A-PLUS WRITER AS THE QUESTION

Determinants of Corporate Social

Responsibility Disclosure Ratings

by Spanish Listed Firms Carmelo Reverte

ABSTRACT. The aim of this paper is to analyze whether

a number of firm and industry characteristics, as well as

media exposure, are potential determinants of corporate

social responsibility (CSR) disclosure practices by Spanish

listed firms. Empirical studies have shown that CSR dis-

closure activism varies across companies, industries, and

time (Gray et al., Accounting, Auditing & Accountability

Journal 8(2), 47–77, 1995; Journal of Business Finance &

Accounting 28(3/4), 327–356, 2001; Hackston and Milne,

Accounting, Auditing & Accountability Journal 9(1), 77–108,

1996; Cormier and Magnan, Journal of International Finan-

cial Management and Accounting 1(2), 171–195, 2003; Cor-

mier et al., European Accounting Review 14(1), 3–39, 2005),

which is usually justified by reference to several theoretical

constructs, such as the legitimacy, stakeholder, and agency

theories. Our findings evidence that firms with higher

CSR ratings present a statistically significant larger size and

a higher media exposure, and belong to more environ-

mentally sensitive industries, as compared to firms with

lower CSR ratings. However, neither profitability nor

leverage seem to explain differences in CSR disclosure

practices between Spanish listed firms. The most influen-

tial variable for explaining firms’ variation in CSR ratings is

media exposure, followed by size and industry. Therefore,

it seems that the legitimacy theory, as captured by those

variables related to public or social visibility, is the most

relevant theory for explaining CSR disclosure practices of

Spanish listed firms.

KEY WORDS: corporate social responsibility disclosure,

Spain

Introduction

Over the last few decades there has been a growing

public awareness of the role of corporations in

society. Many of the firms which have been credited

with contributing to economic and technological

progress have been criticized for creating social

problems. Issues such as pollution, waste, resource

depletion, product quality and safety, the rights and

status of workers, and the power of large corpora-

tions have become the focus of increasing attention

and concern. In this context, companies have been

increasingly urged to become accountable to a wider

audience than shareholder and creditor groups. As a

matter of fact, public awareness and interest in

environmental and social issues and increased

attention in mass media have resulted in more social

disclosures from corporations in the last two decades

(Deegan and Gordon, 1996; Gray et al., 1995;

Hooghiemstra, 2000; Kolk, 2003). In the European

Union context, the publication of the Green Paper

(2001) by the European Commission launched a

wide debate on how the EU could promote cor-

porate social responsibility (CSR). Although there is

still no universal definition of CSR (Godfrey and

Hatch, 2007), most definitions describe it as a con-

cept whereby companies integrate social and envi-

ronmental concerns in their business operations and

in their interaction with their stakeholders on a

voluntary basis. By acting in a responsible way to the

variety of social, environmental, and economic

pressures, companies respond to the expectations of

the various stakeholders with whom they interact,

such as employees, shareholders, investors, con-

sumers, public authorities, and non-governmental

organizations (NGOs).

Companies usually inform of their CSR activities

in the annual report or in separate social reports

(CSR Report or Sustainability Report). However,

there is no standardization or uniformity in terms

of the items reported, or the way of reporting.

Journal of Business Ethics (2009) 88:351–366 � Springer 2008 DOI 10.1007/s10551-008-9968-9

Consequently, various NGOs have started devel-

oping models or frameworks for reporting on CSR,

such as the ISO 14001 (Internationally Standards

Organization), World Resources Institute (WRI)

and the Global Reporting Initiative (GRI).

With regard to the empirical research on CSR,

three types of empirical studies characterize the

research in this field. The first one relates to

‘descriptive studies,’ which report on the nature and

extent of CSR with some comparisons on countries

and periods. The second one is related to ‘explicative

studies,’ which focus on the potential determinants

of social and environmental reporting. The third one

is interested in the ‘impact of social and environ-

mental information’ on various users, mainly on

market reaction. Our study adopts the second

orientation, as it is focused on analyzing whether a

number of firm and industry characteristics, as well

as media exposure, are potential determinants of

CSR disclosure practices by Spanish listed firms.

Empirical studies have shown that CSR disclosure

activism varies across companies, industries, and time

(Gray et al., 1995, 2001; Hackston and Milne, 1996).

They have also shown this behavior to be impor-

tantly and systematically determined by a variety of

firm and industry characteristics that influence the

relative costs and benefits of disclosing such infor-

mation (Belkaoui and Karpik, 1989; Cormier and

Magnan, 2003; Cormier et al., 2005; Hackston and

Milne, 1996; Patten, 2002a, b).

This paper is focused on the Spanish setting for

three reasons. First, most of the present literature is

based on Anglo-American countries (US and UK)

and evidence should be added about other institu-

tional contexts. Second, there is scarce empirical

research on CSR determinants by Spanish compa-

nies. Previous studies (Archel, 2003; Archel and

Lizarraga, 2001; Carmona and Carrasco, 1988;

Garcı́a-Ayuso and Larrinaga, 2003; Moneva and

Llena, 1996, 2000) have mainly focused on one

dimension of CSR such as environmental disclosure,

and the sample periods analyzed in these papers were

previous to the first compulsory regulations in Spain

in the area of environmental disclosure (i.e., the

Royal Decree 437/1998 and the Resolution enacted

on March 25, 2002 by the Institute of Accounting

and Auditing – ICAC-). Our sample period follows

the previous mandatory regulations and also the GRI

Sustainability Reporting Guidelines, which have

been generally adopted by Spanish listed firms in the

last years as the benchmark for CSR reporting. As a

result, CSR disclosures by Spanish firms in our

sample period are much more richer and extensive as

compared to previous studies in the Spanish context

in which that information was very scarce and

anecdotical. Moreover, our measure of CSR not

only captures environmental issues but also a number

of social aspects included in the latest developments

in CSR worldwide, specially those stemming from

the GRI Sustainability Reporting Guidelines and the

United Nations Norms on the Responsibilities of

Transnational Corporations and Other Business

Enterprises with regard to Human Rights. Third, in

contrast to the understanding of CSR from common

law English-speaking countries (Australia, Canada,

UK, US), the determinants of CSR in Continental

Europe are still relatively unknown. Therefore, our

main goal is to analyze whether the specific features

of Spain regarding its capital market and companies’

financing structure result in a significant difference

between the factors influencing CSR disclosure

practices of Spanish listed firms when compared to

firms from other different institutional contexts. In

particular, Spain is less capital market oriented than

other EU countries and financing policies are bank

oriented.

