11.vol 0003www.iiste.org call for paper no 1 pp 3-25
Issues in Social and Environmental AccountingVol. 3, No. 1 June 2009Pp 3-25 Internet Financial and Environmental Disclosures by Malaysian Companies Ali Saleh Alarussi Faculty of Business and Finance International University of Technology Twintech, Yemen Mustafa Mohd Hanefah Faculty of Economics and Muamalat Universiti Sains Islam Malaysia Mohamad Hisyam Selamat College of Business Universiti Utara MalaysiaAbstractThis paper investigates whether determinants of financial disclosure are similar to environ-mental disclosure through the Internet. In other words, this paper examines the relationshipbetween Internet financial disclosure (IFD), Internet environmental disclosures (IED) and sixvariables, namely, ethnic of chief executive officer (CEO), leverage, level of technology, listingstatus, profitability, and firm size. Six hypotheses formulated in this study were analyzed usingdata collected from the websites of 189 Malaysian listed companies in 2006. The results indi-cate that level of technology, ethnic of CEO and firm size are significant factors in explainingboth IFD and IED. It is also observed that listing status is positively related to the level of IFDbut not IED. On the other hand, profitability is significant factor in explaining the level of IEDbut not IFD. Finally, leverage is not significantly related to both IFD and IED.Keywords: Malaysia, financial disclosure, environmental disclosure, Internet, determinantsIntroduction is required to assist users in making de- cision. In this case, the most valuableAs the financial market is facing global- information is the one that can reduceization, liberalization, and economic information asymmetry. Business firmscrisis and downturn, timely information are always looking for a new tool forAli Saleh Ahmed Alarussi, Ph.D. is currently assistant professor in International Accounting and Dean of the Faculty ofBusiness and Finance in International University of Technology Twintech (I, in Yemen and a General Manager inCentral Organization for Control and Auditing (COCA), email: email@example.com. Prof. Mustafa Mohd Hanefah iscurrently Professor of Accounting and Dean of the Faculty of Economics and Muamalat, Universiti Sains Islam Ma-laysia (USIM), email: firstname.lastname@example.org. Mohamad Hisyam Selamat, Ph.D. is Lecturer in the College of Business,Universiti Utara Malaysia (UUM), email: email@example.com
4 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25disseminating information to external have websites, in which 71% of themusers in the most efficient and timely have Internet annual reporting and 37%manner. One of the tools that is available of them disclose auditor reports on thein the market is Internet technology. web. Gowthorpe and Amat (1999) ex- amine 379 companies listed on the Ma-The rapid growth of Internet technology drid Stock Exchange and found that onlyhas enabled the firms to disclose their 61 companies (16%) have websites, infinancial information instantly to world- which 34 companies out of 61 compa-wide users. The level of using such me- nies (55.7%) provide some form of fi-dia has increased over the last couple of nancial information on their websites.years in the financial markets(Wagenhofer, 2003; Sriram and Due to Internet’s capability in dissemi-Laksmana, 2006). This phenomenon has nating information at a high speed, manyattracted a number of researchers in this companies are now taking advantage toparticular field. Internet is an efficient disclose not only financial but also non-instrument to communicate information financial information to their stake-to external users at a minimum cost. The holders. One of the non-financial infor-information on the Internet can be pre- mation is environmental information.sented in various forms such as dynamic This is also due to the increase of publicpresentations, draws, multimedia, audio, awareness on environmental issues.video and others (Ettredge et al., 2002;Ashbaugh et al., 1999). Nevertheless, several empirical studies highlight a number of limitations thatThe most important characteristic of the may hinder the Internet from becoming aInternet is accessibility to all kinds of perfect medium for information disclo-information at any time and from any- sure and communication. Some of thesewhere. Besides low costs of dissemina- limitations are related to securities, au-tion (Botosan, 1997) and wide coverage thentication, confirmation or proof and(Adham and Ahmed, 2005), the infor- legal obstacles (Joshi and Jawaher,mation displayed on the Internet is 2003) and information-based problemsshareable, timeliness, and updateable such as information overload, poor web-(Joshi and Jawaher, 2003). The Internet site design and advertisement, ambigu-allows the companies to address diverse ous user preference and competenceneeds of a variety of stakeholders at low (Lodhia, 2004). However, as the Internetinformation gathering cost (Lodhia, has the capability to build a good rela-2004). Thus, the use of the Internet en- tionship between companies and theirables information disclosure to take stakeholders, and enable the stake-place at a very high level of speed, quan- holders to make fast decision making, itstity and quality compared to other media usage is on the increasing trend (Sriram(AICPA, 1994; Wallman, 1995). and Laksmana, 2006).However, the use of Internet in financial Despite the growth of Internet usage inreporting and disclosure varies from one the financial market, academic researchcountry to another. For example, Gray in this area is still in its infancy stage,and Debreceny (1997) found that 96% of especially in the developing countriesthe Fortune 50 companies in the USA like Malaysia (Hassan et al., 1999; Noor
