment, but as a strategic tool in which they can boost

performance, attract the best employees and motivate and inspire the leaders of both today

and tomorrow (Guarnieri and Kao, 2008).

Much has been written over the past two decades about corporate reporting of

environmental and social aspects of firm performance. Although it is commonly accepted

that the main goal of an organization is to make a profit, there has been much discussion

over the past several decades of the broader responsibilities of corporations beyond their

stockholders to all of their stakeholders. These responsibilities go further than financial

performance to look at the moral obligations of social and environmental performance in

what has been termed the ‘‘triple bottom line’’ (Elkington, 1999; O’Donovan, 2002; Shocker

and Sethi, 1973). As a result, many firms are reporting their actions with regard to corporate

DOI 10.1108/17471111211247965 VOL. 8 NO. 3 2012, pp. 389-403, Q Emerald Group Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 389

Denise Luethge is

Professor and Chair of the

the Department of

Management, Northern

Kentucky University,

Highland Heights,

Kentucky, USA. Helen

Guohong Han is an

Assistant Professor in

Management in the

Department of

Management, Youngstown

State University,

Youngstown, Ohio, USA.

The authors would like to thankthe Editor and two anonymousreviewers for their comments onan earlier version of this paper.

responsibility in a variety of documents, including promotional materials, sustainability

documents and annual reports (Unerman, 2000) in what has come to be known as corporate

social disclosure (CSD). Corporate social disclosure (CSD) can be defined as the provision

of financial and non-financial information relating to an organization’s interaction with its

physical and social environment, as stated in corporate annual reports or separate social

reports (Guthrie and Mathews, 1985).

In recent years China has emerged as one of the world’s largest and most interconnected

economies. This rapid ascent in prominence has been matched by an increase in the

interest regarding research (Barney and Zhang, 2009). Most empirical corporate social

disclosure (CSD) studies have focused on activities and practices in the west, particularly in

the US, the UK, New Zealand and Australia (Hackston and Milne, 1996). Unfortunately, very

few studies have examined CSD practices in China. To address this oversight, this study

examines the corporate reporting of Chinese firms with regard to their environmental

activities. Corporate environmental reporting is a means by which firms can voluntarily

provide information to their stakeholders on their environmental activities and performance.

This type of reporting has become widespread as firms come under pressure to look at not

only their financial performance but also their financial, social and environmental

performance (Elkington, 1999; O’Donovan, 2002). CSR disclosure is only beginning to

receive attention in China, although recent media focus seems to be increasing (Tang and Li,

2009).

According to McWilliams and Siegel (2001), ‘‘In existing studies of the relationship between

CSR and financial performance [. . .] the results have been very mixed’’ (McWilliams and

Siegel, 2001, p. 117). Similar concerns also have been expressed about the perplexing

relationship between company size and corporate social responsibility (Hackston and Milne,

1996). Additionally, most of the existing research has focused on the direction in which

socially responsible corporate behavior affects financial performance, not the other way

around. Margolis and Walsh (2003) reviewed this literature from 1972-2002 and found that as

little as 15 percent of the studies (22 studies) have used socially responsible corporate

behavior as the dependent variable.

Hence, in our study, we address two research questions: Will bigger Chinese companies be

more likely to engage in corporate social disclosure? Will corporate financial performance of

Chinese companies positively affect corporate social disclosure?

Literature review and theoretical framework

Stakeholder theories: four broad categories

Garriga and Mele (2004), in their review of the CSR literature, classify CSR theories into four

broad categories: instrumental, political, integrative and ethical (pp. 52-53). A premise of

virtually all CSR theories is that corporations, in their efforts to prosper, can/should take into

account not only the needs of shareholders (i.e. shareholder wealth), but also the needs of a

wide variety of stakeholders, thus having a multi-stakeholder perspective (Ruf et al., 2001).

