FULL PAPER ICCB BALI Dian Indriana

THE IMPACT OF COMPANY’S CHARACTERISTICS ON CORPORATE SOCIAL
RESPONSIBILITY (CSR) AND COMPANY’S PERFORMANCE
Dian Indriana1, Vidi Arini Yulimar2
1
[email protected], Semarang University, Semarang, Indonesia
2
[email protected], STMIK Provisi, Semarang, Indonesia
ABSTRACT
The research aims to analyze emprically the impact of company’s characteristics; size, profitability,
commissary board’s size, profile and leverage, on Corporate Social Responsibility (CSR) and
company’s performance in Indonesian Stock Market year 2008-2009. The population consists of 148
manufacturing companies listed in Indonesian Stock Market year 2008-2009. The sample consists of
73 companies and the sampling technique is purposive sampling. The data is secondary and collected
by using documentation method. The analysis is done by using multiple regression and the hypotheses
are tested by using t and F test. The result shows that company’s size and profitability do not have
significant impact on Corporate Social Responsibility (CSR). Profile, commissary board’s size and
leverage have significant impact on Corporate Social Responsibility (CSR), while Corporate Social
Responsibility (CSR) has significant impact on company’s performance.
Keywords : Company’s size, profitability, commissary board’s size, profile, leverage, Corporate
Social Responsibility (CSR) and company’s performance
Introduction
Information has become a basic need for investors and future investors when making
decision. One of the information frequenly demanded to be disclosed by companies is
information on Corporate Social Responsibility (CSR). CSR as the new accounting concept is
social disclosure transparency on social activities conducted by companies. The information
being disclosed is not only on companies’ financial, but also on social impact and
environment caused by companies’ activities. The underlying reason on Corporate Social is
that companies do not only have economical and legal responsibilities to their shareholders,
but also to their shareholders.
The problems of the research can be formulated as follows: Do company’s
characteristics, which are company’s size, profitability, commissary board’s size, profile and
leverage affect CSR disclosure? And does CSR disclosure have significant impact on
company’s performance?
The purposes of the research are to test empirically the effect of company’s
characteristics (company’s size, profitability, commissary board’s size, profile, and leverage)
on CSR disclosure in manufacturing companies and to test empirically the effect of CSR
disclosure on company’s performance.
Theoretical Framework and Hypotheses
Research which shows relation between company’s size and CSR are done by
Hackston and Milne (1996), Januarti et. al., (2005), Hasibuan (2001), Gray et. al., (2001),
Akhmad Nurkhin (2009), Haniffa (2005), Siegel (2006), and Yuniarti Gunawan (2000).
Based on the agency theory asumption, the research proposes hypothesis as follows:
H1 : Company’s size has effect on CSR disclosure.
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The relation between CSR disclosure and company’s profitability has been believed
as a viewpoint that social reaction needs managerial style the same with managerial style
done by the mangement to make profit (Bowman and Haire, 1976 in Sembiring, 2005).
Heinze (1976) in Gray et.al. (1995) stated that profitability is a factor which gives
freedom and flexibility to management to disclose social responsibility to shareholders. It
means that the higher the profitabililty is, the bigger the disclosure of social information is.
Empirical research on relation between CSR disclosure and profitability resulted in various
findings. Hackston and Milne (1996) in Sulastini (2007) reported that profitabilty does not
affect CSR disclosure. Research done in Indonesia by Gunawan (2000) showed that
profitability does not affect social disclosure and company’s environment. Other research
resulted differently. Donovan and Gibson (2000) in Januarti (2005) stated that based on
legitimation theory, one of the arguments on relaation between profitability and CSR
dosclosure index is when company has high profit and the management considers that it is
not necessary to report. On the other way, when profitability is low, management hopes that
report readers pay attention to good news on company’s performance, so the investors will
keep investing in that certain company. Therefore, it can be stated that profitabilty has negatif
relation with company’s CSR disclosure. Based on the inconsistency of the previous research,
this research tests again the impact of profitability on CSR disclosure of some manufacturing
companies. The hypothesis proposed is as follows:
H2 : Company’s profitability has effect on CSR disclosure.
