Reverte, Carmelo. 2009.

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Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed FirmsAuthor(s): Carmelo ReverteReviewed work(s):Source: Journal of Business Ethics, Vol. 88, No. 2 (Aug., 2009), pp. 351-366Published by: Springer

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Journalof Business Ethics (2009) 88:351-366DOI 10.1007/sl0551-008-9968-9

Determinantsof Corporate Social

Responsibility Disclosure Ratingsby SpanishListed Firms Carmelo Reverie

© Springer 008

ABSTRACT. The aimof thispaper s to analyzewhethera numberof firm and industrycharacteristics,s well asmediaexposure,arepotentialdeterminants f corporate

socialresponsibilityCSR) disclosurepracticesby Spanishlistedfirms.Empirical tudieshave shown that CSR dis-closureactivismvariesacrosscompanies, ndustries,andtime (Gray et al., Accounting,Auditing & Accountability

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

Accounting8(3/4), 327-356, 2001; HackstonandMilne,Accounting,uditing&Accountabilityournal (1), 77-108,1996;CormierandMagnan, ournal fInternationalinan-cialManagementndAccounting(2), 171-195, 2003; Cor-mier et al.,Europeanccountingeview 4(1),3-39, 2005),whichisusuallyustifiedby referenceo several heoretical

constructs,uchas the legitimacy, takeholder, ndagencytheories.Our findingsevidence that firmswith higherCSR ratings resentastatisticallyignificantarger izeanda highermediaexposure,and belong to more environ-

mentallysensitive ndustries,as comparedto firmswithlower CSR ratings.However, neither profitabilitynor

leverageseem to explaindifferencesn CSR disclosure

practicesbetweenSpanishistedfirms.The most influen-tialvariableorexplainingirms'variationn CSR ratingssmediaexposure, ollowedby sizeand ndustry.Therefore,it seemsthat the legitimacy heory,as capturedby thosevariables elated o publicor socialvisibility, s the mostrelevant heoryforexplainingCSR disclosurepractices f

Spanishistedfirms.

KEY WORDS: corporate ocialresponsibilityisclosure,

Spain

Introduction

Over the lastfew decades herehas been a growingpublic awarenessof the role of corporations n

society.Manyof the firmswhich have been credited

with contributingto economic and technologicalprogresshave been criticized for creating social

problems.Issues such as pollution, waste, resource

depletion,productqualityandsafety, he rightsandstatusof workers,and the power of large corpora-tions have become the focus of increasingattentionand concern. In this context, companieshave been

increasingly rgedto become accountableo a wideraudiencethan shareholder nd creditorgroups.As amatter of fact, public awarenessand interest inenvironmental and social issues and increasedattention n massmedia haveresultedn more socialdisclosuresromcorporationsn the lasttwo decades

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

Hooghiemstra,2000; Kolk,

2003).In the

EuropeanUnion context, the publicationof the GreenPaper(2001) by the EuropeanCommissionlaunched awide debateon how the EU could promote cor-

poratesocialresponsibilityCSR). Althoughthereisstill no universaldefinition of CSR (GodfreyandHatch,2007), most definitionsdescribe t as a con-

cept whereby companies ntegratesocialand envi-ronmentalconcerns n theirbusinessoperationsandin their interactionwith their stakeholderson a

voluntarybasis.By acting n aresponsiblewayto the

variety of social, environmental, and economic

pressures, ompaniesrespond o the expectationsofthe variousstakeholderswith whom they interact,such as employees, shareholders, nvestors, con-sumers,public authorities,and non-governmentalorganizationsNGOs).

Companiesusually nform of theirCSR activitiesin the annualreport or in separatesocial reports(CSR Report or SustainabilityReport). However,there is no standardizationr uniformity n termsof the items reported, or the way of reporting.

This content downloaded on Sat, 2 Mar 2013 09:17:05 AMAll use subject to JSTOR Terms and Conditions






352 CarmeloReverie

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 theresearch in this field. The first one relates to

'descriptive studies,' which report on the nature andextent of CSR with some comparisons on countriesand periods. The second one is related to 'explicativestudies,' which focus on the potential determinantsof social and environmental reporting. The third oneis interested in the 'impact of social and environ-mental information' on various users, mainly on

market reaction. Our study adopts the secondorientation, as it is focused on analyzing whether anumber of firm and industry characteristics,as wellas media exposure, are potential determinants ofCSR disclosure practices by Spanish listed firms.

Empirical studies have shown that CSR disclosureactivism varies acrosscompanies, industries,and time

(Grayet al, 1995, 2001; Hackston and Milne, 1996).They have also shown this behavior to be impor-tantly and systematicallydetermined by a variety offirm and industry characteristics that influence therelative costs and benefits of disclosing such infor-

mation (Belkaoui and Karpik, 1989; Cormier andMagnan, 2003; Cormier et al., 2005; Hackston andMilne, 1996; Patten, 2002a, b).