Freeman (1984) defines these stakeholders as ‘‘any group or individual who can affect, or is

affected by, the achievement of a corporation’s purpose’’ (p. 25). A number of authors have

indicated that this perspective, although laudable and desirable in China, is perhaps more of

a vision than a reality (Ip, 2008; Jensen, 2006). We will summarize Garriga and Mele’s (2004)

explanation of each of the theoretical groups, then note how each of these theories might

need adaptation based upon the different cultural context of the Chinese business

environment.

Firstly, instrumental stakeholder theory poses that managers will see the intrinsic worth of

multiple stakeholder interests, and as a result, will pursue strategies that are in line with those

interests (Donaldson, 1999; Freeman, 1984, 1999; Jones and Wicks, 1999). These theories

go beyond a simple concern for profit and focus on the interests of all stakeholders (such as

community activities, environmental responsibility and philanthropy), in the long run leading

to the maximization of shareholder wealth and/or the development of competitive advantage

(Garriga and Mele, 2004; McWilliams and Siegel, 2001; Mitchell et al., 1997; Ogden and

PAGE 390 jSOCIAL RESPONSIBILITY JOURNALj VOL. 8 NO. 3 2012

Watson, 1999; Petrik and Quinn, 2001; Porter and Kramer, 2002). Thus, these theories state

that the primary reason for the social or philanthropic activities noted above is to add to

shareholder wealth. In other words, doing the right thing is doing the smart thing because

good deeds are eventually rewarded in financial terms. Jones (1995) notes that firms

engaging in trusting, cooperative relationships and avoiding opportunism should be more

successful that firms that do not. In the case of China, maximizing shareholder wealth is an

important concern to both Chinese firms and to businesses that invest in China in order to

ensure their long-term success. However, the linkage between ‘‘doing the right thing’’ for all

stakeholders and maximizing shareholder wealth does not necessarily exist to the same

extent as it does outside of China. For example, rapid economic growth has taken a heavy

toll on environmental pollution (Ip, 2008), and as a result, those stakeholders in the region

who consume water or breathe the air are disadvantaged relative to shareholders. Jensen

(2006) notes that in many cases China does not have a multi-stakeholder perspective, and

the consideration of multiple viewpoints may be missing.

Secondly, political theories of corporate social responsibility focus on the power and politics of

business and their connection to society. These theories encompass the idea that

corporations have social power and must use that power responsibly or they will eventually

lose their power (Davis, 1960, 1967), thus resulting in a type of social contract (Donaldson and

Dunfee, 1994), and that these contracts transcend differences in religion, politics and

philosophies (Donaldson and Dunfee, 1999). In addition, those studies examining the

corporation as a citizen often fall into this thought arena, whereby the corporation has certain

responsibilities to the society, particularly the local community, in which it operates. In the

Chinese context, corporate citizenship and the corresponding responsibilities to the local

citizenry do not have the same meaning as in the West, where most of the corporate

citizenship studies have been conducted. In China, Jensen (2006) notes that CSR generally is

perceived by the government as falling under the ideological and political purview of

administrative departments. This perception within China makes sense as Chinese socialism

is associated with the concept of serving all of the people (Jensen, 2006), although a western

perspective might counter with the idea that a socialist agenda and free society are at odds.

That said, there is a double edged sword to increasing CSR to international standards. While

making China less of a target for scandal, it would certainly increase production costs,

possibly decreasing future foreign direct investment and economic growth.

Thirdly, integrative theories describe how business is dependent upon society for its growth,

and even its very existence (Garriga and Mele, 2004). It is society that gives legitimacy and

status to business, thus, corporate management should take societal needs into account.

