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Dominant Personalities in Board Committees, Company
Characteristics, and Internet Environmental Disclosure by
Malaysian Listed Companies
ALI SALEH ALARUSSI
MOHAMAD HISYAM SELAMAT
College of Business
Universiti Utara Malaysia
ABSTRACT
This paper investigates the determinants of internet environmental disclosure (IED) amongst Malaysian
listed companies. Ten variables have been tested using data collected from 170 Malaysian listed company
websites, namely, dominant personalities in the audit committee, chairman of audit and nomination
committees, dominant personalities in the audit and nomination committees, internationality, leverage,
foreign shareholders, level of technology, irm age, number of shareholders, and listing status. It was
found that internationality, foreign shareholders, level of technology, irm age, number of shareholders,
and listing status are signiicantly affected by the level of IED. However, dominant personalities in the
audit committee, chairman of audit and nomination committees, dominant personalities in the audit and
nomination committees, and leverage did not show a signiicant relationship with the level of IED in
Malaysia. The study provided some evidence to support signaling theory, shareholder accountability
theory, and cost and beneit hypothesis in relation to internet disclosure.
Keywords: Determinants; internet environmental disclosure; listed companies.
ABSTRAK
Artikel ini mengkaji penentu-penentu bagi pendedahan maklumat persekitaran melalui internet dalam
kalangan syarikat-syarikat Malaysia yang tersenarai. Sebanyak sepuluh pemboleh ubah telah dianalisa
dengan menggunakan data daripada 170 laman web iaitu personaliti dominan dalam jawatankuasa
audit, pengerusi jawatankuasa audit dan perlantikan, personaliti dominan dalam jawatankuasa audit dan
perlantikan, keantarabangsaan, leverej, pelabur luar, tahap teknologi, usia syarikat, bilangan pemegang
saham dan status penyenaraian. Daripada kajian ini didapati bahawa faktor keantarabangsaan, pelabur
luar, tahap teknologi, usia syarikat, bilangan pemegang saham dan status penyenaraian mempengaruhi
tahap pendedahan maklumat persekitaran melalui internet secara signiikan. Bagaimanapun personaliti
dominan dalam jawatankuasa audit, pengerusi jawatankuasa audit dan perlantikan, personaliti dominan
dalam jawatankuasa audit dan perlantikan serta leverej tidak mempunyai perhubungan yang signiikan
dengan pendedahan maklumat persekitaran melalui internet. Dapatan kajian ini menyokong teori
pemberitahuan, teori kebertanggungjawaban pemegang saham dan hipotesis kos dan faedah berkaitan
dengan pendedahan melalui internet.
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INTRODUCTION
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The rapid growth of internet technology has
provided a platform for the companies to disclose
their financial and non-financial information
directly and instantly to worldwide users. The
level of internet usage has increased over the
last couple of years in the financial markets
(Wagenhofer, 2003). Based on the indings of
a survey conducted by the National Institute
of Investor Relations, investment relations
departments are under pressure to fulfil the
increasing demands of investors for online
information (Sriram & Laksmana, 2006). This
phenomenon has attracted many academic
researchers in the disclosure ield. It is argued
that internet reporting is an eficient instrument
to communicate information to external users at a
minimum cost. In other words, internet reporting
provides greater and quicker access to corporate
activities’ information which is available through
interactive and connected reports (Lev & Zarowin,
1999; Ettredge, Richardson, & Scholz, 2002). This
facilitates investors in decision-making processes.
Environmental information is one type
of non-inancial information that is considered by
companies to be disclosed on the Internet. This is
due to public awareness on environmental issues.
Environmental information has been defined
by Ahmed, Billings, Morton, and StanfordHarris (2002) as a division of corporate social
responsibility, which includes information such
as environmental activities, waste management,
recycling programmes, environment control, and
other environmental issues. Dunlap and Scarce
(1991) surveyed public opinion on environmental
issues and found that the public views businesses
and the industry as major contributors to
environmental problems. They also argued that
many people may avoid buying products from
companies that have poor environmental records.