This paper is focused on the Spanish setting forthree reasons. First, most of the present literature isbased on Anglo-American countries (US and UK)and evidence should be added about other institu-tional contexts. Second, there is scarce empiricalresearch on CSR determinants by Spanish compa-nies. Previous studies (Archel, 2003; Archel and

Lizarraga, 2001; Carmona and Carrasco, 1988;Garcia-

Ayusoand

Larrinaga, 2003;Moneva and

Llena, 1996, 2000) have mainly focused on onedimension of CSR such as environmental disclosure,and the sampleperiods analyzed in these paperswere

previous to the first compulsory regulations in Spainin the area of environmental disclosure (i.e., the

Royal Decree 437/1998 and the Resolution enactedon March 25, 2002 by the Institute of Accountingand Auditing - ICAC-). Our sample period followsthe previous mandatory regulations and also the GRI

Sustainability Reporting Guidelines, which have

been generally adopted by Spanishlisted firms in thelast years as the benchmark for CSR reporting. As a

result, CSR disclosures by Spanish firms in our

sample period aremuch more richer and extensive ascompared to previous studies in the Spanish contextin which that information was very scarce andanecdotical. Moreover, our measure of CSR not

only capturesenvironmental issues but also a numberof social aspects included in the latest developmentsin CSR worldwide, specially those stemming fromthe GRI SustainabilityReporting Guidelines and theUnited Nations Norms on the Responsibilities ofTransnational Corporations and Other Business

Enterpriseswith regardto Human Rights. Third, incontrastto the understandingof CSR from common

law English-speaking countries (Australia, Canada,UK, US), the determinants of CSR in Continental

Europe are still relatively unknown. Therefore, ourmain goal is to analyze whether the specific featuresof Spain regarding its capitalmarket and companies'financing structure result in a significant differencebetween the factors influencing CSR disclosure

practices of Spanish listed firms when compared tofirms from other different institutional contexts. In

particular, Spain is less capital market oriented thanother EU countries and financing policies are bankoriented.

The remainder of the paper is organized as fol-lows. In the following section, the theoreticalframework used is presented. Section "Determinantsof 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 empiricalanalysis. Finally, some conclusions are drawn.

A multi-theoretical framework for CSRdisclosure

Despite widespread academic and business interestinthe issue, a comprehensive theoretical framework ofthe underlying determinants of corporate social andenvironmental reporting is still elusive. The empir-ical investigations of CSR practiceshave produced a

very diverse body of academic literature which

engages different theoretical perspectives in supportof corporate social reporting, such as the agency







Determinantsf CorporateocialResponsibilityisclosure 353

theory, the legitimacy theory, and the stakeholdertheory, amongothers.

For instance, there is extensive evidence that

social and environmental information is usefulfor decision-making by financial stakeholders(Blacconiereand Northcut, 1997; Blacconiere andPatten, 1994; Graham t al., 2000; RichardsonandWelker, 2001). However, with its financial stake-holders'focus, it fails to provide a comprehensivetheoreticalfoundation to explain CSR disclosure,especiallysince most of that disclosure is non-financial.In responseto this conceptual gap, otheralternativexplanationsor CSR disclosure ave alsobeen offeredin the literature.Followingits emer-

gence as an explanatorymodel for corporate inan-

cial reporting (Watts and Zimmerman, 1986),economic agencyheoryor positiveaccountingthe-

ory)becamean appealingpropositionas a rationalefor CSR disclosure(Belkaouiand Karpik,1989).Agencytheoryviews the firm as a nexusof contractsbetween variouseconomic agentswho act oppor-tunisticallywithin efficientmarkets. n this context,socialandenvironmentaldisclosuremay prove use-ful in determining debt contractualobligations,managerial compensation contracts, or implicitpoliticalcosts. However, as indicatedby Cormieret al.

(2005),agencytheory's ocus on monetaryor

wealth considerations mong agents who trade ininformationallyfficientmarketsdoeslimit the scopeof relevantsocial and environmentaldisclosureaswell as its intended purpose, insofar as manypotentialusersof this kind of informationmay notactin thesemarketsatall (e.g., pressure roupssuchas Greenpeace).

In contrast o agencytheory, the legitimacyheoryprovidesamorecomprehensive erspective n CSRdisclosureas it explicitlyrecognizesthat businessesareboundby the socialcontract n which the firms

agreeto performvarioussociallydesiredactionsin

return for approvalof their objectives and otherrewards,and this ultimately guarantees heir con-tinued existence (Brown and Deegan, 1998; Dee-

gan, 2002; Guthrieand Parker,1989). Grayet al.