These theories examine the social responsiveness of business to important issues in society,

the integration of business objectives with those of all stakeholders in the organization and the

more complete definition of corporate social performance (Emshoff and Freeman, 1978;

Sturdivant, 1979; Wartick and Rude, 1986; Wood, 1991). In the Chinese context, the society

that gives legitimacy to business is regulated by the Party-State. As such, the government is a

legitimate party in this relationship, and it takes upon itself responsibility for CSR, which is

sporadically regulated at best (Ip, 2008; Jensen, 2006). Given that the context in China is very

different from what has been examined in the west, institutional theory might better explain

CSR in an international context, as it looks at CSR within the national, cultural and institutional

contexts and examines interdependencies among all the stakeholders as well as addressing

the international spread of CSR concepts (Guler et al., 2002; Matten and Moon, 2008).

Unfortunately, the basic institutional assumptions underlying this theory do not necessarily

hold in the Chinese context, particularly the assumption of ‘‘a functioning market in which

corporations have the discretion over their responses to market, social or political drivers,’’

and the assumption of ‘‘functioning governmental and legal institutions that guarantee,

define and administer the market and act on behalf of society to address instances of market

failure’’ (Matten and Moon, 2008, p. 406). That said, Matten and Moon (2008) articulate very

well the cross-national problems that exist when they state ‘‘Given that different societies

have developed different systems of markets, reflecting their institutions, their customary

ethics, and their social relations, it would therefore follow that we might expect some

VOL. 8 NO. 3 2012 jSOCIAL RESPONSIBILITY JOURNALj PAGE 391

differences in the ways in which corporations express and pursue their social responsibilities

among different societies’’ (p. 407). It is precisely this view that we believe exemplifies CSR

issues in China. Given that the functioning of the market economy is emerging, CSR is

emerging as well.

The fourth group of theories described by Garriga and Mele (2004) involve ethical issues

between society and business, with a view that moral reflection on the part of business is not

only necessary but also socially desirable (Windsor, 2006). One such theory is normative

stakeholder theory, which refers to what managers ought to do in terms of viewing

stakeholder interests as having intrinsic worth, though what ought to be done to a large

extent depends upon one’s perception. Jones and Wicks (1999) note that both instrumental

and normative theorists tend to believe that these views require a number of shared values,

such as compatibility of morality and capitalism, concern for others, rejection of ethical

egoism and legitimacy of the intrinsic worth of all stakeholder claims (Jones and Wicks,

1999, p. 221). Also included in this group would be studies examining human rights and

sustainable development, two areas that have been criticized for a number of years in China.

A final area of study involves the issue of business working for the common good. Chinese

officials would say that this last area is highly consistent with Chinese policy, as they view

contribution to the common good as part and parcel of the ‘‘Socialist Spiritual Civilization’’

(Jensen, 2006). Although many of the aforementioned values are laudable and appropriate

in purely capitalistic environments, morality and ethics are dependent upon the perspective

of the business culture, which is very different in China than in most capitalistic countries

(Casmir, 1997,; Matten and Moon, 2008).

The western view of CSR, with its focus on economic and political freedom, a long history of

rule of law for business, and a multi-stakeholder perspective, is at a different level of

development and has a different orientation in China (Ewing and Windisch, 2007; Gerson,

2007). In addition, the expectation that China should institute the same types of CSR

programs as in the West may be unrealistic as the cultural context is very different (Baughn

et al., 2007). China is much more of a relationship based rather than rule based society, and

as such, the cultural practice of guanxi, where firms are more beholding to individuals than

entities as they exchange favors in order to circumvent rules, can result in little incentive to

behave responsibly (Lattemann et al., 2009; Su et al., 2007). Li et al. (2004) note that as an

economy develops and the market evolves, this type of governance becomes highly

inefficient and costly. They also note that governments in these relationship-based cultures

tend to focus less on social issues and citizens have little say in those issues, leading firms to

face little pressure to act responsibly (Lattemann et al., 2009; Sen, 1999). It seems likely that

CSR will continue to evolve in China, particularly as foreign direct investment continues to

increase and those firms face increasing pressure from shareholders to be responsible

companies in both international and domestic operations (Chapple and Moon, 2005;

Jensen, 2006). At this point in time, however, it is unlikely that we will find the same level of

CSR activities in China as we see in the west.