Most research related with company profile supports that high-profile industry
discloses more of their CSR than low-profile industry. Cowen et al. (1987) in Sulistiani
(2007) stated that companies which are consumers oriented concern more about their CSR
because it will improve company’s image and affect sales. In Indonesia, Hasibuan (2001),
Utomo (2000), and Hackston and Milne (1996) listed oil and mining, chemical, forestry,
paper, automotive, airways, agricultural business, tobacco and cigarette, food and beverage,
media and communication, energy (electrical), engineering, medical, transportation and
tourism as high profile companies, while construction, financial and banking, medical tools
supplier, property, retailerm textile and its product, personal product, and houseware product
as low profile companies.
Based on the previous research, this research includes oil and mining, chemical,
forestry, paper, automotive, airways, agricultural business, tobacco and cigarette, food and
beverage, media and communication, energy (electrical), engineering, medical, transportation
and tourism in high profile companies, while construction, financial and banking, medical
tools supplier, property, retailerm textile and its product, personal product, and houseware
product in low profile companies.
Research related with social disclosure by high profile and low profile companies in
New Zealand showed that high profile companies disclose more than low profile companies
do (Hackston and Milne, 1996). The same result also showed by Hasibuan (2001), Yuliani.
(2003), Utomo (2000), and Hackston and Milne (1996). This research tests again the impact
of company’s profile on CSR disclosure by proposing this hypotesa:
H3 : Company’s profile has impact on CSR disclosure.
Related with commissary board’s size, Coller and Gregory (1999) in Sembiring
(2005) stated that the bigger the size of the commissary board is, the easier it is to control
CEO and the monitoring is more effective. If it is related with CSR disclosure, the pressure
on management to make disclosure is also bigger. Therefore, in accordance with Coller and
Gregory (1999) in Sembiring (2005), Becchetti et al (2007) and Bedi (2009), the hypothesis
proposed is:
H4 : Commissary board’s size affects CSR disclosure.
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Limited agreement like debt agreement which is pictured in leverage rate aims to limit
management capacity in creating wealth transfer between stock owners and bond owners
(Jensen and Meckling, 1976; Smith and Warner, 1979 in Bedi,2009). According to Becchetti
et al (2007), decision to disclose social information will cause an expense which will lower
the income. In accordance with agency theory, company management with high leverage rate
will reduce CSR disclosure in order to keep it from the debtholders. The research showed that
leverage has negatif impact on CSR disclosure. It is consistent with research by Bedi (2009)
and Cormier and Magnan (1999) in Sembiring (2005), the impact of leverage on CSR
disclosure will be tested, therefore the hypotheisi proposed is:
H5 : Company’s leverage has impact on CSR disclosure.
From the economy perspective, company will disclose information if the information
increases company’s value (Verecchia, 1983, in Basamalah et al, 2005). By conducting CSR,
companies expect to gain social legitimation and maximize their financial position in a long
term (Januarti, 2005). This indicates that companies with CSR expect to get positive reponse
from the market. Investors are expected to consider CSR information to be disclosed in
annual report, so that investors will not make decision only based on profit. Annual report is a
media used by companies to communicate directly with their investors. CSR information
disclosure is expected to give extra information to the investors, beside the information
mentioned in accounting profit. Based on the previous research, the third hypothesis of the
research is:
H6 : CSR disclosure has significant impact on company’s performance. memiliki pengaruh
signifikan terhadap kinerja perusahaan.
Research Method
1. Methods of sampling
Population of the research is go-public companies listed in manufacturing category
registered in Indonesian Stock Market. Sample of the research is manufacturing
companies in Indonesian Stock Market year 2008-2009, which gain profit, and have
complete information for the research. Based on the criteria, the sample in the research is
73 companies.