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 5Azizi et al., 2000; Mitchell and Ho, net as a medium for disclosure, the man-2000; Khadaroo, 2005). Therefore, this agement can reduce the agency problempaper intends to investigate the determi- and alleviate information asymmetry duenants of Internet financial and environ- to its unlimited space, wide coverage,mental reporting amongst Malaysian easy-access report and real-time infor-listed companies. The remainder of this mation (Sriram and Laksmana, 2006).paper is structured as follows. Section 2provides the theoretical background of In addition, an efficient equity marketInternet reporting, while section 3 re- requires comprehensive and transparentviews the determinants of IFD and IED. disclosures of the firms’ value and theirThe research method used in this study performance (Levitt, 1999; Richardsonis explained in section 4. Section 5 pre- and Welker, 2001). Theoretically, thesents the results of this study. Finally, level of disclosure should assist thesection 6 provides the conclusion and firms to lower the cost of capital. Therecommendations for future research. decrease in the cost of capital may come from two perspectives. Firstly, higher disclosure reduces transaction costs forInternet Disclosure Theoretical Back- the investors resulting in greater liquid-ground ity of the market and greater demand for the securities (Diamond and Verrecchia,The nature and extent of disclosure de- 1991). Secondly, additional disclosurepend on the targeted users’ needs and reduces the estimation risk or uncer-the medium of disclosure (Healy and tainty regarding return distributionPalepu, 2000). The main concern here is (Clarkson et al., 1996). This is parallel tothat accounting information disclosure the requirement of Statement of Finan-must not misleading (Moonitz, 1961). cial Accounting Concepts No. 1 (1978), which states that the company shouldThe agency theory predicates that as provide information that is useful to pre-conflicts arising from the separation of sent investors, creditors and other usersownership and control of a firm, share- in assessing the amounts, timing andholders would like to have assurance uncertainty of investment. Moreover,that their equity is not exposed to any annual report is a medium throughunethical exploitation or expropriation which a firm would like to present itselfby the management. On the other hand, to other external and internal parties.the management, in order to alleviate Thus, the more the firm discloses, thethis requirement, undertakes several vol- more the firm will preserve its reputa-untary actions such as more disclosures tion.and open investigation (Xiao et al.,2004; Marston and Polei, 2004). Portes and Rey (2000) argue that al- though disclosure can eliminate the ef-The management has to provide and dis- fect of information asymmetry and sub-close sufficient information in order to sequently reduce the cost of capital but itminimize the agency gap and to has cost. Managers are now facing thestrengthen the share price of the com- problem of mitigating the costs andpany (Richardson and Welker, 2001; benefits of different disclosure methods.Rahman, 2002). In relation to the Inter- The alternative disclosure method in
6 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25recent years is information technology 99 out of 125 companies (79%) disclose(IT), whereby the firms report their fi- their information on the website on thenancial results via the Internet. This is same day of the announcement. On thebecause traditional paper-based disclo- other hand, 10 out of 125 (8%) disclosesure has its limitations. The increase in the information one day after the an-global investments results in paper- nouncement. Thus, as long as the firmsbased reporting become more expensive update their website faster, the investorsand limited in capacity to timely reach will make decisions quicker compared toinvestors. In contrast, Internet disclosure those who do not have such facility. Inis more cost effective, faster, flexible in short, the Internet is an effective meansformat, and accessible to all types of of providing timely information.users nationally and globally (Debrecenyet al., 2002). Thus, the Internet has more Ettredge et al. (2002) examined how fastbenefits than other media of disclosure business firms uploaded and updatedsuch as newspapers, journals or other their information on their websites. Theprinting media. The Internet offers easy results show that on average there is aand equal access to all users and reduces lag of 30 days between the date the an-the information advantages to some in- nual report is filed with the SEC, and thestitutional investors in relative to others, date it is posted to the websites. Theywhich is in line with the democratization also find that some of the characteristicsof capital markets. are associated with fast or slow website update. Studies have shown that moreFrom the aforementioned discussion, it profitable firms update their websitesis clear that the firms use the Internet faster than less profitable ones. In addi-technology to reach more users than any tion, the firms that provide both PDFother communication means. In addition, and HTML formats update their finan-the speed of disclosure is very important cial information quicker and in a regularto the users because they can exploit the basis than those which are not. They ar-information that is disclosed by the firms gue that the presentation of both types offor their own interest. In this case, the formats illustrates a commitment toshorter the period between producing maintain a high-quality website.information and displaying them on theInternet enables investors to make deci- In a more advanced usage of the Inter-sion faster. The speed of information net, some firms disclose other forms ofdisseminated through the Internet has disclosure such as streaming audio andseveral push techniques that can be used video on their websites. Streaming audioto alert users such as email notice and allows interested individuals to listen toother inbuilt alert systems (Wagenhofer, analysts’ conference classes, annual2003). meetings and other presentations. Be- sides that it can be used to broadcastPetravick and Gillett (1996) examined conference calls in live or to provide anthe speed of one firm in releasing infor- archive of presentations from which themation on the website. The study in- Internet user can select. Some firms alsovolved 125 of the Fortune 156 compa- provide video together with the stream-nies that announced their quarter-end or ing audio (Hurtt et al., 2001).year-end earnings. The results show that
