Various studies in the literature on corporate responsibility disclosure have explored the relationships between the amount or level of disclosure and characteristics of the corporation (for example, Spicer, 1978; Trotman and Bradley, 1981; Cowen et al., 1987; Freedman and Wasley, 1990; Guthrie and Parker, 1990; Roberts, 1992; Gray et al., 1995a; Hackston and Milne, 1996; Pava and Krausz, 1996; Ahmed and Courtis, 1999; Adams et al., 1998; Cormier and Gordon, 2001; Gray et al., 2001; KPMG, 2002 and 2005; Brammer and Pavelin, 2006 and 2007; Garcia-Sánchez, 2007). The majority of these studies have pointed out that, in addition to many other influences (such as, societal values, political and legal system, industry, type of the ownership ‘public vs. private’, profit and country), non-financial disclosure is substantially associated with firm size and industry. The largest organisations and those in what may be seen as ‘dirty’ or ‘environmentally sensitive’ industries are more likely to be providing non-financial information. For example, Hackston and Milne (1996, p. 98) point out that size and industry are variables that are significantly associated with the amount of social disclosure. Accordingly, it would be expected that producing assured stand-alone reports also be related to these firm characteristics (that is size and industry) and country of incorporation.
Given the current study is UK focused, attention will be given only into the two main factors (size of the companies, and sector/industry in which they operate).98 These
characteristics are explored in the next two sections.
5.3.1 Size of the reporting companies
Adams et al., (1998, p. 1) conclude that ‘super large’ companies are significantly more likely to disclose all types of non-financial information. Within previous studies, different measurements have been used to measure size of the reporting corporation, such as: turnover, capital employed and number of the employees (see for example, Adams et al., 1998; Tauringana and Clarke, 2000; Gray et al., 2001). For the purpose of the current study, size of the reporting company is measured by market
98 Most of the previous assurance studies (for example KPMG 2002 and 2005; SustainAbility and UNEP, 2002) also considered sector and country of the reporting company. As this research focuses on the UK market, no consideration has been given to the country of origin of the reporting company.
capitalisation. Firms are divided into three different sizes: large, medium, and small.99 Consistent with most of the previous studies’ conclusions, the results (as shown in Figure 5.1) indicate that the majority of the 196 assurance statements were produced by the large companies (55%). The number of assurance statements from companies of medium or small size is 21% and 23% respectively. Watts and Zimmerman (1978, in Cormier and Gordon, 2001, p. 589) argued that larger companies have greater visibility and are more politically sensitive than smaller ones, then larger companies would be expected to make more disclosures.
0 5 10 15 20 25 30 No. of Assurance Statements 2000 2001 2002 2003 2004 Year of Reporting
Size of the Market Capital for FTSE 100 / Years 2000-2004 *
Large Medium Small
Figure 5.1 Market capitalisation of the assured FTSE100/Years 2000-2004
* Market capital sizes used here are representing a dummy variable for the purpose of the current study. Actual sizes of the FTSE100 market capitals in each year can be found in the Appendix 2. The provision of assurance statements in the stand-alone reports by large (as measured by market capitalisation) companies has shown an increase over the time period (from 11 assurance statements in 2000 to 30 assurance statements in 2004). Assurance statements in the stand-alone reports by the medium and small companies were more variable over the years.
99 Although it is recognised that companies included in the FTSE100 are all large (in comparison with other FTSE categories such as FTSE250, FTSE500), a significant difference was identified between the sizes of the market-capital of the FTSE100 in each year of the study. For example in the year 2002, the size of the market capital of the first company listed ‘BP plc’ is £95,424 million and is £1,150 million for the last company listed (Alliance UniChem). For the purpose of comparison between the sizes of the reporting companies included in the current study, companies (as listed on FTSE 100 in each year) have been divided into three equal groups.