(1995) and Hooghiemstra(2000), among others,arguethatmost insights nto CSR disclosureema-nate from the use of this theoreticalframeworkwhichposits hatsocialandenvironmental isclosureis a wayto legitimizea firm'scontinuedexistenceor

operationsto the society. Perrow (1970) defines

legitimacyasa generalized erceptionor assumptionthatthe actionsof an entityaredesirable, roper,orappropriatewithin some sociallyconstructed ystem

of norms,value, beliefs, and definitions.Althoughfirms have discretion o operatewithin institutionalconstraints, ailure to conform to critical,institu-tionalized norms of acceptabilitycan threatenthefirm's egitimacy,resources,and,ultimately, ts sur-vival (DiMaggio and Powell, 1983; Oliver, 1991;Scott, 1987). Meyer and Rowan (1977) assert hat:'as the issues of safetyand environmentalpollutionarise, and as relevant professions and programsbecome institutionalizedn laws, union ideologiesandpublic opinion, organizationsncorporate heseprograms and professions' (Meyer and Rowan,

1977, p. 345). Jennings and Zandbergen (1995)argue that the type of institutionalpressure,be itcoercive, mimetic,or normative, nfluences he rateat which sustainabledevelopment practicesdiffuse

among firms.Reinforcingthe previous arguments,many prior studies on corporatedisclosureshave

providedevidence thatfirms do voluntarilydiscloseinformation n their annualreportsas a strategy o

managetheir legitimacy (Campbell,2000; Deeganand Rankin, 1996; Hutchings and Taylor, 2000;Nasi et al., 1997; Patten, 1991; Woodwardet al.,2001). Thus, CSR disclosurecan be viewed as aconstructed mage or symbolic impressionof itselfthat a firm is conveying to the outside world tocontrol tspoliticalor economicposition(Neu et al.,1998).

Finally,the stakeholderheory xplicitlyconsidersthe expectations mpactof the different takeholder

groups within society upon corporate disclosure

policies.Underthe managerialranchof stakeholder

theory, the central thesisthat emergesis that cor-

poratedisclosure s a managementool formanagingthe informationalneeds of the various powerful

stakeholder roups(employees,shareholders,nves-

tors, consumers,publicauthoritiesandNGOs, ...).Managersuse information o manageor manipulatethe mostpowerfulstakeholdersn order o gaintheir

supportwhich is required or survival Grayet al.,1996). In relation o the overlapbetweenlegitimacytheory and stakeholder theory, Deegan (2002,p. 295) statethat "both theories conceptualise he

organisationas part of a broader social systemwherein the organisation mpacts,and is impactedby, other groupswithin society. Whilst legitimacy







354 CarmeloReverie

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 theoryaccepts that because different stakeholdergroups willhave different views about how an organisationshould conduct its operations, there will be varioussocial contracts 'negotiated' with different stake-holder groups, rather than one contract with societyin general. Whilst implied within legitimacy theory,stakeholder theory explicitly refers to issues ofstakeholder 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 thebasis of fundamental assumptions.Unlike the agencyor positive accounting theory, legitimacy theory andstakeholder theory make no assumption of rational,

wealth-maximizing individuals operating within theenvironment of efficient capital markets. On theother hand, while Woodward et al. (1996) haveshown that both legitimacy theory and stakeholder

theory consider an organization to be part of thewider social system, legitimacy theory looks at

society as a whole, whereas stakeholder theoryrecognizes that some groups within the society aremore powerful than others. We posit that thealternative theories which are of value in studies ofCSR disclosure policies focus upon distinct per-spectives of the same issue. Hence, the differenttheories outlined should not be seen as competingperspectives, but rather as alternative ways of com-

prehending and studying organizational decisions todisclose different kinds of information to the public.

Determinants of CSR disclosure:

development of hypotheses

Empirical studies have shown that CSR disclosureactivism varies acrosscompanies, industries,and time

(Grayet al., 1995, 2001; Hackston and Milne, 1996).They have also shown this behavior to be impor-tantly and systematicallydetermined by a variety offirm and industry characteristics that influencethe relative costs and benefits of disclosing such

information (Belkaoui and Karpik, 1989; Cormierand Magnan, 2003; Cormier et al, 2005; Hackstonand Milne, 1996; Patten, 2002a, b). The theories

that seem to have been most successful in explainingthe 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 orderto guard corporations' reputation and identity(Hooghiemstra, 2000). Both Adrem (1999) andCormier et al. (2005) argue, however, that disclo-sures are a complex phenomenon that cannot be

explained by one single theory. As pointed out byGray et al. (1995), if the aim of the study is to ex-