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 7The improvement of disclosure by using nature of investigations. Six determi-the Internet as a reporting media is not nants are studied in this research andlimited to external parties only, but also discussed in the following six subsec-improves the availability of financial tions.information within the firms includingall processes that occur in the remote The Ethnic of Chief Executive Officerplace of the firm’s dispersed informationsystem. In this case, reporting and con- Race was identified as an importantsolidation are improved and expedited. demographic factor in Malaysian disclo-As a result, reporting frequency is in- sure practices (Haniffa and Cooke,creased from annually or quarterly to 2002). In Malaysia, there are three majormonthly, weekly, daily or even almost races, namely, Malays, Chinese and In-simultaneously with the financial state- dians. Malaysian economy is still veryments announcement (Wagenhofer, much controlled by the Chinese, but the2003). government is making greater efforts to help the Malay to actively involve in theTo recapitulate, the use of IFD and IED business world by providing more train-are becoming significant in the global ing and education. By providing educa-market and considered beneficial. De- tion and training opportunities to thespite several regulatory attempts to in- Malay, the government aims to eradicatecrease disclosure in many Asian coun- poverty among them. Thus, the authorstries, the concern remains about weak find it worth (for academic purposelevel of financial reporting transparency only) to investigate this factor and figurein the region (Morris et al., 2004). In out its effect on the extent of Internetorder to investigate this phenomenon, financial and environmental disclosuresthere is a need to understand the deter- by the Malaysian listed companies. Inminants of Internet reporting especially addition, Malay values are differentin the Asian region. This paper aims to from the Chinese. Hofstede (1991) ob-fill this gap by examining the determi- serves that Malay is low in individual-nants of Internet reporting amongst Ma- ism at the ethnic level, more secretive,laysian listed companies. The definition high uncertainty avoidance and moreand descriptions of these determinants focus on the short-term. They are Mus-are listed in the next following section. lim and therefore influenced by the Is- lamic principles and ethical values (Haniffa and Cooke, 2002).The Determinants of Internet Finan-cial and Environmental Disclosure In addition, Chuah (1995) indicates that race, culture and education are factorsA large number of studies in different that influence Malaysian managers’countries had attempted to uncover the mind in addition to the type of organiza-determinants of the extent of online fi- tion they work. Windsor and Ashkanasynancial and environmental disclosures. (1996) support Chuah’s (1995) findingsThey proposed different determinants by saying that there is a relationship be-and factors that may affect the extent of tween personal perception and organiza-disclosure. However, there was no con- tional culture values amongst Malaysiansistent result and this may be due to the managers, which ultimately influences
8 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25their preferences in decision-making. ing the level of voluntary disclosure which fulfils the requirement of bothHaniffa and Cooke (2002) found that the shareholders and creditors.chairman acting as non-executive direc-tor has a negative association with the Previous studies found mixed results inextent of voluntary disclosure. This re- relation to the association between lever-sult is against the agency theory sugges- age and the extent of disclosure (Chowtion that highlights the need for a non- and Boren, 1987; Garcia and Monter-executive chairman in the company in rery, 1992). Richardson and Welkerorder to create check and balance (2001) argue that social and financialmechanism. Thus, it is interesting to ex- disclosures have similar determinants.amine the relationship between the race Since there is an association betweenof CEO and the extent of financial and leverage and financial disclosure, a simi-environmental disclosure using a new lar relationship is expected in the case ofdistribution media such as the Internet. environmental disclosure. Roberts (1992) supports this view whereby heThis study therefore intends to examine observes that a high degree of depend-the impact of CEO race on the extent of ence on debt would encourage a com-Internet disclosure. The variable is pany to increase social activities andmeasured by using a dummy variable disclose more environmental informa-that is one if the CEO is Malay and zero tion in order to meet its creditors’ expec-if otherwise. Therefore, the related part- tations on environmental issues. In addi-ner hypotheses studied are as follows: tion it is also found that the higher theH1-a: The ethnic of CEO influences the debt to equity ratio, the higher the social extent of financial disclosure on and environmental disclosure would be the Internet. made.H1-b: The ethnic of CEO influences the extent of environmental disclo- Although a positive association between sure on the Internet. financial leverage and the extent of vol- untary social responsibility disclosures isLeverage revealed, Chow and Boren (1987) and Ahmed and Nicholls (1994) state thatIt is argued that when a company uses there is no significant association be-large amount of debt, a monitoring prob- tween financial leverage and voluntarylem arises between shareholders and disclosure. The difference in the associa-creditors. This is for the following rea- tion between the leverage and voluntarysons. On one hand, creditors would like disclosure illustrates that leverage mightto ensure that companies invest their be a poor proxy for firm risk (Dichevfund in less risky investment so the ca- and Skinner, 2002). Ahmed et al. (2002)pability of companies for paying back state that firms with lower leverage arethe debts is high. On the other hand, more likely to engage in environmentalshareholders would like to maximize reporting as a protective measure totheir wealth by investing the whole maintain a reasonable assessment of itsfunds regardless how risky they are financial risk level.(AICPA, 1994). The involved compa-nies may solve this problem by increas- In summary, this study will examine the