However, disclosing environmental
information by using printed media is costly
compared to internet media (Lodhia, 2002).
This highlights the importance of capitalising
internet technology in environmental information
disclosure. The beneits of IED include mass
communication, global-reach abilities, timelines
and updateability, presentation flexibility
and visibility, navigational ease, increased
information, cost beneits, integration, and push
information (Debreceny, Gray, & Rahman, 2002;
Lodhia, 2004). In addition, stakeholders can obtain
environmental information such as environmental
costs, necessities, incidents, and liabilities
(Lodhia, 2002; Groff & Pitman, 2004). All these
benefits lead to low information asymmetry
amongst users.
McIvor, McHugh, and Cadden (2002)
argued that internet technology encourages
transparency as it provides an economical
platform to the organisations to change business
culture that is critical in facing a rapidly changing
environment. Morris and Gray (2005) argued that
transparency is a good mechanism for helping
investors in making decisions and better allocating
resource for an optimum return on investment.
This in turn leads to eficient capital market and
better economic growth and social welfare (Meek
& Thomas, 2003). In addition, transparency is
one of corporate governance mechanisms that
is essential for developing countries (Morris &
Gray, 2005).
The above phenomenon is evident from
the increased level of IED amongst companies.
For example, Jones, Alabaster, and Hetherington
(1999) examined 275 companies across 21
sectors in 21 countries and found that 59% of
them provide IED. This is also supported by the
studies that were undertaken by Park (1999), Tilt
(2001), and Isenmann and Lenz (2001). However,
in Malaysia, the percentage of IED is low (Hassan,
Jaffer, & Johi, 1999; Healy & Palepu, 2001;
Ahmed et al., 2002; ACCA, 2002). This could
lead to low transparency, in terms of the impact of
industrial activities on the environment, amongst
Malaysian companies. Low transparency, on
the other hand, can reduce investors’ conidence
in the Malaysian economy and in turn could
negatively affect Malaysian foreign and local
direct investment (Gul & Leung, 2004; Morris &
Gray, 2005). Thus this study intended to answer
the following question: What are the determinants
of IED in Malaysia?
The remainder of this paper is structured
as follows. Section 2 provides an overview of
IED development, while section 3 reviews the
factors that affect IED. The research method is
described in section 4. Section 5 presents the
results of this research. Finally, section 6 provides
the conclusions, limitations, and recommendations
for future research.
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The Development of Internet Environmental
Disclosure
Jones et al. (1999) conducted a comparative study
which examined 275 companies across 21 sectors
in 21 countries. The results of the study showed
that 163 companies provide some environmental
information on their corporate websites. However,
the provided information are directly translated
or summarised from the hard copy version of
their corporate environmental reports. So it
can be concluded that these companies are not
taking full advantage of the technology to make
environmental information more interactive
and active on the website. They suggested that
companies should shift their view from point of
distribution of information to a unique website
presentation. This could be undertaken by using
facilities such as audio and video. These views
are also supported by Esrock and Leichty (1998).
Lodhia (2002) argued that the demand
for environmental information is increasing
due to global recognition of the importance of
environmental issues. This is evident from the
calls to impose a separate environmental report
instead of a section in the annual report. It is
argued that the contents of annual reports do not
relect current social and environmental issues.
In Australia, the Financial Services
Reform Act (FSRA) that has been introduced
in March 2002 requires companies to disclose
environmental information when they make
investment decisions. This will entail parallel
company disclosure (Hoggett & Nahan, 2002).
The United Kingdom legislative body also
includes this requirement to a lesser extent.
Similar moves are also being considered by
Germany, France, Canada, and the European
Commission.
Debreceny et al. (2002) argued that
external environment has an important role in
the level of internet disclosure. Two important
environmental determinants are the level of
internet usage by the public and the overall
disclosure environment in the company’s home
country. With respect to the irst determinant, if
the use of internet is common in a country, the
users will expect more company information
to be placed on the Internet. Similarly, if the
companies believe that there is a large internet
audience amongst their domestic stakeholders,
they are more likely to have higher level of internet
reporting.