Theory behind corporate social disclosure

The above stakeholder theories note that although companies aim to maximize profit, they

also have a moral duty to act as a socially responsible entity (Bortree, 2009; Frederick, 2006;

Worth, 2007), however, the actions that firms undertake (CSR) are distinguished from the

corporate social disclosures (CSD) that firms make with regard to these actions. This social

contract between firms and society at large is an essential part of the theories that attempt to

explain corporate social responsibility (O’Donovan, 2002). Stakeholder theory suggests that

in order for firms to continue their existence, they must receive the approval and continued

support of its stakeholders, and as a result, firms will adjust their activities to maintain that

support (Clarkson, 1995; de Villiers and van Staden, 2006; Gray et al., 1995a; Mitchell et al.,

1997; O’Donovan, 2002). Further, managers seek to control the information that is made

available to stakeholders, in some cases providing a great deal of information to make the

firm look highly responsible (Nakajima, 2001), but in other cases disclosing less information

(Patten, 1992; Roberts, 1992). The former case could be viewed as a form of impression

management, where firms try to influence the perceptions of others (Bansal and Clelland,


2004), while the latter case is an avoidance tactic to steer clear of entering into a public

debate on this issue or, as noted below, as a result of legitimizing objectives (de Villiers and

van Staden, 2006; O’Donovan, 2002).

Another explanation for the extent of CSR reporting is based on legitimacy theory, which

states that firms will act in whatever manner they believe is required in order to protect their

corporate image as a legitimate entity (Deegan, 2002; Deegan et al., 2002; de Villiers and

van Staden, 2006; Milne and Patten, 2002; O’Donovan, 2002). Bansal and Clelland (2004)

and Bortree (2009) go a step further to describe environmental legitimacy as the belief or

perception that the corporate environmental performance of a firm is suitable or desirable

and conforms to the expectations of stakeholders. Bansal and Clelland (2004) note that this

type of voluntary disclosure can help firms deflect criticism and signal their commitment to

environmental issues and concerns. These types of disclosures, again a form of impression

management, actually may cause the firm to gain respect, regardless of whether or not their

environmental legitimacy is high or low (Bansal and Clelland, 2004).

The resource-based view of the firm, on the other hand, would posit that firms seek to

enhance their reputation by undertaking activities that enhance their intangible resources,

such as reputation (Barney, 1991; Grant, 1996; Prahalad and Hamel, 1990), thus enhancing

competitive advantage. Applied to environmental strategy, developing and securing social

legitimacy may be linked with developing a competitive advantage (Hart, 1995), and that

societal demands for environmental responsibility lead to firms developing unique resources

to enhance the social legitimacy associated with a policy of sustainability (Hart, 1995; Russo

and Fouts, 1997).

Studies on CSR generally focus on several factors, with the most common being human

resources, environment, products, energy and the community (de Villiers and van Staden,

2006; Gray et al., 1995a, b; Gray, 2001; Guthrie and Parker, 1989; Hackston and Milne,

1996). Our focus is primarily on environmental and energy disclosures, and hence, our study

will examine only these particular aspects of CSR in china. We believe it is particularly

relevant given the focus on environmental pollution and energy consumptions issues that

have been discussed both in the popular press and in the CSR literature (Ip, 2008). In

addition, social accounting activities tend to focus on information for the purpose of

reputation building by self-reports on firm trustworthiness, thus yielding a ‘‘soft’’ form of

accountability (Owen and Swift, 2001). Unerman (2000) notes that focusing exclusively on

annual reports as the primary of social reporting disclosure may yield an incomplete picture

of a firm’s social and environmentally responsible activities. Certainly firms use other types of

media vehicles to document sustainability activities, such as environmental reports,

brochures, and white papers (Laufer, 2006; Thompson and Zakaria, 2004; Willis, 2003).