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 9impact of using external debt by Malay- between the level of technology and thesian companies on the extent of financial extent of voluntary disclosure throughand environmental disclosures. Previous the Internet. They found a significantstudies define leverage as a ratio be- positive relationship between the leveltween long-term liabilities and total eq- of technology and the level of disclosureuity (Roberts, 1992; Katsuhiko et al., via the Internet.2001).Other studies define leverage as aratio between long term liabilities and This study attempts to examine the rela-total assets (Haniffa and Cooke, 2002; tionship between the extent of InternetLaswad et al., 2005; Alsaeed, 2005). financial and environmental disclosureThis study uses the second definition to and the level of technology in the listedmeasure leverage. Therefore, the second firms. This variable is measured as aidentified partner hypotheses are as fol- dummy variable; one if the company haslows: a technology department and zero if oth-H2-a: The extent of financial disclosure erwise. Thus, the third partner hypothe- on the Internet is positively re- ses are as follows: lated to leverage H3-a: The extent of financial disclosureH2-b: The extent of environmental dis- on the Internet is influenced by closure on the Internet is posi- the level of technology. tively related to leverage H3-b: The extent of environmental dis- closure on the Internet is influ-Level of Technology enced by the level of technology.Jensen and Meckling (1995) argue that Listing Statusthe relationship between knowledgeabout the industry and agency cost is Wallace et al. (1994) examine the im-significantly related. One of the factors pact of listing status on the level of vol-that discourage firms in using the Inter- untary disclosure amongst Spain listednet is due to the need for the experts. companies. Multivariate regressionThe existence of technological services analysis is used to analyze the data. Thethat are provided by the department of result shows a significant positive rela-information systems is benefitting most tionship between listing status and theof the firms (Lodhai, 2004). The depart- extent of voluntary disclosure.ment of information system will assist inpreparing the information that is going Bursa Malaysia consists of two boards –to be displayed on the website. Besides the main board and second board. Thethe experiences in using the Internet as a main board companies must have amodern technology media for disclosure, minimum paid-up capital of Ringgit Ma-the department of information system laysia (RM) 60 millions while the sec-will also reduce the cost of using the ond board companies are those that haveInternet such as maintaining, updating, a minimum paid-up capital of RM40and website monitoring. This will en- millions in order to be listed (Yatim etcourage the firms to disclosure more al., 2006). The companies that do notinformation. Debreceny et al. (2002) meet the criteria of main board can ap-provide empirical evidence on this issue ply to be listed on the second board. Duewhereby they examine the association to the factors of size and capital, the
10 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25companies on the main board are in- man and Cooke, 2002; Suda and Ko-clined to disclose more information on kubu, 1994; Chen and Jaggi, 2000; Gulthe Internet than those that are listed on and Leung, 2004). It is measured by us-the second board. This is due to the fol- ing number of ratios such as return onlowing reasons: assets and return on investment The requirements that the com- (Camfferman and Cooke, 2002; Gul and pany should fulfill if it wants to be Leung, 2004). However, in this study; listed on the main board. Those profitability is defined from different requirements are not similar to angle which is as earning per share that of second board such as the (EPS). The authors would like to figure level of transparency (Wong, out whether the differences in EPS 1996). amongst Malaysian companies play any The competition amongst main significant role on the extent of internet board companies is stiffer than financial and environmental disclosure. those on the second board as in- vestors are keen on them (Abdul Earning per share is a carefully scruti- Samad, 2002). nized metric that is often used as an indi- cator to measure a companys profitabil-This particular variable has not been ity per unit of shareholder ownership. Astested in the previous studies and thus it such, EPS is a key driver of share prices.is interesting to examine as to whether Though EPS is widely considered to belisting status on Bursa Malaysia has any the most popular method of quantifyinginfluence on the level of Internet disclo- a firms profitability, it is important tosure. In other words, this study intends bear in mind that earnings themselvesto examine the impact of an organiza- can often be susceptible to manipulation,tions listing status in Bursa Malaysia on accounting changes, and restatements.the extent of IFD and IED. Dummy vari- For that reason, free cash flow is seen byable is used to measure this variable; 1 if some to be a much more reliable indica-the company is listed on the main board tor than EPS. Nevertheless, EPS remainsand 0 if the company listed on the sec- the industry standard in determining cor-ond board. Therefore, the following hy- porate profitability for shareholders.potheses are proposed:H4-a: The extent of financial disclosure It is obvious from the previous studies on the internet is influenced by that the influence of profitability on vol- company’s listing status. untary disclosure is significant. SinghviH4-b: The extent of environmental dis- and Desai (1971) argue that when the closure on the internet is influ- rate of return is high and the company enced by company’s listing achieves a high margin of profit, the status. management is motivated to disclose more information in order to prove itsProfitability good reputation to the consumers, share- holders, investors and other stake-The profitability is an important deter- holders. On the other hand, if the rate ofminant that was examined in most of the return is low or the company suffersprevious disclosure studies (see for ex- losses, the management discloses lessample, Ho and Wong, 2001; Camffer- information in order to cover the reasons
