EFFECTS OF FIRMS AND SOCIETAL ATTRIBUTES ON THE DISCLOSURE LEVEL OF ENVIRONMENTAL AND SOCIAL INFORMATION OF NIGERIAN QUOTED COMPANIES
ABSTRACT
The broad objective of this study was to find out the effects of firms’ and societal attributes on the disclosure level of environmental and social information of Nigerian quoted companies. The specific objective of the study was to: evaluate the influence of profitability on disclosure level of social and environmental information in Nigeria; investigate the impact of leverage on disclosure level of social and environmental information in Nigeria; find out the influence of firms’ age on disclosure level of social and environmental information in Nigeria; investigate the impact of host communities’ agitation on disclosure level of social and environmental information in Nigeria.
In this study, secondary data, by way of annual reports and accounts of sampled companies in Nigeria and some relevant NSE fact books are used to collect data for six (6) years (2009-2014). Panel data regression is be used as data analysis method for the study.
The major of the research was that Profitability had an insignificant negative relationship with environmental disclosure among the sampled companies, Firms’ size, as indicated by the study showed a positive insignificant relationship between environmental and social disclosure and the size of the firm, financial leverage based on the findings revealed a negative insignificant relationship between environmental and social disclosure and also find out that firms’ age had a significant positive relationship with the level of environmental and social disclosure.
CHAPTER ONE
INTRODUCTION
1.1    Background to the Study
The environmental effects of economic activities, such as global warming and pollution have increased the interest of the public in the effects of firms’ operations and performance. Due to these growing concerns, firms are forcefully influenced to be accountable for their impact of their activities by providing information relating to environmental performance (Pahuja, 2009). Environmental and social information is information on the impact of a firm’s economic activities relating to social and environmental performance to its interest groups and to society as a whole (Gray Owen & Maunders, 1987). Its   disclosure constitutes part of the corporate social responsibility by corporations. According to Adrugi and Abdul (2014), social and environmental information disclosure enables stakeholders to examine the degree to which the company has proven to be socially responsible.  Corporate Social Responsibility provides a strategic principle for accomplishing a whole system re-evaluation of corporate performance, reduces a firm’s cost of capital, provides a means through which the firm’s public image is managed and decreases the information disparity between the firm and stakeholders.
 Disclosure according to International Financial Reporting Standard (IFRS) framework, refers to the technique and process of providing the information and of formulating a program of actions known through timely dissemination and openness. It serves as a basis for the evaluation of the firm’s performance by the stakeholders. However, in most jurisdictions, corporate environmental and social disclosure is said to be a voluntary practice, as what to disclose or not remains the prerogative of the management. This may sometimes lead to non-disclosure. Non-disclosure, in the context of this study includes the provision of insufficient information/inadequate information for stakeholders to make decisions. This tends to limit informed decisions. According to Shearer (2002), as a tool, it provides environmental information to the stakeholders and reflects companies concerns on environmental issues and performance. These cannot be achieved if sufficient information is not provided. Non-disclosure has been the practice of many organisations as a result of its voluntary nature. In  agency relationships , IFRS 24 stated that disclosure must consider the substance of the relationship over its legal form and transactions must be disclosed whether they are at arm’s length (if it can be substantiated) or not. Firms’ responsibility according to Mc guire, Sundgree and Schneeweis (1988), is shown by providing and disclosing all relevant information that will be useful to all stakeholders. This, therefore, means that in the absence of the company providing information (environmental and social information inclusive) to meet interested stakeholder’s need, they have failed to be socially responsible.
 In the light of the increasing demand for environmental information, environmental disclosure has attracted research attention from different points of view (Gray et al 2001). Available literature has considered the effects of firm characteristics such as firms’ size, industry membership, ownership structure, audit size and profitability on disclosure. However, there has been paucity of studies on the perspective of societal determinants of the level of disclosure of social and environmental information, hence the drive for this study. Therefore in addition to firm characteristics, this study wishes to consider the effect of host community on the level of social and environmental information.
1.2    Statement of Research Problem
For all companies competing to acquire resources on the Capital Market, environmental and social information disclosure is a necessity. Market participants value it as it increases overall transparency, reduces information asymmetries and provides better advice for contracting purposes (Healy & Palepu, 2001). IFRS framework states that   it should be responsibility driven and transparent (making information on available  conditions, actions and decisions  easily reached, reasonable and visible to all market participants).Uddin and Hassan (2011) assert that adequate disclosure on the basis that the availability of objective and verifiable information can help shareholders to exercise their monitoring role toward managers effectively, can lead to a reduction of the information asymmetry problem between managers and investors, resulting in a reduction of conflict of interest, which in turn leads to a reduction in agency costs. According to Yuen, Liu, Zhang and Lu (2009), despite the fact that environmental disclosure is relevant in presenting a variety of information which might also include social and environmental issues for informed decision making for stakeholders, sometimes corporations fail to disclose some of this information in their annual reports because of bad corporate culture. This results from misunderstanding by some managers that social and environmental information instead of a way to build reputation of firms instead of a means to discharge and enhance a firms responsibility towards environment and society (Owen et al, 2001), Personal interest (i e wilful action to serve the interest of some powerful stakeholders) (Belal & Cooper, 2007) and relatively weak regulatory environment (Uyar & Kilic, 2012)
In developing countries such as Nigeria, Dibia and Onwuchekwa (2015) stated that environmental reporting is voluntary in nature. This implies that companies can decide to disclose and may even decide not to. Ho et al (1994), in their study in Hong Kong, found out that 9 (representing only 4.9%) out of 182 companies disclosed environmental information in their annual reports for the year 1991. Choi (1998) showed that out of 770 listed companies in Korea, 64 companies (representing only 8.3%) made environmental disclosures in their audited semi-annual financial statements for the year 1997. In a longitudinal study of social and environmental reporting in Singapore over a ten year period, from 1986 to 1995, Tsang (1998) found out that 17 (52%) companies made social and environmental disclosures during the late 1980s and then a stable pattern from 1993. In a study of 22 large multi-national corporations in Nigeria, Disu and Gray (1998) noted that less than a quarter of companies made disclosures in the environmental areas. These findings indicate the relatively low level of environmental disclosure by corporations irrespective of their importance.  In literature, specific firm’s characteristics such as industry membership, auditor’s size, leverage, profitability, firms’ size, ownership structure e.t.c. are said to affect disclosure. For instance, highly leveraged firms are very likely to disclose more information than others in order to meet the expectations of their stakeholders (Naser & Hassan, 2013), companies in environmentally sensitive industries disclose  more environmental information to avoid additional regulations (Hackstone & Milne, 1996), companies audited by the big firm will be expected to disclose more than others, Larger firms have higher pressure and expectations than smaller firms and so are expected to disclose more.