5.3.2 Sectors of reporting companies
Industry/sector is another corporate characteristic that has an association with the amount and type of the non-financial information disclosed. The reason for this association has been suggested to derive from the fact that industry type (sector) may be an indicator of the relative pressure (real and potential) which companies face from social and environmental activists (Hackston and Milne, 1996, p. 102).
Table 5.2 Sectors of the assured FTSE100 companies/Years 2000-2004
Sector Name FT
Code Frequency in the FTSE100 Stand-aloneReporters Assured reports Total No. of AS (%) ª
Banks 81 48 40 29 29 (14.8)
Mining 04 19 18 18 19 (9.7)
Oil and Gas 07 17 16 17 17 (8.7) Transport 59 15 15 13 13 (6.6) Electricity 72 18 14 13 13 (6.6) Real Estate 86 14 11 12 12 (6.1) Telecommunication Services 67 22 17 11 11 (5.6) Utilities – Other 77 17 13 10 10 (5.1) Food Producers and Processors 43 15 11 9 9 (4.6)
Tobacco 49 13 12 7 7 (3.6)
Beverage 41 19 15 6 6 (3.0)
General Retailers 52 31 14 6 6 (3.0) Pharmaceuticals and Biotechnology 48 18 13 6 6 (3.0)
Chemicals 11 13 8 5 5 (3.0)
Aerospace and Defence 21 15 14 5 5 (2.5) Personal Care and Household Prod. 47 7 5 5 5 (2.5) Media and Entertainment 54 44 19 4 4 (2.0) Support Services 58 25 4 1 4 (2.0) Life Assurance 84 25 18 4 4 (2.0) Leisure and Hotels 53 21 8 3 3 (1.5) Food and Drug Retailers 63 17 10 3 3 (1.5)
Insurance 83 7 6 3 3 (1.5)
Steel and Other Metals 18 2 2 2 2 (1.0) Construction and Building Materials 13 10 5 - Electronic and Electrical Equipment 25 3 - - Engineering and Machinery 26 3 - - Automobiles and Parts 31 3 2 -
Health 44 6 5 -
Investment Companies 85 6 2 -
Speciality and Other Finance 87 14 6 - Information Technology Hardware 93 2 - - Software and Computer Services 97 11 1 -
Total 500 324 192 196 (100%)
ª This percentage represents number of assurance statements provided within each sector divided by total number of the assurance statements (196) collected in the study.
The Financial Times (FT) in its FTSE Global Classification System (2002) identifies 10 economic groups which contain 37 main sectors, and 101 sub-sectors.100 This
classification is used in the current study to classify the reporting companies who produced assurance statements. In the current study the 196 assurance statements were produced by 60 different companies over through the period of the study and these reporting companies are classified into 23 different sectors. Table 5.2 illustrates the number of companies in each sector. These frequencies are then compared to the incidence of stand-alone reports and assured reports by sector.
Table 5.2 shows that the most active sectors in term of producing assurance statements are: banks (14.8%); mining (9.7%); and oil and gas (8.7%). To some extent, this result is consistent with the earlier expectation that the UK top reporters would be close to those ‘high profile’ global reporters (Hackston and Milne, 1996; KPMG, 2005). KPMG (2005, p. 32) conclude that utilities; finance, securities and insurance; and oil and gas are the industries who are most likely to include assurance statements with their stand-alone reports.101
Form the results presented in Table 5.2, it could be argued that the incidence of assurance statements in each of the FTSE sectors is affected by two main factors: the number of the companies in each sector and the number of the stand-alone reports produced by these companies Thus, the results in the ‘banks’ sector for instance, could be partly due to the high number of companies in this sector in the FTSE100. In some industries, almost all the reporting companies produced assured stand-alone reports (such as, oil and gas, mining and transport). However, in some cases a sector may have a large number of companies, but only few assured stand-alone reports produced (for example in the media and entertainment sector of the 44 companies which are in the FTSE lists, only 19 of these companies produced stand-alone reports and only 4 of these were assured). The sectors of general retailers, life assurance, and support services also contain few examples of assured reports.