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 11for such losses or declining profits. This It is, therefore, interesting to study thestrategy also applied on the case of EPS. impact of profitability on the extent of Internet disclosure by the MalaysianIn the literature, the results regarding the public listed companies. This is also toassociation between profitability and examine whether profitable companiesfinancial disclosure are mixed. For ex- are more concerned with the environ-ample, Williams (1992) and Garcia and ment than less profitable companies. InMonterrey (1992) indicate that profit- this study, profitability is measured byability is significantly and positively the percentage of EPS. Thus, the partnerassociated with disclosure. However, hypotheses are as follows:Cowen et al. (1987) observe that highly H5- a: The extent of financial disclosureprofitable companies do not disclose on the Internet is influenced bymore financial information than less the profitability of the company.profitable companies. Raffournier H5-b: The extent of environmental dis-(1995) states that no significant relation- closure on the Internet is influ-ship between profitability and the extent enced by the profitability of theof financial disclosure. company.Ahmed et al. (2002) note that profitabil- Firm sizeity and its impact on the extent of volun-tary disclosure can be analyzed from two The size of a company can be measuredperspectives. On one hand, more profit- in a number of ways such as capital em-able firms tend to disclose more infor- ployed, turnover, number of employees,mation than less profitable firms because market value and others. There is nothe management would like to show off particular method that is superior to thattheir achievement to others. This is to of others. For example, Firth (1979) usessustain their position or gain reward. In sales turnover and capital employed toshort, profitable firms are less secretive measure company size whereas Cookethan less profitable firms. Profitable (1991) uses number of shareholders,firms are more enthusiastic to disclose total assets and turnover to measure sizeinformation in order to differentiate of the company. On the other hand, Cra-themselves from less profitable firms. ven and Marston (1999) uses turnover,This differentiation gives profitable number of employees, total assets em-firms indirect benefits in terms of raising ployed and the company’s average mar-capital from the best available terms. On ket value.the other hand, it is argued that less prof-itable firms may disclose more informa- Large companies are often argued to usetion in order to explain the reasons for Internet reporting for several reasons.their low performance and therefore Firstly, large companies are under pres-maintain its integrity. They also practice sure to disclose their financial informa-early disclosure to disclose bad news in tion to avoid speculative trading of theirorder to alleviate the risk of legal liabil- shares. As a result, they are more on theity as well as the risk of depreciation of eyes of the public (Ku Nor Izah, 2003).share capital and loss of reputation Marston and Warney (2003) studied(ACCA, 2005). Japanese companies and uncovered that size of a company is positively associ-
12 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25ated with the existence of a website, but ety. Their political costs can be reducednot with the extent of financial disclo- by increasing information disclosuressure. This means that large Japanese (ACCA, 2005). Cooke (1989) examinedcompanies have websites but the level of the annual reports of 90 Swedish firmstheir financial disclosure is not different (38 unlisted, 33 listed on the Swedishfrom the small enterprises. Secondly, Stock Exchange, and 19 listed on bothaccording to Craven and Marston the Swedish and at least one foreign(1999), the agency theory and cost- stock exchange during the year of 1985)benefit analysis indicate that there is a and found out that listing status and sizepositive relationship between size and are major determinants of voluntary dis-disclosure. Large firms are always des- closure.perate for the external funds. This in turnincreases the agency cost because of the According to Teoh et al. (2003), largeconflicting interests between sharehold- firms are more likely to disclose moreers, managers and debt holders (Eng and environmental information in order toMak, 2003). However, increased disclo- show their concern about the environ-sures can reduce agency cost and infor- ment to the public. Besides that, theymation asymmetry (Jensen and Meck- tend to be the subject of public analysis.ling, 1976; ACCA, 2005). Thus, firm size has been found to have a significant positive relationship with theThirdly, business processes of large social disclosure (Blacconiere andfirms are more complex; therefore, the Patten, 1994). In addition, size is a proxyusers are always asking for more disclo- for political sensitivity and this predic-sure. The needs of the users of large tion is consistent with the positive ac-firms reports are more divergent than counting theory that suggests that politi-their counterparts in the small firms cal costs are higher in the large firms(Craven and Marston 1999). Chow and (Watts and Zimmerman, 1986). In thisBoren (1987) examined 52 annual re- study, company size is measured by us-ports of 52 companies listed on the ing total asset