However, Gray et al. (1995a) believe that for purposes of comparability, data on

environmental activities should be as consistent as possible.

The link between company size and corporate social disclosure (CSD)

McWilliams and Siegel (2001) argue that large companies usually have more resources, are

likely to have many more activities, and consequently, are more likely to provide CSR

information. Company size has been shown to be associated with CSD in several empirical

studies (see, for example, Belkaoui and Karpik, 1989; Patten, 1991, 1992). This makes

intuitive sense because larger companies are more likely to have larger operations,

undertaking more transactions, and hence, have more reporting. In addition, it may be more

important for larger firms to report these activities as they are more likely to have larger

numbers of shareholders, and communication via annual reports is an efficient method of

reaching these individuals. However, not all research has supported the relationship

between CSD and size. Roberts (1992), in a US study, found no relationship between CSD

and the size of the organization. Ng (1985) also found no relationship between size and CSD.

In addition to company size, the type of industry has also been posited as a factor which may

impact CSD. Companies operating in extractive industries, particularly after an incident in

that industry, often go out of their way to disclose information touting their environmental

concern and socially responsible practices (Hackston and Milne, 1996). Patten (1991) and


Roberts (1992) both found a positive association between CSD and high profile industries,

though mixed results have occurred when looking at particular industry classifications and

disclosure.

Corporate social performance always needs direction from managers in terms of the

initiation or cancellation of voluntary social and environmental policies, and this usually is

highly associated with whether the company has excess funds available to allocate

(McGuire et al., 1988). A positive relationship has been proposed between profitability and

CSD, in part because more profitable firms have additional funds to support more extensive

social responsibility programs than less profitable firms, but also because it may reflect

adaptive and insightful management that is responding to social needs (Bansal and

Clelland, 2004; Heinze, 1976; Ullman, 1985; Waddock and Graves, 1997). Moreover,

Orlitzky et al. (2003) undertook a meta-analysis of 52 studies and found the significant

correlation between corporate financial and social performance.

Thus, we pose the following two hypotheses:

H1. The bigger size of the company, the greater likelihood that the company will

engage in corporate social disclosure (CSD).

H2. Company’s financial performance will be positively related to the amount of

corporate social disclosure (CSD).

Methodology

We employed a multi-method approach in the current study. Data concerning organizational

financial performance and corporate social disclosure were gathered from the 2008

English-language annual reports of Chinese companies listed on the Hong Kong Stock

Exchange. Typically firms report environmental activities through an annual report or with

sustainability reporting in a separate stand-alone environmental document. Deegan et al.

(2002) note that the annual report is likely the preferred source of corporate information for a

number of different stakeholder groups. In addition, annual reports give some consistency

over time, and for comparability purposes, annual reports have been used in a number of

environmental reporting studies (Deegan et al., 2002; Deegan and Gordon, 2006; de Villiers

and van Staden, 2006; Gray et al., 1995b; Hackston and Milne, 1996; Hanson and White,

2003; Milne and Adler, 1999; Tang and Li, 2009; Thompson and Zakaria, 2004; Vuontisjarvi,

2006). Since corporate social responsibility disclosure is relatively new in China (Tang and

Li, 2009), we chose to look only at annual reports since they are typically the primary vehicle

for firm communication with external constituents (Deegan et al., 2002; Deegan and Gordon,

2006). As many companies do not include any words that match with CSD, the current study

had a final sample of 62 companies.

Dependent variable

Corporate social disclosure (CSD). In our study, we examine the content of the annual report

to infer meaning about what aspects of environmental disclosures Chinese firms report.

When coding CSD in annual reports, words are often used as a measure because it is quite

easy to scan a document for a particular word, and as such, large volumes of pages can be

scanned quite readily (Gray et al., 1995b). Quantifying sentences rather than words allows

for interpretation of the disclosure information, and unlike page or percentage of page

counts, the number of sentences is not impacted by font or page size. Gray et al. (1995b)

also note that sentence analysis is more appropriate when the purpose of the analysis is to

infer meaning. Lending further credence to the use of sentences as the appropriate unit of

analysis, Milne and Adler (1999) also find that inexperienced coders produce equally

reliable results to experienced coders when examining sentence based coding instruments.