2. Research variables
Independent variables in the research are company’s size, profitability, profile,
commissary board’s size and leverage. Dependent variables in the research are company’s
performance. Intervening variable in the research is CSR disclosure.
CSR disclosure is environment-related information disclosure in company’s
annual report. To measure CSR disclosure, CSR index is used. CSR index is relative
disclosure rate of companies on social disclosure they conduct (Zuhroh and Sukmawati,
2003). The measurement instrument used in the checklist is based on instrument in
Sembiring (2005), who categorized CSR information into 7, which are: environment,
energy, health and occupational safety, human power, product, society involvement, and
public. These categories are adopted from research done by Hackston and Milne (1996).
They are divided into 90 disclosure items. Based on Bapepam Law no. VIII.G.2 on
annual report and their compatibility to be applied in Indonesia, the items are adapted
(Sembiring, 2005) and they become 78. Those 78 items are then adapted again based on
their industry so that each has different disclosure item. Total number of CSR is between
63 to 78, depending on in what kind of industry the company is. The approach used to
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measure CSRI basically uses dicotomy approach, which means that each CSR item in the
research instrument is given score 1 if it is disclosed, and 0 if not (Haniffa et al, 2005 in
Sayekti and Wondabio, 2007). Score from each item is then summed to get all score from
each company.
Company’s performance is company’s relative financial performance in the same
industry and marked with the industry annual return. Company’s performance is
measured by counting company’s annual return and then compared with manufacturing
industry’s annual return.
Company’s size can be measured based on number of assets, number of
workforce, sales volume and market capitalization (Januarti, 2005). In this research,
company’s size is measured with number of workforce owned by company. This
measurement is conducted to find out that the bigger the number of workforce is, the
bigger the responsibility to be disclosed is
Profitability in this research is masured with Return On Asset (ROA). ROA is
comparison between return after tax and asset to measure total investment return rate
(Stoner and Sirait, 1994 in Suratno, 2006). ROA is a measurement of company’s
effective performance in making profit by using its asset.
Dummy variabel is used to classify high profile and low profile companies. High
profile companies are given score 1 and low profile companies are given score 0.
Commissary board’s size used in this research is consistent with Beasley (2000) in
Sembiring (2006), which is number of commissary board’s member.
Leverage used in this research is consistent with Januarti (2005), which is
company’s debt ratio on its own capital.
3. Methods of Analysis
The methods of analysis used in the research is multiple regression equation. The
first equation is: Y1 = a+ b1 X1+ b2 X2+ b3 X3 + b4 X4+ b5 X5 + e, in which a is
parameter, Y1 is CSR disclosure, X1 is number of workforce, X2 is per piece return of
stock, X3 is profile, X4 is number of commissary board’s member, X5 is debt ration on
own capital, e is error and b1, b2, b3, b4, and b5 are regression coefficient.
The second equation is: Y2 = a+ b1 Y1+ e, in which a is parameter, Y1 is CSR
disclosure, Y2 is company’s performance, e is error and b1 is regression coefficient.
Data Analysis and Discussion
The result of the research shows that H1 is rejected, it means that size does not have
significant impact on disclosure. It indicates that companies which have big workforce will
disclose high social responsibilities. The research shows that textile or cigarette company
have bigger workforce than automotive company, but the disclosure of textile or cigarette
company is not as extensive as that of automotive company.
The H2 is also rejected, which means that profitability does not have significant
impact on CSR disclosure. It indicates that each company has different reasoning when it
comes to social responsibility disclosure. The result of the research shows that ROA tends to
have negative impact, which means that the higher the ROA is, the lesser the social
responsibility disclosure is. Companies which have low ROA will give excuses why it
happens, and to keep attracking the investors, companies with low ROA will give complete
information on future prospect, even if the present return is low but for the future they will
predict higher return, so that investors can analyze why companies suffer from the loss.