in the company. Thus, theMexican Stock Exchange in 1982 and sixth partner hypotheses are as follows:discovered that large firms voluntarily H6-a: The extent of financial disclosuredisclose more information than small on the Internet is influenced byfirms (twenty four un-weighted and the size of the company.weighted items were examined). Joshi H6-b: The extent of environmental dis-and Jawaher (2003) examined the asso- closure on the Internet is influ-ciation between several company char- enced by the size of the com-acteristics and internet disclosure pany.amongst 75 companies in Bahrain andKuwait. They observed that the maininfluencing factors on the Internet finan- Research Methodologycial reporting are size and industrytypes. This study examined the determinants of IFD and IED by Malaysian public listedFourthly, large firms are more motivated companies. This was undertaken by sur-to disclose their operational quality be- veying the information disclosed by thecause they are more visible in the soci- companies on their websites. The data
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 13were obtained from the annual reports of The data for this research was secondarythe 2005 financial year. in nature and collected from the selected firms websites. Regression model wasThe population of this study was Malay- utilized to analyze the results of thissian listed companies that have websites. study and this is in tandem with the pre-After examining the websites of Bursa vious studies (e.g. Chen and Jaggi ,2000;Malaysia, it was found that 505 out of Camfferman and Cooke, 2002; Archam-849 Malaysian listed companies (59%) bault and Archambault, 2003; Marstonhave websites. Since listed companies and Polei, 2004; Gul and Leung, 2004;are categorized differently according to Laswad et al., 2005).industry type and the number of compa-nies for each industry is not similar, the Results and Discussiondisproportionate stratified random sam-pling was utilized in this research The results from the descriptive analysis(Sekaran 2003). According to Sekaran (see table 1) show that 64% of the sam-(2003), under the jurisdiction of dispro- ple size disclosed more than two finan-portionate stratified random sampling, cial items out of 24 items (unweightedthe researchers have to include 20% of items) that have been used to measurerespondents from each stratum in the the extent of financial disclosures (seesample. The sample size for this study is appendix 1 for financial index). In addi-201 companies, which represent more tion to this, 26.4 % disclosed only 1 or 2than 39% for each stratum. This high financial items, and almost 9.5% did notpercentage alleviates the effect of any disclose any financial information oninappropriate information from the se- their websites (see appendix 2 for morelected sample. However, only 189 com- details about number of companies thatpanies were finally selected after exclud- disclose each item in the IFD index).ing the outliers. Table 1 Descriptive results for financial information Valid Cumulative Frequency Percent Percent PercentValid no financial disclosure 18 09.5 09.5 09.5 disclose 1-2 financial items 50 26.4 26.4 35.9 disclose more than 2 finan- cial item 121 64.1 64.1 100.0 Total 189 100.0 100.0For the environmental disclosure, only on their websites (see appendix 4 for57.2% of the sample disclosed at least 1 more details about number of companiesenvironmental item out of 34 items that disclose each item in the IED in-(unweighted items) that have been used dex).to measure the extent of environmentaldisclosure (see appendix 3 for environ- In tandem with the previous voluntarymental index). However, 42.8% did not disclosure studies (e.g. Cooke, 1989;disclose any environmental information Hossain et al.,1994; Raffournier, 1995),
14 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 Table 2 Descriptive results for environmental information Valid Cumulative Frequency Percent Percent PercentValid no environmental disclosure 81 42.8 42.8 42.8 environmental disclosure 108 57.2 57.2 100.0 Total 189 100.0 100.0a multiple regression analysis on each sumptions. Multicollinearity was testeddependent variable (IFD and IED) and based on the variance inflation factorsix independent variables were used to (VIF). The VIF figures show no signifi-test the hypotheses. Several assumptions cant multicollinearity exist between thein regression analysis were firstly tested. independent variables.The residuals, plots of the studentisedresiduals as well as the Q-Q plot analy- Table 3 also provides the results of mul-ses were conducted to test the homosce- tiple regression analysis. The resultsdasticity, linearity and normality as- show that there are several variables that Table 3 Regression Analysis of Determinants of Internet voluntary Disclosure Independent variables Dependent Variable Coefficients t- statistics VIFEthnic of CEO Financial (1) .145 2.473 * 1.215leverage Financial -.033 -.572 1.153 environmental .033 .561Level technology Financial .246 4.230 ** 1.202 environmental .216 3.553 **board Financial .151 2.512 * 1.294 environmental .096 .516L firm size Financial .398 5.552 ** 1.832 environmental .349 4.640 **Profitability (EPS) Financial .070 1.201 1.204 environmental .121 1.987 *(1) R Squared = .489 (Adjusted R Squared = .472) ** significant at 0.001, * significant at 0.05(2) R Squared = .439 (Adjusted R Squared = .421)indicate statistically significant relation- tionship with the IFD and not IED. Onships with both financial and environ- the other hand, profitability variablemental disclosures through the internet. shows a positive relationship with IEDThese variables include level of technol- but not IFD.ogy (p< 0.01), ethnic of CEO (p<0.01),and firm size (p<0.01). However, listing In addition, four variables (status listing,status variable shows a significant rela- level of technology, ethnic of CEO, and