Al-Tuwaijria, Christensenb, and Hughes
(2003) examined the association between
environmental disclosure, environmental
performance, and economic performance. The
results showed a signiicant association between
environmental performance and economic
performance whereby extensive quantifiable
environmental disclosures of speciic pollution
measures and occurrences lead to higher proit.
In other words, the companies are aware of the
long-term beneits when environmental impacts
are being disclosed (Houlston & Daoust, 2005).
Ahmad, Hassan, and Mohammad
(2003) stated that there are several factors that
motivate companies in disclosing environmental
information. All these factors are related to
the concept of organisational legitimacy that
was developed by Lindblom, MacNeilage, and
Studdert-Kennedy (1984). The irst factor is to
alleviate any expected loss by informing the
stakeholders about the impact of environmental
changes on the companies’ performance. The
second factor is to cover any environmental
impairment due to companies’ activities. By
doing this, their reputation and image can be
preserved. The third factor is to change public
attention. In other words, the company that
pollutes the environment through its production
processes discloses information regarding
recycling programmes so that public attention
will be diverted to it rather than to environmental
impairment.
Andrew (2003) examined the trend
of IED amongst Australian companies. In
this study, 64 websites of randomly selected
Australian companies listed on the Australian
Stock Exchange were visited. The results
showed that the Internet is still not utilised to its
full potential (including its interactive features)
as there is no significant difference between
internet reports and printed reports. In addition,
the results showed that environmental disclosures
are highly dependent on the industry. In short, the
study argued that the Internet provides a huge
opportunity to the companies to increase their
environmental disclosures and eventually enhance
the level of transparency.
Thompson and Zakaria (2004) stated that
higher environmental disclosure is noticed when
corporate environmental reporting standards from
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the International Organisation for Standardisation
(ISO) are revealed – ISO 14000. A new ISO
working group is currently working on ISO 14063
– Environmental Management: Environmental
Communication.
However, there are just a few published
studies about the state of environmental disclosure
in Malaysia. Some of these studies were conducted
as comparative studies such as Thompson
(2002), and Ramasamy and Ting (2004) which
compared Malaysia with Singapore. Other
studies are related to the level of corporate social
responsibility reporting (Nik Ahmad, Sulaiman,
& Siswantoro, 2003; Ahmad et al., 2003; Zulkili,
2003; Thompson & Zakaria, 2004). The main
reason behind this phenomenon is that IED is
still a voluntary exercise in Malaysia as well as
in other countries (Ahmad et al., 2003). There is
no particular standard or requirement either issued
by the Malaysian Accounting Standard Board
(MASB) or other regulatory bodies that necessitate
companies to disclose such information. However,
companies must consider the requirement stated
under Paragraph 9 of MASB No. 1 which requires
companies to disclose any other relevant, even
though not mandated, information that users
consider very important for their decision making
(MASB, 1999).
To recapitulate, the trend of IED is
very encouraging. This in turn creates the need
to understand the determinants of IED; the
descriptions of which are offered in the following
section.
The Determinants of Internet Environmental
Disclosure
A large number of studies in different countries
has attempted to ind out the determinants of IED.
They came up with different determinants and
factors that may affect the extent of disclosure.
However there are no consistent results due to the
different nature of studies. This study intended
to examine the relationship between two groups
of variables and the extent of IED by Malaysian
listed companies. The irst group of variables is
dominant personalities in the board committees.
This group includes three variables which are
dominant personalities in the audit committee,
chairman of audit, and nomination committees, and
dominant personality in the audit, and nomination
committees. The second group of variables is
company characteristics, which includes seven
variables namely internationality, leverage,
foreign shareholders, level of technology, irm
age, number of shareholders, and listing status.
Dominant Personalities in the Audit Committee
One of the basic goals of board of directors is
its monitoring responsibility. However, speciic
roles are given to sub-committees. Kesner (1988)
indicated that most essential board decisions
originate at the committee level, such as audit
committee. The audit committee aims to increase
the integrity of the inancial auditing process
(Klein, 2002) and the quality of inancial reporting
(McMullen, 1996).