Finally, Milne and Adler (1999) note that using counts of sentences gives similar results when

examining volumes in terms of page proportions (Unerman, 2000). As a result, we choose to

use sentences as the unit of analysis, adapting our checklist from Hackston and Milne’s

(1996) environment and energy items (see Appendix A for the 16 environment items and 1

energy item).


The coding process begins by reading through the Chairman’s Statement of each annual

report and searching for corporate social disclosures regarding the environment. These

statements are used rather than the entire report because they summarize the activities

firm leadership deems important over the course of the year. Additionally, these

statements are relatively consistent, making comparability of reports more appropriate.

Once these disclosures are identified, they are further broken into a subset of either:

environmental pollution, aesthetics, and other. Under these three subsets, there are a total

of 19 categories under which the disclosures are coded. Each reference to one of these

categories is noted and tallied for each chairman’s statement. Lastly, the tallies for each

category referenced are summed to determine the total corporate social disclosures for

each chairman’s statement.

Independent variables

Corporate financial performance. Organizational performance is derived from annual

reports and operationalized as the return on equity (ROE) and return on assets (ROA) of the

companies being assessed. ROE is calculated as net income/shareholder’s equity. ROA is

calculated as net income/total assets.

Size. We dummy-code organizational size. The companies’ sizes are classified according to

their total market capitalization. We dummy-code company size with ‘‘large’ meaning total

market capitalization is more than 10 billion HK$; ‘‘Medium’’ meaning total market

capitalization is more than 2 billion HK$ but less than 10 billion HK$ and ‘‘small’’ meaning

total market capitalization is less than 2 billion HK$.

Control variables

Industry type. Industries are dummy-coded as being of three types: transportation and

power industry (28 companies), chemical and materials industry (23 companies), and other

(11 companies).

State ownership. Hong Kong regulators define ownership as controlling interest. Suppose

multiple government agencies hold 67 percent of corporation X, corporation X holds 51

percent of corporation Y, and corporation Y happens to in our sample. We say the state has

51 percent of interest in corporation Y.

Results

Descriptive statistics and impact of company size on CSD

Means, standard deviations, and zero-order Pearson correlations of all variables in this study

are presented in Table I. We used SPSS 16.0 version to conduct multiple linear regressions.

Based on linear regression, company size is found to have a significant and positive effect

on corporate disclosure (b ¼ 0.42, p , 0.05, Table II). Thus, H1 receives support. It appears

that the bigger the company, the more likely it is to engage in corporate disclosure.

Table I Means, standard deviations and correlations

Mean SD 1 2 3 4 5 6 7

1. Transportation power industry 0.45 0.502. Chemical materials industry 0.37 0.49 20.70**3. Large-sized company 0.45 0.50 0.22 20.094. Medium-sized company 0.23 0.42 0.13 20.02 20.49**5. Return on equity (ROE) 0.08 0.21 0.05 20.03 0.32* 20.35**6. Return on asset (ROA) 0.06 0.09 0.33* 20.18 0.22 20.03 0.28*7. State ownership 0.46 0.24 0.38* 20.21 0.34** 0.28* 20.14 0.158. Environmental coding 4.33 4.02 20.05 0.14 0.37** 20.21 0.04 0.02 0.04

Notes: n ¼ 181; alpha reliabilities are given in parentheses; *p , 0.05 (2-tailed); **p , 0.01, 2-tailed


The relationship between financial performance and corporate disclosure

In this study, we use two financial indicators (return on equity and return on assets) to reflect

the company’s financial performance. Based on linear regressions, in Table III, we fail to find

the predicted significant correlations between ROE and corporate disclosure (b ¼ 20.11,

p ¼ 0.41, Table III). In Table IV, ROA is not significantly correlated with corporate disclosure

(b ¼ 20.04, p ¼ 0.77, Table IV). Thus, H2 fails to receive support. In addition, we do not find

any significant relationship between any industry types with corporate social disclosure or

with financial indicators, which means that there are no differences based on industry type.