plain an empirical phenomenon, it could be aproblem 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 theoryis concerned with public and, consequently, gov-ernment intrusions into the activities of organiza-tions that are deemed to violate their social contract.This perspective parallelsWatts 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) arguethat 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 biggereffect on the community, and therefore normallyhave a bigger group of stakeholders that influencethe corporation (Hackston and Milne, 1996; Knoxet al., 2006). Hence, voluntary disclosures can be

explained as an effort to avoid regulationsand 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








larger irmsare morepoliticallyvisible,thusthey are

expected to engage more heavily in legitimatingbehavior. From an empirical perspective,various

studieshave found that there is a positiverelation-ship between CSR disclosure and firm size or

politicalvisibility(Adamset al., 1998; Cullen and

Christopher, 2002; Hamid, 2004; Haniffa andCooke, 2005;Hossainet al, 1995;Neu et al., 1998;Patten,1991). Hence, the discussionabove leads usto the hypothesis hat:

HI: There is a positive significant relationshipbetween firm size and CSR disclosure.

Industry sensitivity

In previousresearch,ndustry, ogetherwith size, isthe most common variable n orderto explainthecontentand extent of social andenvironmentaldis-closures(Adamset al., 1998; Cowen et al, 1987;Gray tal.,1995).Theresultsromthesestudies howthat corporations rom industrieswhose manufac-

turing process has a negative influence on theenvironmentdiscloseandreportconsiderablymoreinformationhancorporationsrom otherindustries.

In general,corporationsrom the mining, oil, andchemical ndustries mphasizenformation egardingenvironmental, ealth,andsafety ssues(ClarkeandGibson-Sweet,1999;JenkinsandYakovleva,2006;Line et al., 2002; Ness andMirza,1991), while thefinance and service industries n general seem to

reportmoreregarding ocial ssuesandphilanthrop-ical deeds (Clarkeand Gibson-Sweet, 1999; Lineet al.,2002).A body of empiricaliterature ssociatesthe metals,resources,paperandpulp, power gener-ation, water,and chemicalssectorswith high envi-ronmental mpacts(Bowen, 2000; Hoffman, 1999;

Morris,1997). In contrast,otherindustries,particu-larlynewermanufacturingndustries nd the servicesector, have significantly lower environmental

impactsand are associatedwith fewer visible envi-ronmental issues. Therefore, companies in theseindustries reexpectedto be subject o significantlyless stakeholderpressureregardingtheir environ-mentalperformance,and so would be expected to

displaya lesserdegreeof disclosure ctivism.Hence,the discussion bove eadsus to thehypothesishat:

H2: There is a positivesignificant elationship e-tween industryenvironmental ensitivityandCSR disclosure.

Profitability

There are several studies, mainly based on thestakeholderheory,thatsupposea positiverelation-ship between social disclosurepolicy and profit-ability (Belkaouiand Karpik,1989; Cowen et al.,1987; Ismail and Chandler,2005; Roberts, 1992;Ullmann,1985),although t shouldbe noted thattheempirical esultsdo not alwaysconfirmthatpositive

relationship Archel,2003; Brammer and Pavelin,2008; Carmonaand Carrasco,1988; Garcia- yusoand Larrinaga,2003; Moneva and Llena, 1996;Roberts, 1992). Accordingto Belkaoui and Karpik(1989), the underlyingcauseof a positiverelation-ship between social disclosurepolicy and profitj-ability s management's nowledge.A managementthat has the knowledgeto make a company profit-able also has the knowledge and understanding fsocialresponsibility,which leadsto more social andenvironmental disclosures.In the context of theagency and political cost theories, Giner (1997)

points out that management in very profitablecorporationsprovide more detailed information norder to support heir own positionand compensa-tion. Ng and Koh (1994) point to the fact that

profitable orporations re more exposedto politicalpressure ndpublic scrutiny,and thereforeuse more

self-regulatingmechanisms,for instancevoluntarydisclosureof information, n order to avoidregula-tion. The most obvious and explicit explanationmightbe thatprofitablecorporationshave the nec-

essaryeconomicalmeans- the so-called organiza-tional slack (Cowen et al., 1987; Hackston and

Milne, 1996; Pirsch et al., 2007). In a corporationwith less economical resources,managementwill

probably ocus on activities hathave a more directeffect on the corporation's arnings han the pro-duction of social and environmental disclosures(Roberts,1992; Ullmann, 1985). However, from a

legitimacy theory perspective, profitability canbe regardedto be either positively or negativelyrelated to CSR disclosure(Neu et al., 1998). Asthese authorspoint out, where the organizations







356 Carmelo Reverte

profitable, environmental disclosureswould, forthosestakeholderswho value the environment,giveconfirmation hatprofithas not been at the expense

of the environment.Conversely, n periodsof rela-tive unprofitability,hese samedisclosuresmightbeeither directedat convincing financialstakeholdersthat current nvironmentalnvestmentswill result n

long-term competitive advantagesor at distractingattention from the financial results.Thus, we donot make any a priori assumptionabout the signof the associationbetween CSR disclosure andprofitability.