Motivated by recent regulatory
requirements (Sarbanes-Oxley Act, 2002; Blue
Ribbon Committee, 1999) that public companies
are to disclose whether they have independent
directors with financial expert in their audit
committee, the impact of independent directors’
financial expertise on the audit committee is
selected as a corporate governance attribute
contributing to the integrity of the financial
reporting process. This regulatory requirement is
motivated by the view that independent directors
are more likely to use their expertise to detect and
prevent opportunistic managerial behaviour that
would beneit shareholders.
While different areas of director expertise
may be valuable to the irm, corporate or inancial
expertise is an essential requirement for directors
sitting on the audit committee to carry out their
responsibilities successfully. In addition, as
the audit committee competence is deined as
a combination of independence and expertise
(PriceWaterhouseCoopers, 2000), it is expected
that if the chairman of the company is also the
chairman of audit committee, the independence
of audit committee will be negatively affected
and as a consequence disrupts its duty. Since
this relationship has not been tested in previous
studies, this research has attempted to examine
the impact of lack of independency in the
audit committee on the extent of IED. Thus the
following hypothesis was proposed:
H1:
The extent of environmental disclosure
on the Internet is influenced if the
chairman of board directors is also
the chairman of audit committee in the
company.
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Chairman of Audit and Nomination Committees
Given that independent directors’ expertise
is an important determinant of the extent of
their monitoring effectiveness, an independent
director with no financial background may
be a good monitor but may not be capable of
detecting earnings manipulations (i.e. earnings
management). In contrast, an independent
director with financial background is more
knowledgeable with different forms of earnings
manipulations (Xie, Wallace, & Peter, 2003). The
role of the nomination committee is to recommend
candidates with an optimal mix of qualiications,
skills, and experience to the board. The nomination
committee also carries out annual evaluation on
the effectiveness of the whole board. This type
of work needs full independency as it involves
various committees and directors’ contributions
to the effectiveness of decision-making process.
Due to the importance of audit and
nomination committees in the decision-making
process, this study has intended to examine the
impact of having the same person as the chairman
of both audit and nomination committees on the
extent of IED. To ease this process, the following
hypothesis was identiied:
H2:
The extent of environmental disclosure
on the Internet is influenced if the
chairman of audit committee is also
serving as the chairman of nomination
committee in the corporation.
Dominant Personalities in the Audit and
Nomination Committees
Audit committees can contribute to internal
monitoring by increasing the level of integrity
to the inancial auditing process (Klein, 2002).
McMullen (1996) uncovered that the existence
of audit committee relates positively to inancial
reporting quality. However, the existence of audit
committee alone does necessarily lead to effective
monitoring. Other factors should be considered
when analysing the role of an audit committee
in monitoring the management’s behaviour and
performance, such as directors’ independence.
Audit committees should be independent from
the management to be able to conduct effective
monitoring, leading to less opportunistic earnings
management. An independent audit committee can
potentially improve the quality and credibility of
inancial reporting (Guthrie & Turnbull, 1995).
However, it is expected that this
independency might be lower if the chairman of the
company is also holding the position of chairman
of both audit and nomination committees. As the
disclosure decision is under the scrutiny of the
chairman of the company, having that chairman
as the chairman of both audit and nomination
committees could negatively affect the extent of
disclosure as it reduces internal monitoring and
balance of power. This study has attempted to
provide empirical evidence regarding this issue by
examining the extent of voluntary environmental
disclosure on the Internet if the chairman of board
of directors is also the chairman of audit and
nomination committees of the company. Thus the
following alternative hypothesis is proposed:
H3:
The extent of environmental disclosure
on the Internet is influenced if the
chairman of board directors is also
the chairman of audit and nomination
committees in the company.