The remainder of the paper is organized as fol-

lows. In the following section, the theoretical

framework used is presented. Section ‘‘Determinants

of CSR disclosure: development of hypotheses’’

discusses the determinants of CSR disclosure prac-

tices. Section ‘‘Data and method of estimation’’

focuses on the methodology and data. Section

‘‘Results’’ presents the main results of our empirical

analysis. Finally, some conclusions are drawn.

A multi-theoretical framework for CSR

disclosure

Despite widespread academic and business interest in

the issue, a comprehensive theoretical framework of

the underlying determinants of corporate social and

environmental reporting is still elusive. The empir-

ical investigations of CSR practices have produced a

very diverse body of academic literature which

engages different theoretical perspectives in support

of corporate social reporting, such as the agency

352 Carmelo Reverte

theory, the legitimacy theory, and the stakeholder

theory, among others.

For instance, there is extensive evidence that

social and environmental information is useful

for decision-making by financial stakeholders

(Blacconiere and Northcut, 1997; Blacconiere and

Patten, 1994; Graham et al., 2000; Richardson and

Welker, 2001). However, with its financial stake-

holders’ focus, it fails to provide a comprehensive

theoretical foundation to explain CSR disclosure,

especially since most of that disclosure is non-

financial. In response to this conceptual gap, other

alternative explanations for CSR disclosure have also

been offered in the literature. Following its emer-

gence as an explanatory model for corporate finan-

cial reporting (Watts and Zimmerman, 1986),

economic agency theory (or positive accounting the-

ory) became an appealing proposition as a rationale

for CSR disclosure (Belkaoui and Karpik, 1989).

Agency theory views the firm as a nexus of contracts

between various economic agents who act oppor-

tunistically within efficient markets. In this context,

social and environmental disclosure may prove use-

ful in determining debt contractual obligations,

managerial compensation contracts, or implicit

political costs. However, as indicated by Cormier

et al. (2005), agency theory’s focus on monetary or

wealth considerations among agents who trade in

informationally efficient markets does limit the scope

of relevant social and environmental disclosure as

well as its intended purpose, insofar as many

potential users of this kind of information may not

act in these markets at all (e.g., pressure groups such

as Greenpeace).

In contrast to agency theory, the legitimacy theory

provides a more comprehensive perspective on CSR

disclosure as it explicitly recognizes that businesses

are bound by the social contract in which the firms

agree to perform various socially desired actions in

return for approval of their objectives and other

rewards, and this ultimately guarantees their con-

tinued existence (Brown and Deegan, 1998; Dee-

gan, 2002; Guthrie and Parker, 1989). Gray et al.

(1995) and Hooghiemstra (2000), among others,

argue that most insights into CSR disclosure ema-

nate from the use of this theoretical framework

which posits that social and environmental disclosure

is a way to legitimize a firm’s continued existence or

operations to the society. Perrow (1970) defines

legitimacy as a generalized perception or assumption

that the actions of an entity are desirable, proper, or

appropriate within some socially constructed system

of norms, value, beliefs, and definitions. Although

firms have discretion to operate within institutional

constraints, failure to conform to critical, institu-

tionalized norms of acceptability can threaten the

firm’s legitimacy, resources, and, ultimately, its sur-

vival (DiMaggio and Powell, 1983; Oliver, 1991;

Scott, 1987). Meyer and Rowan (1977) assert that:

‘as the issues of safety and environmental pollution

arise, and as relevant professions and programs

become institutionalized in laws, union ideologies

and public opinion, organizations incorporate these

programs and professions’ (Meyer and Rowan,

1977, p. 345). Jennings and Zandbergen (1995)

argue that the type of institutional pressure, be it

coercive, mimetic, or normative, influences the rate

at which sustainable development practices diffuse

among firms. Reinforcing the previous arguments,

many prior studies on corporate disclosures have

provided evidence that firms do voluntarily disclose

information in their annual reports as a strategy to

manage their legitimacy (Campbell, 2000; Deegan

and Rankin, 1996; Hutchings and Taylor, 2000;

Nasi et al., 1997; Patten, 1991; Woodward et al.,

2001). Thus, CSR disclosure can be viewed as a

constructed image or symbolic impression of itself

that a firm is conveying to the outside world to

control its political or economic position (Neu et al.,

1998).

Finally, the stakeholder theory explicitly considers

the expectations impact of the different stakeholder

groups within society upon corporate disclosure

policies. Under the managerial branch of stakeholder

theory, the central thesis that emerges is that cor-

porate disclosure is a management tool for managing

the informational needs of the various powerful

stakeholder groups (employees, shareholders, inves-

tors, consumers, public authorities and NGOs, …). Managers use information to manage or manipulate

the most powerful stakeholders in order to gain their

support which is required for survival (Gray et al.,

1996). In relation to the overlap between legitimacy

theory and stakeholder theory, Deegan (2002,

p. 295) state that ‘‘both theories conceptualise the

organisation as part of a broader social system

wherein the organisation impacts, and is impacted

by, other groups within society. Whilst legitimacy

Determinants of Corporate Social Responsibility Disclosure 353

theory discusses the expectations of society in gen-

eral (as encapsulated within the ‘social contract’),

stakeholder theory provides a more refined resolu-

tion by referring to particular groups within society

(stakeholder groups). Essentially, stakeholder theory

accepts that because different stakeholder groups will

have different views about how an organisation

should conduct its operations, there will be various

social contracts ‘negotiated’ with different stake-

holder groups, rather than one contract with society

in general. Whilst implied within legitimacy theory,

stakeholder theory explicitly refers to issues of

stakeholder power, and how a stakeholder’s relative

power impacts their ability to ‘coerce’ the organi-

sation into complying with the stakeholder’s

expectations.’’