H3: There is a significantrelationshipbetween

profitability nd CSR disclosure.

Ownership structure

The degreeto which ownershipof companystock isconcentratedn the handsof a few large nvestorsordispersed among many has been proposed as aninfluence on disclosure policy (Roberts, 1992;Ullmann, 1985). Opportunistic managementbehaviorand conflict of interestsbetweenagentsandprincipalsare more likely to occur in corporations

with more dispersedownership.In a widely heldcompany,voluntarydisclosure an act as a bondingand monitoring tool reducing agency conflictsbetween managersand shareholders(Jensen andMeckling, 1976). Evidencesuggests hatownershipdispersion across many investors contributes toincreasedpressure or voluntarydisclosure(Cullenand Christopher,2002; Ullmann, 1985). Hence,corporationswith many owners are in generalexpectedto disclosemore information han corpo-rations with concentratedownership in order toreduceinformationasymmetries etween the orga-nizationandits shareholdersPrencipe,2004). Firmswhose shares are widely held are more likely toimprove their financialreporting policy by usingtheir CSR disclosure in order to reduce theseasymmetries.On the contrary,firms with a con-centratedownershipstructureare less motivated todiscloseadditionalnformation n theirCSR, insofaras the shareholders f these firms can obtain infor-mation directly from the firm. Reinforcing theprevious arguments,Brammer and Pavelin (2008)

evidence, in the context of environmental nfor-mation,thathavinggreaterownershipconcentrationmakesa firm esslikelyto disclosean environmental

policy. Thus, we hypothesize hat:H4: There is a negativerelationship etween CSR

disclosureand concentratedownership.

International listing

According o Cooke (1989),when afirm slistedon a

foreign exchange, it will disclose more detailedinformation inceit mayneed to observe he disclo-surerulesof two ormore stock

exchanges,and t will

attractmoreanalyst overage.In thisrespect,disclo-sure serves o limit the monitoringandagencycosts

resulting rom the existenceof a greaternumberofshareholders.Reinforcing the previousarguments,Singhvi and Desai (1971), Cooke (1989), Hossainet al. (1994, 1995) and Robb et al. (2001) findinternationalistingstatus o be a significantdeter-minant of the voluntarydisclosureevel. Thus, we

hypothesize hat:

H5: There is a positive significant relationshipbetweenCSR disclosurend nternationalisting.

Media exposure

Legitimacyheoryresearch xtends o examining herole media coverage playsin increasing he publicpolicypressuresacedby companies Patten,2002b).The total amountof mediacoverageraises he firm's

visibility, nvitingfurtherpublicattentionandscru-

tiny. The media can play an importantrole in

mobilizingsocialmovementssuchas environmental

interestgroups.In doing so, it becomespartof theinstitution-buildingprocess, shapingthe norms of

acceptableandlegitimateCSR practices.Accordingto Simon (1992), the media is the main source ofenvironmental nformation.The media not onlyplaysa passiverole in shaping nstitutionalnorms,but also a more active one by choosing the storiesworthreportingandframinghemto reflecteditorialvalues.Empirical tudieshave shown that the mediahas been particularlynfluentialon corporateenvi-







Determinants f Corporate ocialResponsibilityDisclosure 357

ronmental responses (Bansal and Clelland, 2004;Bansal and Roth, 2000; Bowen, 2000; Henriquesand Sadorsky, 1996). Based on these arguments, the

following hypothesis is tested:

H6: There is a positive significant relationshipbetween CSR disclosure and media exposure.

Leverage

Within the context of the agency theory, Jensen and

Meckling (1976) argue that more highly leveragedfirms disclose voluntary information in order toreduce their

agencycosts

and,asa

result,their cost of

capital. However, Brammer and Pavelin (2008)sustain that a low degree of leverage ensures thatcreditor stakeholders will exert less pressure toconstrain managers' discretion over CSR activities,which are only indirectly linked to the financialsuccess of the firm. Purushothaman et al. (2000) also

predict a negative relationshipbetween leverage andCSR disclosurein that companies with high leveragemay have closer relationshipswith their creditorsanduse other means to disclose social responsibilityinformation. Thus, we do not make any a priori

assumptionabout the sign of the association betweenCSR disclosure and leverage. The followinghypothesis is thus tested:

HI: There is a significant relationship betweenCSR 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, tradeunions, and consumer organizations. It

is a network that fosters participation and coopera-tion between social organizationsthat, from different

points of view, are interested in CSR. The OCSRissues each year a very exhaustive report on CSRdisclosures by Spanish listed firms included in the