Internationality
It is argued that once a company become famous
and known globally, many foreign investors
will invest in it to gain more proit. In this case,
an international company has an opportunity to
get capital from worldwide investors to inance
its activities at a minimum cost. However, such
company is required to disclose more inancial
and non-inancial information for two reasons:
(1) to eliminate an information asymmetry that
a rises due to the existence of foreign users; and
(2) to fulill minimum regulation requirements
of different countries that the company has
operations, and thereby increase the number of
stakeholders. This expectation is supported by
Debreceny et al. (2002) who stated that companies
try to lower their average cost of capital by listing
on foreign exchanges. However, foreign listing
extends the dispersion of shareholders, which
in turn increases the information asymmetry
between managers and shareholders. This is
because foreign shareholders may face dificulties
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in understanding the disclosure rules of the
company’s home country.
The required report in any financial
market is the annual reports. In this case,
international companies have to disclose more
information to fulfill the needs of various
customers, shareholders, suppliers, investors,
and others. Gray, Meek, and Roberts (1994)
examined annual reports of 280 multinational
companies in 1989 in the USA, UK, and Europe,
and found that there is signiicant difference in
inancial reporting between international and local
listed companies. Annual reports of multinational
companies are more detailed than annual reports
of local companies. It is argued that international
companies disclose more information on the
Internet than non-international companies due to
the following reasons:
•
•
•
Internet disclosure reduces disclosure costs
because there is no need to involve printing
media such as newspaper and journals, which
are very expensive if many countries are
involved (Marston & Polei, 2004).
Some users require similar information with
others to make decisions and therefore it
would be easy for them to use the Internet
to get the required information especially
when they are in different countries (Oyelere,
Laswad, & Fisher, 2003).
As one company becomes multinational, it
will be under the scruting of many interested
investors who would like to optimise return on
investment. According to them, multinational
companies always implement best practices
in every activity, such as internet reporting,
and are more transparent in disclosing
information than local companies. From the
organisational perspective, multinational
status provides an opportunity to lower cost
of capital due to strong image and reputation
amongst worldwide interested investors.
Positive image and reputation cannot be
created through asymmetry information.
In other words, more disclosure is needed
to alleviate asymmetry information and
build strong image and reputation amongst
investors. Since it is very difficult for
multinational companies to know every
interested investor in different countries, it
is logical for them to utilise the Internet as
a medium to disclose information since it
provides global access at anytime (Marston,
2003).
Therefore, it is expected that the level
of environmental disclosure will be higher in the
multinational companies than local companies.
This is because multinational companies have to
show their environmental friendliness in order to
create investors’ acceptance and satisfaction by
complying to environmental rules and regulations
that are imposed by the host countries (Isenmann
& Lenz, 2001).
From the aforementioned discussion, it is
necessary to include the element of internationality
when studying the determinants of IED.
Internationality is measured by using exportson-sales ratio (Garcia-Benau & MonterreyMayoral, 1992; Raffournier, 1995) and number of
subsidiaries (Cooke, 1989) in the previous studies.
This study intended to use these descriptions and
deinitions for its international variable. Therefore,
based on the above discussion, the identified
hypothesis to be tested is as follows:
H4:
The extent of environmental disclosure
on the Internet is positively related to
the level of international activity of the
company
Leverage
It is argued that once a company uses a large
amount of debt, a monitoring problem arises
between stockholders and creditors. To alleviate
this issue, the involved companies usually increase
their level of voluntary disclosure for two reasons.
The irst reason is to show their payback capability
to the shareholders. The second reason is to
respond to the additional information required by
the creditors including environmental information.
Previous studies, however, found mixed results
about the association between leverage and the
extent of disclosure (Chow & Boren, 1987;
Garcia-Benau & Monterrey-Mayoral, 1992).
Richardson and Welker (2001) argued
that social and inancial disclosures have similar
determinants. Since there is association between
leverage and inancial disclosure, it is expected
that a similar relationship could be established
with the environmental disclosure. This is
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supported by Roberts (1992) who found that a high
degree of debt to equity ratio would encourage one
company to increase social activities and disclose
more environmental information in order to please
the creditors.