While there are some similarities, the previous

three alternative theories essentially differ on the

basis of fundamental assumptions. Unlike the agency

or positive accounting theory, legitimacy theory and

stakeholder theory make no assumption of rational,

wealth-maximizing individuals operating within the

environment of efficient capital markets. On the

other hand, while Woodward et al. (1996) have

shown that both legitimacy theory and stakeholder

theory consider an organization to be part of the

wider social system, legitimacy theory looks at

society as a whole, whereas stakeholder theory

recognizes that some groups within the society are

more powerful than others. We posit that the

alternative theories which are of value in studies of

CSR disclosure policies focus upon distinct per-

spectives of the same issue. Hence, the different

theories outlined should not be seen as competing

perspectives, but rather as alternative ways of com-

prehending and studying organizational decisions to

disclose different kinds of information to the public.

Determinants of CSR disclosure:

development of hypotheses

Empirical studies have shown that CSR disclosure

activism varies across companies, industries, and time

(Gray et al., 1995, 2001; Hackston and Milne, 1996).

They have also shown this behavior to be impor-

tantly and systematically determined by a variety of

firm and industry characteristics that influence

the relative costs and benefits of disclosing such

information (Belkaoui and Karpik, 1989; Cormier

and Magnan, 2003; Cormier et al., 2005; Hackston

and Milne, 1996; Patten, 2002a, b). The theories

that seem to have been most successful in explaining

the content and extent of social and environmental

reporting are system-oriented theories, above all

legitimacy and stakeholder theories (Gray et al.,

1995; Milne, 2002). According to these theories,

social disclosure is in first hand used in order

to guard corporations’ reputation and identity

(Hooghiemstra, 2000). Both Adrem (1999) and

Cormier et al. (2005) argue, however, that disclo-

sures are a complex phenomenon that cannot be

explained by one single theory. As pointed out by

Gray et al. (1995), if the aim of the study is to ex-

plain an empirical phenomenon, it could be a

problem when theories are looked upon as com-

petitive instead of complementary. Hence, in this

study we have an eclectic approach and use a multi-

theoretical framework in order to explain the dif-

ferences in CSR disclosure practices between

Spanish listed firms. Next, we discuss each of the

explanatory factors analyzed.

Size

The public pressure perspective of legitimacy theory

is concerned with public and, consequently, gov-

ernment intrusions into the activities of organiza-

tions that are deemed to violate their social contract.

This perspective parallels Watts and Zimmerman’s

(1986) political cost hypothesis in that larger com-

panies are deemed to be more highly exposed to

public scrutiny. Watts and Zimmerman (1986) argue

that large companies are more visible to the public,

have more market power, and are more newswor-

thy. Hence, they are more likely to be subject to

public resentment, consumer hostility, militant

employees, and the attention of government regu-

latory bodies. Large corporations do have a bigger

effect on the community, and therefore normally

have a bigger group of stakeholders that influence

the corporation (Hackston and Milne, 1996; Knox

et al., 2006). Hence, voluntary disclosures can be

explained as an effort to avoid regulations and reduce

political costs (Adams et al., 1998; Clarke and

Gibson-Sweet, 1999; Gray et al., 1995; Ness and

Mirza, 1991). Dowling and Pfeffer (1975) argue that

354 Carmelo Reverte

larger firms are more politically visible, thus they are

expected to engage more heavily in legitimating

behavior. From an empirical perspective, various

studies have found that there is a positive relation-

ship between CSR disclosure and firm size or

political visibility (Adams et al., 1998; Cullen and

Christopher, 2002; Hamid, 2004; Haniffa and

Cooke, 2005; Hossain et al., 1995; Neu et al., 1998;

Patten, 1991). Hence, the discussion above leads us

to the hypothesis that:

H1: There is a positive significant relationship

between firm size and CSR disclosure.

Industry sensitivity

In previous research, industry, together with size, is

the most common variable in order to explain the

content and extent of social and environmental dis-

closures (Adams et al., 1998; Cowen et al., 1987;

Gray et al., 1995). The results from these studies show

that corporations from industries whose manufac-

turing process has a negative influence on the

environment disclose and report considerably more

information than corporations from other industries.

In general, corporations from the mining, oil, and

chemical industries emphasize information regarding

environmental, health, and safety issues (Clarke and

Gibson-Sweet, 1999; Jenkins and Yakovleva, 2006;

Line et al., 2002; Ness and Mirza, 1991), while the

finance and service industries in general seem to

report more regarding social issues and philanthrop-

ical deeds (Clarke and Gibson-Sweet, 1999; Line

et al., 2002). A body of empirical literature associates

the metals, resources, paper and pulp, power gener-

ation, water, and chemicals sectors with high envi-

ronmental impacts (Bowen, 2000; Hoffman, 1999;

Morris, 1997). In contrast, other industries, particu-

larly newer manufacturing industries and the service

sector, have significantly lower environmental

impacts and are associated with fewer visible envi-

ronmental issues. Therefore, companies in these

industries are expected to be subject to significantly

less stakeholder pressure regarding their environ-

mental performance, and so would be expected to

display a lesser degree of disclosure activism. Hence,

the discussion above leads us to the hypothesis that:

H2: There is a positive significant relationship be-

tween industry environmental sensitivity and

CSR disclosure.