According to profitability theory, profitability rate aims to measure company’s capability to
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gain profit on sales rate, asset, and certain capital. Therefore, if company gains high profit,
that company will disclose more complete information in its financial report. This is
consistent with Rismanda (2006), who stated that return on assets does not affect CSR
disclosure.
The research shows that H3 is accepted, which means that profile has significant
impact on CSR disclosure. This indicates that company’s type is public view on
characteristics of company related with business field, risk, employee, and environment. This
reseach ctegorizes companies into high profile industry and low profile industry. High profile
industry has high consumers’ visibility, high political risk, and high competition level, while
low profile industry has low consumers’ visibility and low political visibility. Companies
which are categorized in high profile have higher social disclosure than companies
categorized in low profile have. The high social disclosure by high profile companies is done
to legitimate their operational activities and to lower the pressure from social activists and
surrounding environment. This is consistent with Sulastini (2007), who stated that profile has
impact on CSR disclosure.
The H4 is also accepted, which means that commissary board’s size has significant
impact on CSR disclosure. This indicates that big commissary board’s size will make more
decision making, and it is considered ineffective. Small commissary board’s size will make
agreement on social responsibility disclosure easier to be made. This result is consistent with
Sulastini (2007), who stated that commissary board’s size has impact on CSR disclosure.
The H5 is also accepted, which means that leverage has significant impact on CSR
disclosure. It indicates that companies with much debt will give more comprehensive
financial information so that creditors can analyze company’s financial position more
extensively. The result of this research is not consistent with Rismanda (2006), who stated
that leverage does not affect CSR disclosure.
The result of the research shows that H6 is accepted, which means that CSR disclosure
has significant impact on company’s performance. This result is not consistent with
Rakhiemah and Agustia, (2009), but the result is consistent with Suratno, et al (2006). It is
probably because investment decisiosn in Indonesia are made very carefully, so environment
performance alone or CSR disclosure alone does not have big impact, but simultaneously
they have significant impact on investors’ decision which refer to company’s financial
performance.
The research also shows that size, profitability, profile, commissary board’s size and
leverage simultaneously have significant impact on CSR disclosure.
Conclusion, Implication, Suggestions, and Limitations
Conclusions that can be drawn from the research are size does not have significant
impact on CSR disclosure, profitability does not have significant impact on CSR disclosure,
profile has significant impact on CSR disclosure, commissary board’s size has significant
impact on CSR disclosure, leverage has significant impact on CSR disclosure, and CSR
disclosure has significant impact on company’s performance. The result of the research
shows that company’s characteristics have significant impact on CSR disclosure, the factors
are profile, commissary board’s size and leverage, while size and profitability do not have
significant impact. That indicates that information quality in CSR disclosure is not affected
by company’s size and company’s financial ratio in this research is measured with
profitability. High profitability of a company does not guarantee that CSR disclosure is
conducted. CSR is a new issue in Indonesia, and therefore companies only disclose CSR
information as formality. This research proves that CSR dislosure improves company’s
performance, which means that CSR disclosure improves company’s accountability,
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minimize risks, protect company’s image, and is also used by investors and creditors as
analysis tool.
The implication from the research is that company should be able to improve its
quality and quantity to conduct CSR disclosure by maximizing positive impact and
minimizing negative impact from certain business activity. In a long term, company can
improve market’s performance into better performance so that it can be beneficial for the
public. For the government, which are Bapepam, LK and IAI, this research can give
contribution in formulating policies, rules, and standards related with CSR disclosure in
Indonesia.
Limitations of the research are data used in this research is mostly companies’ annual
financial report, that is why not all items on the CSR disclosure list are disclosed clearly.
This research is only conducted in manufacturing companies so the result can not be
generalized from CSR disclosure quality and the impact on economical performance.
For further research, it is suggested to use all companies listed Indonesian Stock
Market by categorizing each company into its own business field. CSRI index measurement,
which uses dicotomy approach with score 0 and 1, gives information on CSR disclosure
quality not on detail. It is suggested that the further reasearch uses masurement index with
number score, such as Likert scale (1-5).
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