 However, studies such as Buzby (1974) and Yuen et al. (2009) argue and show that there has been a disparity between the actual information supplied by companies’ annual report and users’ information needs, as many items were inadequately disclosed. This has increased the level of doubt among researchers as regards the effectiveness of voluntary reporting schemes. Some have gone further, recommending a move towards mandatory requirements having clearly stated the limitations of voluntary disclosure. According to Deegan (2001), acknowledging that all stakeholders have the right to assess company information can lead to improved corporate financial performance. Ahmad et al. (2005) found out that non-disclosure is used by company officials to hide information that could lead to public and governmental scrutiny. They also showed that a lack of reporting standards and regulations were the most common reasons inadequate disclosure or non-disclosure of environmental and social information is possible. Non-disclosure has equally been argued to encourage illegal activities or activities that could be detrimental to stakeholder’s value.
It is against this backdrop that the need to find out the determinants of the disclosure level of firms becomes necessary. This study tends to fill this gap by analysing the effects of both firms’ and societal characteristics on the level of disclosure of social and environmental information.
Based on this, the following problem was addressed in this study.
(i)    What is the influence of profitability on disclosure level of social and environmental information in Nigeria?
(ii)    What is the impact of leverage on disclosure level of social and environmental information in Nigeria?
(iii)    What is the influence of firms’ age on disclosure level of social and environmental information in Nigeria?
(iv)    What is the impact of host communities’ agitation on disclosure level of social and environmental information in Nigeria?
(v)    What is the effect of firms’ size on disclosure level of social and environmental information in Nigeria?
1.3    Research Objectives
The broad objective of this study is to find out the effects of firms’ and societal attributes on the disclosure level of environmental and social information of Nigerian quoted companies. The specific objective of the study was to:
(i)    evaluate the influence of profitability on disclosure level of social and environmental information in Nigeria;
(ii)    investigate the impact of leverage on disclosure level of social and environmental information in Nigeria;
(iii)    find out the influence of firms’ age on disclosure level of social and environmental information in Nigeria;
(iv)    investigate the impact of host communities’ agitation on disclosure level of social and environmental information in Nigeria; and
(v)    determine the effect of firm size on disclosure level of social and environmental information in Nigeria.
1.4    Research hypotheses
In carrying out this study, the following hypotheses were tested and they were stated in the null form.
(1)    Profitability has no significant positive influence on disclosure level of social and environmental information in Nigeria.
(2)    Leverage has no significant impact on disclosure level of social and environmental information in Nigeria.
(3)    Firm age has no significant influence on disclosure level of social and environmental information.
(4)    Host community agitation has no significant impact on disclosure level of social and environmental information in Nigeria.
(5)    Firm size has no significant effect on disclosure level of social and environmental information in Nigeria.
1.5    Scope of the Study
The focus of this study was to examine the determinants of disclosure level of social and environmental information using companys’ and societal attributes in Nigeria. The study population covered all the companies quoted on the floor of the Nigerian stock exchange. The study period covers 2009-2014.
1.6    Significance of the Study
This study is significant in several ways. Understanding the determinants of disclosure level of social and environmental information can help investors and other stakeholders make better decision. If the firms’ characteristics are responsible for lower level of disclosure and social responsibility, stakeholders will improve their decisions by focusing on firms with higher disclosure level and social responsibility. Also, the findings of the work are also useful to regulators such as Financial Reporting Council, the Securities and Exchange Commission and the Central Bank of Nigeria among others as it will strengthen their understanding of the sensitivity of low level of disclosure to specific variables. This will help decide what necessary regulatory controls should be implemented. The study will also be useful in stimulating public discourse given the dearth of empirical researches in this area from developing economies like Nigeria. The study will also provide a good starting point for researchers interested in similar issues.
1.7     Limitations of the study
The major limitation of the study as it is with several studies in developing economies is data accessibility and accuracy. Also, there is a challenge of inappropriate measurement of variables. As there are several measurement indices in literature. Different perceptions exist as to what the indices for measurement should be. The practices has been to adopt proxies for the concept. However, there may be no absolute certainty that the proxy adopted is best suited to reflect the actual concept and the study considers this a limitation.