Profitability

There are several studies, mainly based on the

stakeholder theory, that suppose a positive relation-

ship between social disclosure policy and profit-

ability (Belkaoui and Karpik, 1989; Cowen et al.,

1987; Ismail and Chandler, 2005; Roberts, 1992;

Ullmann, 1985), although it should be noted that the

empirical results do not always confirm that positive

relationship (Archel, 2003; Brammer and Pavelin,

2008; Carmona and Carrasco, 1988; Garcı́a-Ayuso

and Larrinaga, 2003; Moneva and Llena, 1996;

Roberts, 1992). According to Belkaoui and Karpik

(1989), the underlying cause of a positive relation-

ship between social disclosure policy and profit-

ability is management’s knowledge. A management

that has the knowledge to make a company profit-

able also has the knowledge and understanding of

social responsibility, which leads to more social and

environmental disclosures. In the context of the

agency and political cost theories, Giner (1997)

points out that management in very profitable

corporations provide more detailed information in

order to support their own position and compensa-

tion. Ng and Koh (1994) point to the fact that

profitable corporations are more exposed to political

pressure and public scrutiny, and therefore use more

self-regulating mechanisms, for instance voluntary

disclosure of information, in order to avoid regula-

tion. The most obvious and explicit explanation

might be that profitable corporations have the nec-

essary economical means – the so-called organiza-

tional slack (Cowen et al., 1987; Hackston and

Milne, 1996; Pirsch et al., 2007). In a corporation

with less economical resources, management will

probably focus on activities that have a more direct

effect on the corporation’s earnings than the pro-

duction of social and environmental disclosures

(Roberts, 1992; Ullmann, 1985). However, from a

legitimacy theory perspective, profitability can

be regarded to be either positively or negatively

related to CSR disclosure (Neu et al., 1998). As

these authors point out, where the organization is

Determinants of Corporate Social Responsibility Disclosure 355

profitable, environmental disclosures would, for

those stakeholders who value the environment, give

confirmation that profit has not been at the expense

of the environment. Conversely, in periods of rela-

tive unprofitability, these same disclosures might be

either directed at convincing financial stakeholders

that current environmental investments will result in

long-term competitive advantages or at distracting

attention from the financial results. Thus, we do

not make any a priori assumption about the sign

of the association between CSR disclosure and

profitability.

H3: There is a significant relationship between

profitability and CSR disclosure.

Ownership structure

The degree to which ownership of company stock is

concentrated in the hands of a few large investors or

dispersed among many has been proposed as an

influence on disclosure policy (Roberts, 1992;

Ullmann, 1985). Opportunistic management

behavior and conflict of interests between agents and

principals are more likely to occur in corporations

with more dispersed ownership. In a widely held

company, voluntary disclosure can act as a bonding

and monitoring tool reducing agency conflicts

between managers and shareholders (Jensen and

Meckling, 1976). Evidence suggests that ownership

dispersion across many investors contributes to

increased pressure for voluntary disclosure (Cullen

and Christopher, 2002; Ullmann, 1985). Hence,

corporations with many owners are in general

expected to disclose more information than corpo-

rations with concentrated ownership in order to

reduce information asymmetries between the orga-

nization and its shareholders (Prencipe, 2004). Firms

whose shares are widely held are more likely to

improve their financial reporting policy by using

their CSR disclosure in order to reduce these

asymmetries. On the contrary, firms with a con-

centrated ownership structure are less motivated to

disclose additional information on their CSR, insofar

as the shareholders of these firms can obtain infor-

mation directly from the firm. Reinforcing the

previous arguments, Brammer and Pavelin (2008)

evidence, in the context of environmental infor-

mation, that having greater ownership concentration

makes a firm less likely to disclose an environmental

policy. Thus, we hypothesize that:

H4: There is a negative relationship between CSR

disclosure and concentrated ownership.

International listing

According to Cooke (1989), when a firm is listed on a

foreign exchange, it will disclose more detailed

information since it may need to observe the disclo-

sure rules of two or more stock exchanges, and it will

attract more analyst coverage. In this respect, disclo-

sure serves to limit the monitoring and agency costs

resulting from the existence of a greater number of

shareholders. Reinforcing the previous arguments,

Singhvi and Desai (1971), Cooke (1989), Hossain

et al. (1994, 1995) and Robb et al. (2001) find

international listing status to be a significant deter-

minant of the voluntary disclosure level. Thus, we

hypothesize that:

H5: There is a positive significant relationship

between CSR disclosure and international listing.

Media exposure

Legitimacy theory research extends to examining the

role media coverage plays in increasing the public

policy pressures faced by companies (Patten, 2002b).

The total amount of media coverage raises the firm’s

visibility, inviting further public attention and scru-

tiny. The media can play an important role in

mobilizing social movements such as environmental

interest groups. In doing so, it becomes part of the

institution-building process, shaping the norms of

acceptable and legitimate CSR practices. According

to Simon (1992), the media is the main source of

environmental information. The media not only

plays a passive role in shaping institutional norms,

but also a more active one by choosing the stories

worth reporting and framing them to reflect editorial

values. Empirical studies have shown that the media

has been particularly influential on corporate envi-

356 Carmelo Reverte

ronmental responses (Bansal and Clelland, 2004;

Bansal and Roth, 2000; Bowen, 2000; Henriques

and Sadorsky, 1996). Based on these arguments, the

following hypothesis is tested:

H6: There is a positive significant relationship

between CSR disclosure and media exposure.