Table III Regression of return on equity (ROE) and environmental coding

Dependent variable ¼ environmental coding

Control variablesTransportation power industry 20.01Chemical materials industry 0.15State ownership 20.10Large size company 0.46**Medium size company 0.004

Independent variablesROE 20.11R 2 0.18Adjusted R 2 0.10F 2.01*

Notes: n¼62; Standardized beta coefficients are reported; *p , 0.10; **p , 0.05; ***p , 0.01

Table IV Regression of return on asset (ROA) and environmental coding


Control variablesTransportation power industry 20.003Chemical materials industry 0.15State ownership 20.07Large size company 0.42**Medium size company 0.02

Independent variablesROA 20.04R 2 0.17Adjusted R 2 0.08F 1.89*


Table II Regression of company size and environmental coding


Control variablesTransportation power industry 20.02Chemical materials industry 0.15State ownership 20.07

Independent variablesLarge size company 0.42**Medium size company 0.02R 2 0.17Adjusted R 2 0.10F 2.28*



Findings and discussion

There has been a great deal of research investigating CSR and CSD over the past several

decades. A number of theories have been proposed as explanations for CSR activities

ranging from instrumental theories examining benefits to shareholders that accrue when all

stakeholders benefit to political theories describing social contracts that result from the

politics and power given to firms in a society. In addition, integrative theories note the

legitimacy provided to firms by society and pose that firms act with heighted social

responsibility, while ethical theories examine the moral and ethical components of firm

activities. Most of the research on which these theories are based, however, comes from the

West, with few studies examining CSR or CSD in China.

We have examined the above theories and posed some concerns for the application of

those theories to the Chinese context, although some authors have noted that firms have

a moral duty to act in ethically, socially and environmentally responsible ways (Bortree,

2009; Frederick, 2006; Worth, 2007), regulation, particularly in western countries, has

served to increase disclosure (Gill, 2008; Joseph, 2002; Kahn, 2003). In China, Li (2005)

notes that disclosure is inadequate in part due to lack of regulation. As China increases

its position as a global player in world markets, its social responsibility and social

disclosure will become more closely scrutinized by the media and other stakeholders

(Tang and Li, 2009).

In this exploratory study, we examine the types of corporate social disclosure undertaken as

noted in the Chairmans’ statements in the annual reports of 62 Chinese companies. We also

find that large firms have significantly more disclosures than small and medium size

companies. This result is consistent with what has been found in the west in the past

(Belkaoui and Karpik, 1989; Patten, 1991, 1992). It seems logical that large firms would

undertake more corporate activities than smaller firms and hence should have more to

disclose. However, another explanation might be that larger firms, particularly large

state-owned monopolies, may have more activities with multinational firms whose

stakeholders are sensitive to the social and environmental activities of their suppliers. In

addition, increased media scrutiny on China due to the 2008 Olympics may have caused

large firms, who are more likely to be visible to the press, to disclose environmental

statements prior to the games. Small and medium firms, flying under the radar of the media

scrutiny, may not feel the need to disclose as much information. It seems likely that large

firms may increase their socially responsible activities as CSR becomes more

institutionalized within the country (Campbell, 2007).

A number of studies have found a significant relationship between profitability and

disclosure (Bansal and Clelland, 2004; Orlitzky et al., 2003). Our results show no such

relationship, which is consistent with the results of Cowen et al. (1987), Hackston and Milne

(1996), Ng (1985), Patten (1991) and Roberts (1992), yet different from those of Bansal and

Clelland (2004) and Orlitzky et al. (2003). Given that profitability is likely perceived in a

different way in a non-market economy, perhaps this result should not be surprising.