IBEX35 index, which comprises the largest35 firmsin 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 theadherence of their CSR disclosures to the followingrules/recommendations: (a) Global Reporting Ini-tiative (GRI)'s Guidelines (G2 and G3); (b) UnitedNations Norms on the Responsibilities of Transna-tional Corporations and Other Business Enterpriseswith 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 ofSocial 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 ofUS cross-listed firms, the Sarbanes-Oxley Law. Wefocus on the following three ratings reported by theOCSR:

a) Total CSR score(TCSR), which captures theoverall 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 providedby a firm to the recommendations reported in:

• GRI Performance Indicators section relatedto:

• 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 OtherBusiness Enterprises with Regard to Human

Rights (especially in the fields of protectionof consumer rights and corruption);

c) CSR Management Systems Rating (MSR),which evaluates the adherence of the pro-cesses and management systems in the CSRarea to those outlined in:







358 Carmelo everte

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

stakeholder inclusiveness, reliability/ udit-

ability, neutrality, sustainability context,accuracy, comparability,clarity, complete-ness,timeliness, ransparency).

• AA1000 Principles (completeness,material-

ity, regularityand timeliness,quality assur-ance, information quality, embeddedness,continuous mprovement,accessibility).

• NEF's Principles (inclusivity, completeness,comparability, embeddedness, disclosure,external verification, continuous improve-ment, evolution).

literature,he following"moresensitive" ectorsareidentified:mining, oil and gas, chemicals,forestryand paper, steel and other metals, electricity, gas

distribution, ndwater.All othersare consideredas"lesssensitive."A one/zero variables usedto des-

ignate companiesfrom these industries:one if the

company s from a more sensitive ndustryandzeroif it is from a less sensitive ndustry.

International listingInternationalisting is measuredby the numberof

foreingstockmarketsn which the firm is listed.

Companysize

Following prior research,size is measuredas the

naturalogarithmof marketcapitalization.3

Explanatory variables measurement

Media exposureTo develop a measure of the companies'media

exposure,the numberof articles n the two main

Spanish business newspapers ('Expansion' and'ActualidadEconômica') was counted. Companyexposurewasmeasuredby usingthe search acilities

presenton the web pages of those newspapers or

eachof the 2 yearsanalyzed 2005 and2006).

2

ProfitabilityIn order to measurecorporateperformance, ither

accounting-or market-basedmeasures an be used.In contrastwith accounting-basedmeasures,market-basedmeasures re lesssubject o biasby managerialmanipulationand they do not rely on past perfor-mance (McGuireet al., 1988). However, they arebased on investors'viewpointson companyperfor-mance, thus ignoring other importantstakeholdergroups. This is the main reason for adopting an

accounting-basedvariable in our paper, such asreturnon assets ROA) (BelkaouiandKarpik,1989;Bewley and Li, 2000; Brammerand Pavelin, 2008;Cormier et al., 2004; Patten,1991).

Industry sensitivityIn this study, "more sensitive" ndustriesare con-sidered o be thosewith more riskof beingcriticizedin CSR mattersbecause of their activities nvolvinghigherrisk of environmentalmpact.Based on prior

Ownership concentration

This variable is measuredfrom data concerningsignificanthareholdingsrom2005 and 2006 annual

reportsof the samplecompanies.Thus,if a firmhasa

majority hareholderwe assign t a valueof 1 andifnot it is assigneda zero value.

LeverageThis variable s measuredas long-term debt/bookvalue of

equity (Cormieret al.,

2005).

4

Sample

Our samplecomprisesthose firms covered by theOCSR report, i.e., Spanish firms listed on theMadrid Stock Exchange and included inthe IBEX35 index. However, due to the fact thatmost of our explanatoryvariablesare based on

accountingdata,we have excluded financial irmsbecause of the particularcharacteristics f their

accountingsystem.Moreover,since all firms understudy present consolidatedaccounts and they hadto be preparedin accordancewith InternationalFinancialReportingStandardsIFRS)issuedby theIASB from 2005 onward Regulation606/2002 ofthe EuropeanCommission we have chosen fiscal

years2005 and 2006 so as to ensurecomparabilityn

accounting data. After eliminating firms withextremevalues or some of the explanatoryariables,the finalsamplecomprises46 observations.5








Empiricalmodels

The statisticalanalysis conducted in this study

includesthe use of linearregressionmodels to ana-lyze the relationship etween CSR ratingsandeachof the influencing actorsreferredo in the previoussection. The three estimatedmodels differin their

dependent variables:Total CSR (TSCR), CSRContentRating (CR), and CSR ManagementSys-tems Rating (MSR). The approachadoptedin the

empiricalanalysis s summarizedby the followinggeneral ormof the models:

CSR rating,-ßo + &ME, + j82IL,- ftIND,-+ ß4SlZE{+ DOWNER/

- ß6KOAi+ ß7LEVi+ Si

where, ME: mediaexposure;IL: Internationalist-

ing; IND: Industry environmental sensitivity;SIZE:Firm'ssize; OWNER: Ownershipconcen-

tration;ROA: Profitabilityreturnon assets);LEV:

Leverage.