Leverage

Within the context of the agency theory, Jensen and

Meckling (1976) argue that more highly leveraged

firms disclose voluntary information in order to

reduce their agency costs and, as a result, their cost of

capital. However, Brammer and Pavelin (2008)

sustain that a low degree of leverage ensures that

creditor stakeholders will exert less pressure to

constrain managers’ discretion over CSR activities,

which are only indirectly linked to the financial

success of the firm. Purushothaman et al. (2000) also

predict a negative relationship between leverage and

CSR disclosure in that companies with high leverage

may have closer relationships with their creditors and

use other means to disclose social responsibility

information. Thus, we do not make any a priori

assumption about the sign of the association between

CSR disclosure and leverage. The following

hypothesis is thus tested:

H7: There is a significant relationship between

CSR disclosure and leverage. 1

Data and method of estimation

CSR ratings: the dependent variable

Our data on CSR disclosure ratings come from the

Observatory on corporate social responsibility

(OCSR). This is an association integrated by four-

teen organizations that represent civil society,

NGOs, trade unions, and consumer organizations. It

is a network that fosters participation and coopera-

tion between social organizations that, from different

points of view, are interested in CSR. The OCSR

issues each year a very exhaustive report on CSR

disclosures by Spanish listed firms included in the

IBEX35 index, which comprises the largest 35 firms

in terms of market capitalization. Each of the cov-

ered firms is assigned a numerical rating (ranging

from 0 to 4 in a continuous scale) based on the

adherence of their CSR disclosures to the following

rules/recommendations: (a) Global Reporting Ini-

tiative (GRI)’s Guidelines (G2 and G3); (b) United

Nations Norms on the Responsibilities of Transna-

tional Corporations and Other Business Enterprises

with Regard to Human Rights [U.N. Doc. E/

CN.4/Sub.2/2003/38/Rev.2 (2003)]; (c) AA1000

Accountability Principles issued by the Institute of

Social and Ethical AccountAbility); (d) New Eco-

nomics Foundation (NEF) Principles and (e) Cor-

porate Governance recommendations issued by the

Spanish stock market regulator and, in the case of

US cross-listed firms, the Sarbanes-Oxley Law. We

focus on the following three ratings reported by the

OCSR:

a) Total CSR score (TCSR), which captures the

overall adherence of a firm’s CSR disclosure

practices to the previous rules/recommenda-

tions;

b) CSR Content Rating (CR), which evaluates

the concordance of the information provided

by a firm to the recommendations reported in:

• GRI Performance Indicators section related to:

• economic perfomance • environmental performance • social performance

– human rights

– labor practices and decent work

– society

– product responsibility

• United Nations Norms on the Responsibili- ties of Transnational Corporations and Other

Business Enterprises with Regard to Human

Rights (especially in the fields of protection

of consumer rights and corruption);

c) CSR Management Systems Rating (MSR),

which evaluates the adherence of the pro-

cesses and management systems in the CSR

area to those outlined in:

Determinants of Corporate Social Responsibility Disclosure 357

• GRI’s Profile section. • GRI’s Principles (relevance/materiality,

stakeholder inclusiveness, reliability/audit-

ability, neutrality, sustainability context,

accuracy, comparability, clarity, complete-

ness, timeliness, transparency).

• AA1000 Principles (completeness, material- ity, regularity and timeliness, quality assur-

ance, information quality, embeddedness,

continuous improvement, accessibility).

• NEF’s Principles (inclusivity, completeness, comparability, embeddedness, disclosure,

external verification, continuous improve-

ment, evolution).

Explanatory variables measurement

Media exposure

To develop a measure of the companies’ media

exposure, the number of articles in the two main

Spanish business newspapers (‘Expansión’ and

‘Actualidad Económica’) was counted. Company

exposure was measured by using the search facilities

present on the web pages of those newspapers for

each of the 2 years analyzed (2005 and 2006). 2

Profitability

In order to measure corporate performance, either

accounting- or market-based measures can be used.

In contrast with accounting-based measures, market-

based measures are less subject to bias by managerial

manipulation and they do not rely on past perfor-

mance (McGuire et al., 1988). However, they are

based on investors’ viewpoints on company perfor-

mance, thus ignoring other important stakeholder

groups. This is the main reason for adopting an

accounting-based variable in our paper, such as

return on assets (ROA) (Belkaoui and Karpik, 1989;

Bewley and Li, 2000; Brammer and Pavelin, 2008;

Cormier et al., 2004; Patten, 1991).

Industry sensitivity

In this study, ‘‘more sensitive’’ industries are con-

sidered to be those with more risk of being criticized

in CSR matters because of their activities involving

higher risk of environmental impact. Based on prior

literature, the following ‘‘more sensitive’’ sectors are

identified: mining, oil and gas, chemicals, forestry

and paper, steel and other metals, electricity, gas

distribution, and water. All others are considered as

‘‘less sensitive.’’ A one/zero variable is used to des-

ignate companies from these industries: one if the

company is from a more sensitive industry and zero

if it is from a less sensitive industry.

International listing

International listing is measured by the number of

foreing stock markets in which the firm is listed.

Company size

Following prior research, size is measured as the

natural logarithm of market capitalization. 3

Ownership concentration

This variable is measured from data concerning

significant shareholdings from 2005 and 2006 annual

reports of the sample companies. Thus, if a firm has a

majority shareholder we assign it a value of 1 and if

not it is assigned a zero value.

Leverage

This variable is measured as long-term debt/book

value of equity (Cormier et al., 2005). 4

Sample

Our sample comprises those firms covered by the

OCSR report, i.e., Spanish firms listed on the

Madrid Stock Exchange and included in

the IBEX35 index. However, due to the fact that

most of our explanatory variables are based on

accounting data, we have excluded financial firms

because of the particular characteristics of their

accounting system. Moreover, since all firms under

study present consolidated accounts and they had

to be prepared in accordance with International

Financial Reporting Standards (IFRS) issued by the

IASB from 2005 onward – Regulation 1606/2002 of

the European Commission – we have chosen fiscal

years 2005 and 2006 so as to ensure comparability in

accounting data. After eliminating firms with

extreme values for some of the explanatory variables,

the final sample comprises 46 observations. 5

358 Carmelo Reverte

Empirical models

The statistical analysis conducted in this study

includes the use of linear regression models to ana-

lyze the relationship between CSR ratings and each

of the influencing factors referred to in the previous

section. The three estimated models differ in their

dependent variables: Total CSR (TSCR), CSR

Content Rating (CR), and CSR Management Sys-

tems Rating (MSR). The approach adopted in the

empirical analysis is summarized by the following

general form of the models:

CSR ratingi ¼b0 þ b1MEi þ b2ILi þ b3INDi þ b4SIZEi þ b5OWNERi þ b6ROAi þ b7LEVi þ ei

where, ME: media exposure; IL: International list-

ing; IND: Industry environmental sensitivity;

SIZE: Firm’s size; OWNER: Ownership concen-

tration; ROA: Profitability (return on assets); LEV:

Leverage.