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 15firm size) show a positive relationship This result is similar to other studies ofwith IFD. The variables of profitability, voluntary disclosure where a positivelevel of technology, ethnic of CEO, and association between voluntary disclosurefirm size show a positive relationship and size is obtained (Inchausti, 1997;with IED. However, for both dependent Raffournier, 1995).variables, there is no significant relation-ship with the elements of leverage. The Fourthly, listing status is a new variableexplanatory power of both analyses is and has never been tested before in thequite similar: R2 = 0.489 and Adjusted previous studies. The results indicateR Squared = 0.472 for IFD, and R2 = that if companies are listed on the main0.439 and Adjusted R Squared = 0.421 board of Bursa Malaysia they are morefor IED. likely to disclose more financial infor- mation on the Internet compared to com-The above findings are not surprising for panies listed on the second board. It isseveral reasons. Firstly, since this paper not surprising to observe this phenome-investigates Internet disclosure (the most non because of different requirements ofadvanced communication technology), it Bursa Malaysia in relation to main andis expected that the firms that have in- second boards. The difference is due toformation system department are more the companies listed on the main boardlikely to disclose more information are large companies (capitalization morethrough their websites (financial and than RM60 million) (Yatim et al., 2006);environmental information). and, therefore capture more public and government concern in relation to theSecondly, if the CEO is Malay, the ex- level of transparency and technologytent of financial and environmental dis- development. However, in terms of IED,closure is higher. This is because Malay the listing status does not show a signifi-is Muslim; and, therefore they have to cant relationship because the level ofobey Islamic religious rules such as hon- IED is low in all companies regardlessesty and transparency. The religious of their listing status.values in one person create a sense ofresponsibility to disclose information From the above findings, it can be seenregarding their companies’ performance, that this research accepts each of theseand not forgetting to protect people, life, hypotheses: (1) H1 (a,b) which showsnatural resources, and environment. that the ethnic of CEO influences both the extent of internet financial and dis-Thirdly, firm size shows a significant closure; (2) H3 (a,b) which indicates thatassociation with the extent of both IFD the extent of financial and environ-and IED. When firm size is excluded mental disclosure on the Internet arefrom the regression analysis, the ex- influenced by the level of technology;planatory power of the model dimin- (3) H4 (a) which indicates that the extentishes. The result indicates that if the of financial disclosure on the internet iscompanies grow bigger, they are more influenced by company’s listing status;eligible to have their own website and (4) H5 (b) which shows that the extentdisclose more information. Therefore, it of environmental disclosure on the Inter-is possible to conclude that size gives a net is influenced by the profitabilitysignificant impact on the IFD and IED. (earning per share) in the company; and
16 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25(5) H6 (a,b), which indicates that the ability shows a positive relationship withextent of internet financial and environ- IED but not with IFD. The results high-mental disclosure on the Internet are light a gap between the companies thatinfluenced by the size of the company. are listed on the main board and the companies that are listed on the secondHowever, the study rejects the following board. This gap in turn influences thehypotheses: (1) H2 (a,b) which specifies level of transparency and the usage ofthat the extent of internet financial and advanced technology such as the Inter-environmental disclosure are not af- net. These findings support the argumentfected with the level of leverage that the that social and financial disclosures havecompany incurred; (2) H4(b) which indi- similar determinants. The findings alsocates that the extent of internet environ- provide some evidence that religion hasmental disclosure is not influenced by an important impact on IFD. Future vari-company’s listing status; and (3) H5 (a) ables that can be considered may includewhich shows that the extent of financial ethical values of the management anddisclosure on the internet is not influ- incentives that are provided by the gov-enced by the profitability of the com- ernment.pany.Nevertheless, information disclosure Referencesprocess involves human judgment andtherefore this process cannot be solely Abdul Samad, F. (2002) "Ownershipexplained by the company’s characteris- Structure in the Malaysian Corpo-tics. Within this context and limitations, ration Sector: Its Impact on Cor-this paper provides some evidence to porate Governance, Performance,support the agency theory in relation to Financing and Investment Pat-information disclosure. terns", Institute for Development Policy and Management Working Paper (University of Manchester).Conclusion and Recommendations ACCA (2005) "Sustainability Reporting Guidelines for Malaysain Compa-This paper examines the relationship nies", The Association of Chartedbetween six variables, namely, ethnic of Certified Accountants.CEO, leverage, level of technology, list- Adham K. A & Ahmed M., (2005)ing status, profitability, and firm size "Adoption of Website and e-and the extent of Internet financial and commerce technology among Ma-environmental disclosures by the Malay- laysian public companies". Indus-sian listed companies. The results pro- trial Management & Data Sys-vide evidence that there is a significant tems, Vol. 9, No. 105, pp. 1172-positive relationship between the ele- 1187.ments of level of technology, ethnic of Ahmed, K. & Nicholls, D. (1994) "TheCEO and firm size and the extent of both Impact of Non-Financial Com-financial and environmental disclosure. pany Characteristics on Manda-The listing status is positively related to tory Disclosure Compliance inthe level of financial disclosure but not Developing Countries: the Case ofenvironmental disclosure whereas profit- Bangladesh", The International