Although there is a positive association
between financial leverage and the extent of
voluntary social responsibility disclosure, Chow
and Boren (1987) and Ahmed and Nicholls (1994)
found no signiicant association between them.
This difference occurs due to the fact that leverage
is a relatively poor proxy to measure company
risk (Dichev & Skinner, 2002). However, Ahmad
et al. (2003) argued that companies with lower
leverage are likely to disclose more environmental
information to ensure that its inancial risk is
always low.
Despite contradictory findings in the
relationship between inancial leverage and social
responsibility disclosure, this study was still
interested in examining it from the perspective
of IED. This is due to critical role of leverage
in inluencing one company to disclose more
information to please creditors. Previous studies
had deined leverage as the percentage between
debts to equity (Roberts, 1992; Katsuhiko,
Akihiro, Yasushi, & Tomomi, 2001). In this study,
however, leverage was measured by comparing
total liabilities with total assets (Haniffa & Cooke,
2002; Laswad, Fisher, & Oyelere, 2005; Alsaeed,
2005). Based on the above discussion, the study
proposed the following hypothesis:
H5:
The extent of environmental disclosure
on the Internet is related to leverage.
Foreign Shareholders
Xiao, Yang, and Chow (2004) stated that, in
general, foreign shareholders are more likely to
face a higher level of information asymmetry
and dificulty in accessing and understanding
companies’ corporate reports. This problem
limits investors’ ability to protect themselves
from possible losses. Hence more information is
required to mitigate that perception. This could be
achieved through extensive voluntary disclosure.
On the other hand, global dissemination of
financial and environmental information is
necessary to create a high level of transparency,
which is important to foreign investors (Isenmann
& Lenz, 2001). The above argument is supported
by Haniffa and Cooke (2002) who found a
signiicant positive relationship between foreign
ownership and disclosure level. Therefore, the
element of foreign ownership could be considered
as a determinant of IED since this is a global issue.
This variable will be measured by dividing total
shares owned by foreigners with total number of
issued shares (Haniffa & Cooke, 2002). Based
on the above discussion, the proposed hypothesis
is as follows:
H6:
The extent of environmental disclosure
on the Internet is positively related to
existence of foreign shareholders.
Level of Technology
Jensen and Meckling (1995) argued that the
relationship between knowledge about industry
and agency costs is signiicantly related. One of
the factors that discourage companies from using
the Internet is the need for recruiting experts to
handle it. The experts will utilise information
technology to develop the website and in turn
disclose environmental information on the Internet
(Lodhia, 2004). To effectively organise this
process, a department of technology is usually
established. Through internet reporting, the
companies can reduce environmental information
disseminating cost. Debreceny et al. (2002)
examined the association between level of
technology and the extent of voluntary disclosure
through the Internet and found a significant
relationship between them. In short, the element of
level of technology is declared to be a determinant
of IED. It is measured by using a dummy
measurement. Thus the proposed hypothesis is
as follows:
H7:
The extent of environmental disclosure
on the Internet is inluenced by the level
of technology.
Company Age
Generally, there are two opposite views about
the effect of company’s age on the level of
disclosure. The irst one was proposed by Ho
and Wong (2001) who argued that company age
is negatively affected by the level of disclosure.
This is due to information asymmetry which is
typically higher in new companies and therefore
requires higher disclosure than the old ones. The
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second view was proposed by Hughes (1986) who
argued that, according to signaling theory, old
companies generally disclose more information
in order to differentiate themselves from the new
comer on the stock exchange. In addition, as the
old companies have more control over the market,
they are in a better position to provide reliable
forecasts.
Alsaeed (2005) examined the extent
of voluntary inancial disclosure amongst Saudi
listed companies and found that the age of the
company has no signiicant impact on the level
of disclosure. The result, however, is signiicant
for the high-ranked companies. Camfferman
and Cooke (2002) stated that the element of
company age has a significant impact on the
extent of internet disclosure due to the fact that old
companies always develop and improve annual
reports, and their level of disclosure over time.
From the aforementioned discussion, it
is interesting to examine the relationship between
the element of company age and the level of IED.