Results

Table I reports the descriptive statistics of the

dependent and independent variables considered in

our study. It can be seen a high variability in CSR

practices across Spanish listed firms, as the total CSR

rating varies from 0.170 to 1.940. As the maximum

value is 4, we can assert that the degree of infor-

mation on CSR by Spanish listed firms is still rather

low.

Table II reports the correlation coefficients among

our set of independent variables. It can be seen that

some correlations are statistically significant at a 1%

level, such as those between size and media exposure

(q = 0.599), industry and leverage (q = - 0.465) and leverage and return on assets (q = - 0.526). How- ever, none of the variance inflation factors (VIFs)

– not reported – exceed the critical value of 10. Thus,

it can be said that multicollinearity is not a serious

problem in our study.

Table III reports the mean values of the explan-

atory variables under analysis across the several CSR

disclosure ratings for both firms with a rating higher

than the median and those with a rating lower than

the median. To test the statistical significance of the

mean differences in the explanatory variables

between both groups of firms, we perform a t-test (if

the variable is normally distributed) and a Wilcoxon

signed-rank test (if the variable is non-normally

distributed). It can be observed that firms with a

total CSR rating higher than the median operate in a

more environmentally sensitive industry (p = 0.008),

have a higher media exposure (p = 0.000), a larger

size (p = 0.010), and a less concentrated ownership

(p = 0.004), as compared to those firms with a CSR

rating lower than the median. However, although

firms disclosing more on CSR activities are listed on a

higher number of foreign stock markets, have a lower

leverage and are more profitable, these differences are

not significantly different, at a 5% level, between

both groups of firms. It should be noted that the

results are generally consistent across the other two

CSR ratings.

Table IV reports the results of regressing the

explanatory factors on the various CSR ratings. The

first rows of each panel present the results of

regressing the explanatory factors one by one on the

CSR ratings, while the last row combines all the

explanatory variables together. When considered

individually, it can be seen that firms with higher

CSR ratings present a statistically significant larger

size, and a higher media exposure. Also, firms with

higher CSR ratings belong to more environmentally

sensitive industries, and are listed in a higher number

of foreign stock markets. As regards ownership

structure, firms with higher CSR ratings have a less

concentrated ownership. However, neither ROA

nor leverage seem to explain differences in CSR

disclosure practices between Spanish listed firms. In

terms of R 2 , the most influential variable for

explaining firms’ variation in total CSR ratings is

media exposure (R 2

= 0.338), followed by size

(R 2

= 0.186) and industry (R 2

= 0.164). When

pulling all the explanatory factors together, they

explain between 42.9% and 47.5% of the variation of

the several CSR ratings. The variables that are sta-

tistically significant for all the CSR ratings are those

related to public or social visibility (i.e., size, media

exposure, and industry environmental sensitivity).

According to these results, it seems that the legiti-

macy theory is the most relevant theory for

explaining CSR disclosure practices of Spanish listed

firms. Thus, Spanish firms report on CSR activities

in order to respond to public pressures and build or

Determinants of Corporate Social Responsibility Disclosure 359

sustain corporate legitimacy. In this regard, CSR

disclosure can be viewed as a constructed image or

symbolic impression of itself that a firm is conveying

to the outside world to control its political or eco-

nomic position (Neu et al., 1998).

Concluding remarks

The goal of this study is to analyze whether a

number of firm and industry characteristics, as well

as media exposure, are potential determinants of

CSR disclosure practices by Spanish listed firms.

Empirical studies have shown that CSR disclosure

activism varies across companies, industries, and

time (Gray et al., 1995, 2001; Hackston and

Milne, 1996). They have also shown this behavior

to be importantly and systematically determined

by a variety of firm and industry characteristics

that influence the relative costs and benefits

of disclosing such information (Belkaoui and

Karpik, 1989; Cormier and Magnan, 2003;

Cormier et al., 2005; Hackston and Milne, 1996;

Patten, 2002a, b).

TABLE I

Descriptive statistics for the dependent and independent variables

Variable Mean Median SD Minimun Maximum

Dependent variables

TCSR 1.150 1.245 0.485 0.170 1.940

CR 0.835 0.855 0.491 0.020 1.670

MSR 1.194 1.315 0.614 0.020 2.210

Independent variables

ME 69.369 43.000 57.047 6.000 268.000

IL 5.783 6.000 3.039 1.000 12.000

IND 0.456 0.000 0.504 0.000 1.000

SIZE 15.935 15.965 0.936 14.280 18.190

OWNER 0.283 0.000 0.455 0.000 1.000

ROA 0.052 0.047 0.033 0.003 0.174

LEV 3.804 3.032 2.769 0.659 13.789

Notes: TCSR: Total corporate social responsibility index; CR: CSR Content rating; MSI: CSR Management Systems

rating; ME: Media exposure; IL: International listing; IND: Industry environmental sensitivity; SIZE: Firm’s size;

OWNER: Ownership concentration; ROA: Return on assets; LEV: Long-term debt/book value of equity. See variables

measurement in the text.

TABLE II

Correlation coefficients among independent variables

ME IL IND SIZE OWNER ROA LEV

ME 0.345* 0.370* 0.599** -0.307* 0.018 -0.071

IL -0.021 0.325* 0.045 0.062 0.076

IND 0.063 -0.381** 0.035 -0.465**

SIZE -0.093 0.317* 0.059

OWNER 0.043 0.302*

ROA -0.526**

Notes: ME: Media exposure; IL: International listing; IND: Industry environmental sensitivity; SIZE: Firm’s size;

OWNER: Ownership concentration; ROA: Return on assets; LEV: Long-term debt/book value of equity. See variables

measurement in the text.

*Significant at a 5% level, **Significant at a 1% level.