Results

TableIreports

thedescriptive

statistics of the

dependentand independentvariables onsidered nour study.It canbe seen a high variabilityn CSR

practices crossSpanishistedfirms,asthe totalCSR

ratingvaries rom0.170 to 1.940. As the maximumvalue is 4, we can assert hat the degree of infor-mationon CSR by Spanishistedfirms s stillratherlow.

TableIIreportshe correlationoefficientsamongour set of independentvariables. t canbe seen thatsome correlations restatistically ignificantat a 1%

level, suchasthosebetweensizeandmediaexposure

(p=

0.599), industry nd everage p= -

0.465)and

leverageand returnon assets(p = - 0.526). How-

ever, none of the variance nflationfactors(VIFs)- notreported exceedthe critical alueof 10.Thus,it can be saidthatmulticollinearitys not a serious

problem n ourstudy.TableIII reports he meanvaluesof the explan-

atoryvariables nderanalysis cross he severalCSRdisclosure atings orboth firmswith a ratinghigherthanthe medianandthosewith a rating ower thanthe median.To test the statisticalignificanceof the

mean differences in the explanatory variablesbetween both groupsof firms,we performa £-test ifthe variables normallydistributed) nda Wilcoxon

signed-ranktest (if the variable is non-normallydistributed). t can be observed that firms with atotal CSR ratinghigherthan the medianoperate n amore environmentallyensitivendustry p = 0.008),have a highermedia exposure(p = 0.000), a largersize (p =0.010), and a less concentrated wnership(p = 0.004), ascomparedo thosefirmswith a CSR

ratinglower than the median.However, althoughfirmsdisclosingmoreon CSR activities re istedon a

highernumberof foreign tockmarkets, ave a lower

leverageandaremoreprofitable,hese differences renot significantlydifferent,at a 5% level, between

both groupsof firms. It should be noted that theresultsare generallyconsistentacross he other twoCSR ratings.

Table IV reports the results of regressingthe

explanatoryactorson the variousCSR ratings.Thefirst rows of each panel present the results of

regressinghe explanatoryactorsone by one on theCSR ratings,while the last row combines all the

explanatoryvariablestogether. When considered

individually, t can be seen that firmswith higherCSR ratingspresenta statistically ignificant argersize, and a highermediaexposure.Also, firmswith

higherCSR ratingsbelongto moreenvironmentallysensitive ndustries, ndare isted n ahighernumberof foreign stock markets. As regardsownershipstructure, irmswith higherCSR ratingshavea lessconcentratedownership. However, neither ROAnor leverageseem to explain differences n CSRdisclosurepracticesbetween Spanish istedfirms.Interms of R2, the most influential variable for

explainingfirms'variation n total CSR ratings smedia exposure (R2= 0.338), followed by size

(R2= 0.186) and industry (R2= 0.164). When

pullingall the

explanatoryactors

together, theyexplainbetween42.9%and 47.5%of thevariation fthe severalCSR ratings.The variableshataresta-

tistically ignificantor all the CSR ratingsare thoserelated o publicor socialvisibility(i.e., size, media

exposure, and industryenvironmentalsensitivity).Accordingto these results, t seems that the legiti-macy theory is the most relevant theory for

explainingCSR disclosurepractices f Spanishistedfirms.Thus, Spanish irmsreporton CSR activitiesin orderto respond o publicpressures ndbuildor







360 CarmeloReverte

TABLE I

Descriptivestatisticsor the dependentandindependentvariables

Variable Mean Median SD Minimun Maximum

Dependent variables

TCSR 1.150 1.245 0.485 0.170 1.940CR 0.835 0.855 0.491 0.020 1.670MSR 1.194 1.315 0.614 0.020 2.210

Independent variables

ME 69.369 43.000 57.047 6.000 268.000IL 5.783 6.000 3.039 1.000 12.000IND 0.456 0.000 0.504 0.000 1.000SIZE 15.935 15.965 0.936 14.280 18.190OWNER 0.283 0.000 0.455 0.000 1.000ROA 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 ocialresponsibilityndex; CR: CSR Content rating;MSI: CSR ManagementSystemsrating;ME: Media exposure;IL: Internationalisting; IND: Industryenvironmentalsensitivity;SIZE: Firm'ssize;OWNER: Ownershipconcentration;ROA: Returnon assets;LEV:Long-termdebt/book value of equity.Seevariablesmeasurementn the text.