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22 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 Appendix 1 Internet Financial Disclosure IndexN Financial Item N Financial Item1 FHS 13 SHS2 CPR 14 ARPT3 CSP 15 HYR4 SAR 16 QR5 DMR 17 BSQR6 BS 18 ICQR7 IS 19 CFQR8 CFS 20 ANQR9 SSE 21 FC10 AN 22 FR11 AUR 23 SPC12 SRR 24 OPR FHS : Financial Highlights ARPT: Annual report for the past years CPR : Current press release or news HYR : Half year report CSP : Current share price QR : Quarterly report SAR : Summary of Annual report BSQR: Balance sheet in Quarterly report DMR: Directors’ and Management Report ICQR : Statement of Income in Quarterly BS : Balance Sheet report IS : Income Statement CFQR : Cash Flow Statement in Quarterly CFS : Cash Flow Statement report AN : Accounting Notes ANQR: Accounting notes in Quarterly report SSE : Statement of Shareholders’ equity FC : Financial Calendar AUR : Auditor’s report FR : Financial review SRR : Segmental report by region SPC : Share Performance chart SHS : Shareholder structure OPR : Operation review
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 23 Appendix 2 Internet Financial Disclosure indexN Financial Fre- Percent N Financial Fre- Percent characteristics quency characteristics quency Current Release or 126 64.9 9 Cash Flow State- 80 41.21 news ment in Quarterly report2 Operation review 122 62.9 10 Accounting notes 66 34 in Quarterly report3 Summary of An- 118 60.8 11 Current share 47 24.2 nual report price4 Financial high- 114 58.8 12 Financial review 31 16 lights5 Annual reports for 99 51 13 Financial calendar 28 14.4 the past years6 Quarterly report 91 46.9 14 Half year report 24 12.47 Statement of In- 82 42.3 15 Share Perform- 15 7.7 come in quarterly ance chart report8 Balance sheet in 81 41.8 quarterly report
24 A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 Appendix 3 Internet Environmental Disclosure indexN Environmental items N Environmental Items1 GES 19 DEPUL2 EP&P 20 EFRTREN3 EPS 21 R&EN4 EACTV 22 UTIW5 EMAN 23 IMSTU6 WTS 24 EAU7 AWAD 25 ENEFF8 ELOW 26 R&D9 SUST 27 ENCON10 W&R 28 IPE11 EAEST 29 RENCON12 POLU 30 IEPR13 REHB 31 ELITIG14 EMPW 32 FINPOL15 LNDR 33 P&COC16 EEPRG 34 P&CEX17 EFIN 35 F&CEX18 SPACT 36 F&COC GES: General environmental consid- REHB: Rehabilitation tion eration and statements W&R: Waste & recycling AWAD: Awards EPS: Environmental policy statement IMSTU: Impact studies SPACT: Support for public or private EAU: Environmental audit action designed to protect the environ- WTS : Water treatment system ment EMAN: Environmental manager/ SUST: Sustainability LNDR: Land reclamation and foresta- Committee R&D: Research & Development tion programmes ELOW: Environmental law DEPUL: Departments or offices for FINPOL: Financing for pollution EP&P: Environmental- product and control equipment or facilities pollution control process related IEPR: International Environmental P&CEX: Past and current expenditure EFIN: Environmental financially for pollution control equipment and program related data facilities ENCON: Energy conversion EAEST: Environmental aesthetics P&COC: Past and current operating (facilities, art, restoration). ENEFF: Energy efficiency costs of pollution control equipment ELITIG: Environmental litigation R&EN: Recycling and associated &facilities energy saving F&CEX: Future and current expendi- E EPRG: Environmental education programmes UTIW: Utilization of waste materials ture for pollution control equipment EFRTREN: Efforts to reduce energy &facilities EMPW : Employee awareness of environmental policy consumption F&COC: Future and current operating IPE: Increasing of product efficiency costs of pollution control equipment& EACTV: Environmental Activities facilities POLU: pollution RENCON: Research energy conserva-
A.S. Alarussi, M.M. Hanefah, M.H. Selamat / Issues in Social and Environmental Accounting 1 (2009) 3-25 25 Appendix 4 Internet Environmental Disclosure indexN Environmental items Frequency Per- N Environmental Frequency Percent cent Items1 GES 100 51.5 19 DEPUL 16 8.22 EP&P 43 22.2 20 EFRTREN 16 8.23 EPS 40 20.6 21 R&EN 15 7.74 EACTV 36 18.6 22 UTIW 14 7.25 EMAN 30 15.5 23 IMSTU 14 7.26 WTS 29 15 24 EAU 13 6.77 AWAD 26 13.4 25 ENEFF 11 5.78 ELOW 26 13.4 26 R&D 10 5.29 SUST 26 13.4 27 ENCON 10 5.210 W&R 25 12.9 28 IPE 9 4.611 EAEST 23 11.9 29 RENCON 6 3.112 POLU 23 11.9 30 IEPR 6 3.113 REHB 23 11.9 31 ELITIG 5 2.614 EMPW 22 11.3 32 FINPOL 5 2.615 LNDR 22 11.3 33 P&COC 5 2.616 EEPRG 21 10.8 34 P&CEX 2 1.017 EFIN 18 9.3 35 F&CEX 2 1.018 SPACT 17 8.8 36 F&COC 2 1.0 GES: General environmental consid- REHB: Rehabilitation tion eration and statements W&R: Waste & recycling AWAD: Awards EPS: Environmental policy statement IMSTU: Impact studies SPACT: Support for public or private EAU: Environmental audit action designed to protect the environ- WTS : Water treatment system ment EMAN: Environmental manager/ SUST: Sustainability LNDR: Land reclamation and foresta- Committee R&D: Research & Development tion programmes ELOW: Environmental law DEPUL: Departments or offices for FINPOL: Financing for pollution EP&P: Environmental- product and pollution control control equipment or facilities process related IEPR: International Environmental P&CEX: Past and current expenditure EFIN: Environmental financially for pollution control equipment and program related data facilities ENCON: Energy conversion EAEST: Environmental aesthetics P&COC: Past and current operating (facilities, art, restoration). ENEFF: Energy efficiency costs of pollution control equipment ELITIG: Environmental litigation R&EN: Recycling and associated &facilities energy saving F&CEX: Future and current expendi- E EPRG: Environmental education programmes UTIW: Utilization of waste materials ture for pollution control equipment EFRTREN: Efforts to reduce energy &facilities EMPW : Employee awareness of environmental policy consumption F&COC: Future and current operating IPE: Increasing of product efficiency costs of pollution control equipment& EACTV: Environmental Activities facilities POLU: pollution RENCON: Research energy conserva-
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