Thus the identiied hypothesis is as follows:
H8:
The extent of environmental disclosure
on the Internet is influenced by the
company age.
Number of Shareholders
It is argued that number of shareholders is the most
important determinant of IED. This is because
disclosure media are selected based on cost and
benefit analysis. Whenever the management
inds that the cost of disclosure is higher than the
expected beneits, other disclosure alternatives
will be evaluated based on the element of extent
of disclosure, type of information, and type of
media. Therefore, in the case of irms that have a
huge number of shareholders, it is expected that
disclosure through the Internet is the best choice
for them due to the high cost and limited spaces
for paper-based media (Lodhia, 2004). The above
argument has been empirically supported by the
study conducted by Oyelere et al. (2003). Thus
this study argued that the element of number
of shareholders has a signiicant impact on the
level IED in Malaysia. To ease this process the
following hypothesis was proposed:
H9:
The extent of environmental disclosure
on the Internet is influenced by the
number of shareholders.
Listing Status
In Bursa Malaysia, there are two types of boards
which are main and second boards. On the main
board, large corporations that have financial
capital of more than RM60 million are listed
(Yatim, Kent, & Clarkson, 2006). The medium
and small corporations are listed on the second
board. It is expected that the corporations listed
on the main board are more inclined to disclose
more information on the Internet than those listed
on the second board for several reasons. Firstly,
there are a number of requirements that one
company should fulill if it would like to be listed
on the main board and those requirements are not
applicable to the second board (Wong, 1996). One
of those requirements is that the company should
be more transparent. Secondly, the competition
among main board listed companies is stiffer than
second board listed companies and thus the public
eye is more critical toward them (Abdul Samad,
2002). This variable has not been examined
in previous studies and therefore should be of
interest to see whether the status of board in Bursa
Malaysia has any inluence on the level of internet
disclosure. In other words, this study has intended
to examine the impact of an organisation’s listing
status in Bursa Malaysia on the extent of IED.
Therefore, the following hypothesis was proposed:
H10:
The extent of environmental disclosure
on the Internet is inluenced by irm’s
listing status.
RESEARCH DESIGN
This study to examined the determinants of IED
amongst Malaysian public listed companies.
The data for this study was secondary in nature
and derived from the information disclosed in
the companies’ websites. In total, 170 websites
were randomly selected. This igure does not
include inancial companies because they have
different regulations. In addition, two companies
were excluded from the sample because they just
show outlines in the analysis. A regression model
was utilised to predict the relationship between
variables of this study and this is in tandem with
previous studies (Katsuhiko et al., 2001; Suda &
Kokubu, 1994; Park, 1999; Ahmad et al., 2003;
Al-Tuwaijria et al., 2003). The measurement for
each variable is illustrated in Table 1.
Malaysian Management Journal 13 (1 & 2), 51-67 (2009)
59
Table 1: The Measurement of Variables
No.
Variables
1.
4.
5.
Dominant personalities in the audit
committee
Chairman of audit and nomination
committees
Dominant personalities in the audit
and nomination committees
Internationality
Leverage
1, if the chairman of company is also the chairman of audit and nomination committees,
otherwise 0.
export-on-sales
total of long liabilities divide by the total of assets
6.
7.
8.
9.
10.
Foreign shareholders
Level of technology
Company age
Number of shareholders
Listing status
total number of shares held by foreign shareholders
1 if the irm has a technology department in its structure, otherwise 0
1, if the age of the irm is more than 20 years, otherwise 0
Total number of shareholders in the company
1 if the company is listed on the main board, 0 if the company is listed on the second board
2.
http://mmj.uum.edu.my
3.
Measurement
1, if the chairman of company is also the chairman of audit committee, otherwise 0.
1, if the chairman of audit committee is also the nomination committee, otherwise 0.