360 Carmelo Reverte

Our findings evidence that firms with higher CSR

ratings present a statistically significant larger size and

a higher media exposure, and belong to more envi-

ronmentally sensitive industries, as compared to firms

with lower CSR ratings. However, neither profit-

ability nor leverage seem to explain differences in

CSR disclosure practices between Spanish listed

firms. The most influential variable for explaining

firms’ variation in CSR ratings is media exposure,

followed by size and industry. Therefore, it seems that

the legitimacy theory, as captured by those variables

related to public or social visibility, is the most rele-

vant theory for explaining CSR disclosure practices

of Spanish listed firms. Thus, Spanish firms report on

CSR activities mainly to act and be seen acting within

the bounds of what is considered acceptable accord-

ing to the expectations of stakeholders on how their

operations should be conducted.

Moreover, the results of this study suggest that

factors which influence CSR practices of Spanish

listed companies are not significantly different than

those which influence CSR of companies in other

TABLE III

Differences in the value of the explanatory variables between firms with higher and lower CSR ratings

Variables Firms with TCSR > median Firms with TCSR < median Difference (p-value in parentheses)

Panel A: Total CSR rating (TCSR)

ME 98.522 40.217 58.305 (0.000)

IL 6.304 5.261 1.043 (0.076)

IND 0.652 0.261 0.391 (0.008)

SIZE 16.287 15.583 0.704 (0.010)

OWNER 0.087 0.478 -0.391 (0.004)

ROA 0.057 0.047 0.010 (0.095)

LEV 3.016 4.592 -1.576 (0.191)

Variables Firms with CR > median Firms with CR < median Difference (p-value in parentheses)

Panel B: CSR Content Rating (CR)

ME 102.261 36.478 65.783 (0.000)

IL 6.739 4.826 1.913 (0.031)

IND 0.739 0.174 0.565 (0.000)

SIZE 16.302 15.568 0.734 (0.007)

OWNER 0.217 0.348 -0.131 (0.331)

ROA 0.055 0.049 0.006 (0.286)

LEV 3.468 4.139 -0.671 (0.448)

Variables Firms with MSR > median Firms with MSR < median Difference (p-value in parentheses)

Panel C: CSR Management Systems Rating (MSR)

ME 99.087 39.652 59.435 (0.000)

IL 6.304 5.261 1.043 (0.250)

IND 0.696 0.217 0.479 (0.001)

SIZE 16.274 15.596 0.678 (0.013)

OWNER 0.087 0.478 -0.391 (0.004)

ROA 0.057 0.047 0.010 (0.062)

LEV 2.742 4.865 -2.123 (0.063)

Notes: ME: Media exposure; IL: International listing; IND: Industry environmental sensitivity; SIZE: Firm’s size;

OWNER: Ownership concentration; ROA: Return on assets; LEV: Long-term debt/book value of equity. See variables

measurement in the text.

Determinants of Corporate Social Responsibility Disclosure 361

T A

B L E

IV

R e g re

ss io

n re

su lt s

o f

C S R

ra ti n g s

o n

th e

e x p la

n at

o ry

fa c to

rs

In te

rc e p t

M E

IL IN

D S IZ

E O

W N

E R

R O

A L E

V R

2

P an

el A

: T

ot al

C S R

R at

in g

(T C

S R

)

0 .8

0 7

(0 .0

0 0 )*

0 .0

0 5

(0 .0

0 0 )*

0 .3

3 8

0 .8

7 4

(0 .0

0 0 )*

0 .0

4 8

(0 .0

3 4 )*

* 0 .0

9 0

0 .9

7 2

(0 .0

0 0 )*

0 .3

9 0

(0 .0

0 3 )*

0 .1

6 4

- 2 .4

1 8

(0 .0

2 8 )*

* 0 .2

2 4

(0 .0

0 0 )*

0 .1

8 6

1 .2

4 0

(0 .0

0 0 )*

- 0 .3

1 8

(0 .0

2 2 )*

* 0 .0

8 9

1 .0

7 1

(0 .0

0 0 )*

1 .5

2 1

(0 .5

0 0 )

0 .0

1 0

1 .2

4 2

(0 .0

0 0 )*

- 0 .0

2 4

(0 .3

6 0 )

0 .0

1 9

- 1 .8

9 9

(0 .0

9 5 )*

* *

0 .0

0 3

(0 .0

4 6 )*

* 0 .0

2 3

(0 .1

4 2 )

0 .2

5 3

(0 .0

5 3 )*

* *

0 .1

7 2

(0 .0

1 6 )*

* -

0 .1

2 2

(0 .2

1 2 )

1 .0

1 5

(0 .7

0 6 )

0 .0

1 0

(0 .7

6 2 )

0 .4

2 9

P an

el B

: C

S R

C on

te n t

R at

in g

(C R

)

0 .4

8 6

(0 .0

0 0 )*

0 .0

0 5

(0 .0

0 0 )*

0 .3

4 2

0 .6

3 2

(0 .0

0 )*

0 .0

3 5

(0 .0

9 9 )*

* *

0 .0

4 7

0 .6

2 7

(0 .0

0 0 )*

0 .4

5 6

(0 .0

0 0 )*

0 .2

1 8

- 3 .2

6 4

(0 .0

0 3 )*

* 0 .2

5 7

(0 .0

0 0 )*

0 .2

4 0

0 .8

1 6

(0 .0

0 0 )*

- 0 .2

8 6

(0 .0

2 2 )*

* 0 .0

7 0

0 .7

6 9

(0 .0

0 0 )*

1 .2

8 9

(0 .5

7 4 )

0 .0

0 7

0 .9

2 3

(0 .0

0 0 )*

- 0 .0

2 3

(0 .3

8 8 )

0 .0

1 7

- 3 .1

3 6

(0 .0

0 6 )*

* *

0 .0

0 2

(0 .0

8 2 )*

* *

0 .0

0 6

(0 .3

7 9 )