Disclosure could well be undertaken for political purposes rather than as a factor that

impacts reputation and eventually bottom line performance.

This study is not without limitations. Owing to the fact that many companies do not have

any words/sentences that match with our corporate social disclosure items, our final

company size is relatively small, which affects the final results to some extent. Also, we

only examine the annual reports in 2008 which can be another limitation. Longitudinal

study is definitely appropriate for the future. In addition, it would be interesting to

investigate whether firms with more activities with the west are more likely to undertake

CSD regardless of their size or whether type of industry has any relationship with

disclosure. These activities could vary widely, such as those involving foreign suppliers,

Western end markets, cross-border strategic alliances or other types of activities where

the Chinese firm has a significant relationship with a foreign firm. Finally, the availability of

the data has affected the representativeness of the data. This undoubtedly will impact the

generalizability of our findings to other countries and cultures. We hope that future studies


can access a larger sample size in multiple countries in order to examine similar research

questions.

In spite of the aforementioned limitations, this study makes a contribution to the corporate

social responsibility literature by investigating an emerging market in China. In addition, we

confirm the positive relationship between company size and corporate social disclosure in

the Chinese market. Moreover, most important of all, responding to McWilliams and Siegel’s

(1999) call for more empirical tests examining firms other than those based in the west, our

paper makes a great stride in addressing the global CSR issues.

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Appendix 1. Checklist of categories of environmental disclosure

Environment

1. Environmental pollution:

B Pollution control in the conduct of the business operations; capital operating andresearch and development expenditures for pollution abatement.

B Statements indicating that the company’s operations are non-polluting or that they arein compliance with pollution laws and regulations.

B Statements indicating that pollution from operations has been or will be reduced.

B Prevention or repair of damage to the environment recycling from processing or natureresources, e.g. land reclamation or reforestation.

B Conservation of nature resources, e.g. recycling glass, metals, oil, water and paper.

B Using recycled materials.

B Efficiently using materials resources in the manufacturing process.

B Supporting anti-litter campaigns.

B Receiving an award relating to the company’s environmental programs or policies.

B Preventing waste.

2. Aesthetics:

B Designing facilities harmonious with the environment.

B Contributions in terms of cash or art/sculptures to beautify the environment.

B Restoring historical buildings/structures.

3. Other:

B Undertaking environmental impact studies to monitor the company’s impact on theenvironment.

B Wildlife conservation.

B Protection of the environment, e.g. pert control.

Energy

We adapted the items from Hackston and Milne (1996) on energy and formed one energydimension. As a result, this criterion examines the disclosures pertaining to improvingenergy efficiency, increasing energy savings, waste reduction, tapping alternate energysources, reduction in energy consumption and rewards and recognition for being able toachieve energy conservation goals.

About the authors

Denise Luethge (PhD Indiana University) is Professor and Chair of the Department ofManagement at Northern Kentucky University as well as a Research Associate in theInstitute for Technology, Enterprise and Competitiveness at Doshisha Business School,Doshisha University in Kyoto, Japan. Dr Luethge’s research is in the area of knowledgeleadership and knowledge dissemination in multinational organizations, cross-borderorganizational issues in the automotive industry and gender differences in knowledge


dissemination. Dr Luethge has over 30 publications in a variety of international journals aswell as numerous conference papers and presentations. Denise Luethge is thecorresponding author and can be contacted at: [email protected]

Helen Guohong Han (PhD, University of Illinois at Urbana-Champaign) is currently anAssistant Professor in Management in the College of Business Administration at theYoungstown State University. Her research interests are leadership, diversity, teamdevelopment, and employee attitudes. She has published articles in the Academy ofManagement Best Conference Papers in 2006, Journal of Organizational Behavior (2009)and International Journal of Conflict Management (2010).


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