TABLE II

Correlation oefficientsamong independentvariables

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 0.076IND 0.063 -0.381** 0.035 -0.465**SIZE -0.093 0.317* 0.059OWNER 0.043 0.302*ROA -0.526**

Notes:ME: Media exposure;IL: Internationalisting; IND: Industryenvironmentalsensitivity;SIZE: Firm'ssize;OWNER: Ownershipconcentration;ROA: Returnon assets;LEV:Long-termdebt/book value of equity.Seevariablesmeasurement n the text.*Significantat a 5% evel, **Significantat a 1% evel.

sustaincorporate egitimacy. In this regard,CSRdisclosure an be viewed as a constructed mageor

symbolic mpression f itselfthata firm is conveyingto the outsideworld to control its politicalor eco-nomic position(Neu et al., 1998).

Concluding remarks

The goal of this study is to analyze whether anumber of firm and industrycharacteristics,s wellas media exposure, are potential determinantsof

CSR disclosurepracticesby Spanishlisted firms.

Empirical tudies have shown that CSR disclosure

activism varies across companies, industries,andtime (Gray et al, 1995, 2001; Hackston andMilne, 1996). They have also shown this behaviorto be importantlyand systematicallydeterminedby a variety of firm and industry characteristicsthat influence the relative costs and benefitsof disclosing such information (Belkaoui andKarpik, 1989; Cormier and Magnan, 2003;Cormier et al., 2005; Hackston and Milne, 1996;Patten, 2002a, b).








TABLE III

Differencesn the value of the explanatory ariables etween firmswith higherandlower CSR ratings

Variables Firmswith TCSR > median Firmswith TCSR < median Difference(p-value n parentheses)

PanelA: 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 Firmswith CR > median Firmswith CR < median Difference(p-value n parentheses)

PanelB: CSR ContentRating (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 Firmswith MSR > median Firmswith MSR < median Difference(p-value n parentheses)

PanelC: CSR ManagementSystemsRating (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 isting; IND: Industryenvironmentalsensitivity;SIZE: Firm'ssize;OWNER: Ownershipconcentration;ROA: Returnon assets;LEV:Long-termdebt/bookvalue of equity.Seevariablesmeasurementn the text.

Ourfindings

evidence that firmswithhigher

CSR

ratingspresent a statisticallysignificantlargersize and

a higher media exposure, and belong to more envi-

ronmentally sensitive industries,ascompared to firms

with lower CSR ratings. However, neither profit-ability nor leverage seem to explain differences in

CSR disclosure practices between Spanish listedfirms. The most influential variable for explainingfirms' variation in CSR ratings is media exposure,followed by size andindustry.Therefore, it seems that

the legitimacy theory, as captured by those variables

related topublic

or socialvisibility,

is the most rele-vant theory for explaining CSR disclosure practicesof Spanishlisted firms. Thus, Spanishfirmsreport onCSR activitiesmainly to act andbe seen actingwithinthe 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 thatfactors which influence CSR practices of Spanishlisted companies are not significantly different thanthose which influence CSR of companies in other







362 CarmeloReverte

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environments. This is consistent with the results ofCormier and Magnan (2003), which lead them to

suggest that the similitude in the way in which dis-

closure strategies are determined, irrespective of agiven country's socio-cultural environment, is "anillustration of the strong impact of globalised stockmarkets on fostering convergence in corporatepractices" (2003, p. 58).

Notes

1 Resultsaresimilar f a market-basedmeasureof risk,suchasbeta, is used insteadof leverage n the regressionmodels.2

Most of the literaturen this areaassumesa contem-poraryrelationshipbetween media exposureand CSRdisclosure (e.g., Bansal and Clelland, 2004; Cormieret al, 2004, 2005). But this relationship ould be prob-ablydelayed,i.e., more mediacoverageone year couldresult n more CSR disclosure n futureyears.In orderto test this delayedrelationship, have re-estimated hemodelsintroducing he variable Mediaexposure'(ME)with a one-year lag (MEt_i). However, this laggedvar-iable has not turned out to be statistically ignificant.This result could be due to the high correlation

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

media coverage in one period tend also to be highlyfollowedby mediain the following period.

Results are similaris size is proxied by the log oftotalassets.4 If leverageis measuredby the ratio total debt/ otalassets he resultsremainunchanged.5

Taking every year as a separateobservationmayaggravate he problem of extreme values. In order totest the existence of extreme observationsthat could

unduly influence our results,I have applied the mostusualdiagnostictests for detectingoutliers,such as thestudentizedresiduals,he Cook's D, DF-betas,and leastabsolutevalues (LAV). These additionaltests indicate

that the main resultsof our study are not driven byoutliers.

Acknowledgment

This work is part of the researchproject ECO2008-06238-C02-01/ECON fundedby the SpanishMinistryof Educationand ScienceandERDF.

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TechnicalUniversityof Cartagena,Cartagena,Spain

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Reverte, Carmelo. 2009.

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