0 .3

5 5

(0 .0

1 1 )*

* 0 .2

3 6

(0 .0

0 1 )*

0 .0

4 0

(0 .3

9 2 )

0 .0

6 2

(0 .9

8 0 )

0 .0

0 8

(0 .8

0 6 )

0 .4

7 5

P an

el C

: C

S R

M an

ag em

en t

S y st em

s R

at in

g (M

S R

)

0 .7

6 5

(0 .0

0 0 )*

0 .0

0 6

(0 .0

0 0 )*

0 .3

2 9

0 .9

0 7

(0 .0

0 0 )*

0 .0

4 9

(0 .0

6 5 )*

* *

0 .0

6 0

0 .9

4 9

(0 .0

0 0 )*

0 .5

3 6

(0 .0

0 0 )*

0 .1

9 3

- 2 .8

4 7

(0 .0

4 8 )*

* 0 .2

5 3

(0 .0

0 2 )*

0 .1

4 9

1 .3

1 8

(0 .0

0 0 )*

- 0 .4

4 2

(0 .0

0 4 )*

0 .1

0 7

1 .1

1 0

(0 .0

0 0 )*

1 .6

0 6

(0 .5

7 4 )

0 .0

0 7

1 .3

4 3

(0 .0

0 0 )*

- 0 .0

3 9

(0 .2

3 8 )

0 .0

0 9

- 2 .3

2 7

(0 .1

0 8 )

0 .0

0 3

(0 .0

3 7 )*

* 0 .0

2 0

(0 .2

3 1 )

0 .3

3 1

(0 .0

4 9 )*

* 0 .2

0 3

(0 .0

2 3 )*

* 0 .1

6 6

(0 .1

9 8 )

0 .8

4 4

(0 .8

0 6 )

0 .0

0 4

(0 .9

1 8 )

0 .4

7 5

N ot

es : T

h e

T ab

le re

p o rt

s th

e re

su lt s fr

o m

re g re

ss in

g th

e se

v e ra

l C

S R

ra ti n g s o n

th e

v ar

io u s e x p la

n at

o ry

fa c to

rs . T

h e

fi rs

t se

v e n

ro w

s o f e ac

h p an

e l re

p o rt

th e

re su

lt s

fr o m

re g re

ss in

g th

e se

v e ra

l C

S R

ra ti n g s o n

th e

e x p la

n at

o ry

fa c to

rs o n e

b y

o n e , w

h il e

th e

la st

ro w

o f e ac

h p an

e l re

p o rt

s th

e re

su lt s fr

o m

th e

fo ll o w

in g

m o d e l:

C S R

ra ti n g

i ¼

b 0 þ

b 1 M

E i þ

b 2 IL

i þ

b 3 IN

D i þ

b 4 S IZ

E i þ

b 5 O

W N

E R

i þ

b 6 R

O A

i þ

b 7 L E

V i þ

e i ,

w h e re

, M

E :

M e d ia

e x p o su

re ;

IL :

In te

rn at

io n al

li st

in g ;

IN D

: In

d u st

ry e n v ir

o n m

e n ta

l se

n si ti v it y ; S IZ

E : F ir

m ’s

si ze

; O

W N

E R

: O

w n e rs

h ip

c o n c e n tr

at io

n ; R

O A

: R

e tu

rn o n

as se

ts ; L E

V : L o n g -t

e rm

d e b t/

b o o k

v al

u e

o f

e q u it y .

S e e

v ar

ia b le

s m

e as

u re

m e n t

in th

e te

x t.

F ig

u re

s in

p ar

e n th

e se

s re

p re

se n t th

e p -v

al u e s.

W h e n

th e re

is h e te

ro sc

e d as

ti c it y

ac c o rd

in g

to th

e W

h it e

te st

, p -v

al u e s b as

e d

o n

W h it e -a

d ju

st e d

t- st

at is ti c s ar

e re

p o rt

e d .

* S ig

n ifi

c an

t at

a 1 %

le v e l,

* * S ig

n ifi

c an

t at

a 5

% le

v e l,

* * * S ig

n ifi

c an

t at

a 1 0

% le

v e l.

362 Carmelo Reverte

environments. This is consistent with the results of

Cormier and Magnan (2003), which lead them to

suggest that the similitude in the way in which dis-

closure strategies are determined, irrespective of a

given country’s socio-cultural environment, is ‘‘an

illustration of the strong impact of globalised stock

markets on fostering convergence in corporate

practices’’ (2003, p. 58).

Notes

1 Results are similar if a market-based measure of risk,

such as beta, is used instead of leverage in the regression

models. 2

Most of the literature in this area assumes a contem-

porary relationship between media exposure and CSR

disclosure (e.g., Bansal and Clelland, 2004; Cormier

et al., 2004, 2005). But this relationship could be prob-

ably delayed, i.e., more media coverage one year could

result in more CSR disclosure in future years. In order

to test this delayed relationship, I have re-estimated the

models introducing the variable ‘Media exposure’ (ME)

with a one-year lag (MEt-1). However, this lagged var-

iable has not turned out to be statistically significant.

This result could be due to the high correlation

(q = 0.832) between media exposure in year t (MEt) and year t - 1 (MEt-1), i.e., those firms with a high

media coverage in one period tend also to be highly

followed by media in the following period. 3

Results are similar is size is proxied by the log of

total assets. 4

If leverage is measured by the ratio total debt/total

assets the results remain unchanged. 5

Taking every year as a separate observation may

aggravate the problem of extreme values. In order to

test the existence of extreme observations that could

unduly influence our results, I have applied the most

usual diagnostic tests for detecting outliers, such as the

studentized residuals, the Cook’s D, DF-betas, and least

absolute values (LAV). These additional tests indicate

that the main results of our study are not driven by

outliers.

Acknowledgment

This work is part of the research project ECO2008-

06238-C02-01/ECON funded by the Spanish Ministry

of Education and Science and ERDF.

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Technical University of Cartagena,

Cartagena, Spain

E-mail: [email protected]

366 Carmelo Reverte