Descriptive Statistics
Descriptive statistics, such as frequency
distributions, cross tabulations, and measures
of central tendency represent the frequency
of occurrence of each score value (Sekaran,
2002). The skewness and kurtosis ratios are also
calculated to check whether dependent variable
is normally distributed. According to Sekaran
(2002), both skewness and kurtosis values must
be between +/– 1 before one variable can be
declared as normally distributed. Table 2 shows
that the value of skewness and kurtosis of IED is
0.980 and 0.281 respectively. The standard errors
of skewness and kurtosis values are 0.187 and
0.373 for IED, respectively. All these igures show
that normality exists on the dependent variable,
and therefore multiple regression analysis can be
applied on them.
Table 2: Descriptive Statistics for Dependent
Variable
Statistics
IED**
Statistics
IED
Mean
Standard Deviation
SE Mean
Minimum
Median
1.0092
1.10764
0.1029
0.00
1.000
Maximum
Skewness
SE Skewness
Kurtosis
SE Kurtosis
4.24
0.980
0.187
0.281
0.373
The dependent variable in this study
was IED. This variable was measured by using
36 items, which represent the environmental
disclosure index. The items were extracted from
previous studies and consist of environmental
activities and issues such as general environmental
considerations and statements, environmental
policy, environmental audit, environmental
inance related data, environmental litigation,
pollution, environmental activities, recycling and
associated energy saving, and current expenditure
for pollution control equipment and facilities. The
score is 1 if the item exists and 0 if vice versa.
The frequency of each item is presented
in Table 3. It can be seen from the table that the
most common disclosed environmental items
are general environmental consideration and
statements (51.5%), environmental product and
process related (22.2%), and environmental policy
statement (20.6 %). However, critical items such
as financing for pollution control equipment
or facilities; past and current expenditure for
pollution control equipment and facilities; future
and current expenditure for pollution control
equipment and facilities; and future and current
operating costs of pollution control equipment and
facilities are least provided – only 1.0 to 1.5% of
companies disclose such information. It is argued
that this phenomenon is due to the absence of
mandatory environmental reporting standards in
Malaysia. Without statutory requirement, IED will
lack uniformity and value-added information. In
this case, the companies can report what they want
to report regardless of users’ needs. To overcome
this problem, it is suggested that the Malaysian
Institute of Accountants, Malaysian Accounting
Standards Boards, and Security Commission
establish environmental reporting standards. It
is expected that such statutory requirements lead
to more standardised reporting practices, user
friendly standards, and better enforcement.
Malaysian Management Journal 13 (1 & 2), 51-67 (2009)
60
Table 3: Internet Environmental Disclosure Index
No.
http://mmj.uum.edu.my
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Environmental
items
GES
EP&P
EPS
EACTV
EMAN
WTS
AWAD
ELOW
SUST
W&R
EAEST
POLU
REHB
EMPW
LNDR
EEPRG
EFIN
SPACT
Frequency
Percentage (%)
N
100
43
40
36
30
29
26
26
26
25
23
23
23
22
22
21
18
17
51.5
22.2
20.6
18.6
15.5
15
13.4
13.4
13.4
12.9
11.9
11.9
11.9
11.3
11.3
10.8
9.3
8.8
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
• GES: General environmental
consideration and statements
• EPS: Environmental policy
statement
• EAU: Environmental audit
• EMAN: Environmental manager/
committee
• ELOW: Environmental law
• EP & P: Environmental product
and process related
• EFIN: Environmental inance
related data
• EAEST: Environmental aesthetics
(facilities, art, restoration)
• ELITIG: Environmental litigation
• E EPRG: Environmental education
programmes
• EMPW: Employee awareness of
environmental policy
• EACTV: Environmental activities
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Environmental
Items
DEPUL
EFRTREN
R&EN
UTIW
IMSTU
EAU
ENEFF
R&D
ENCON
IPE
RENCON
IEPR
ELITIG
FINPOL
P&COC
P&CEX
F&CEX
F&COC
POLU: Pollution
REHB: Rehabilitation
W & R: Waste and recycling
IMSTU: Impact studies
WTS: Water treatment system
SUST: Sustainability
R & D: Research and development
DEPUL: Departments or ofices
for pollution control
IEPR: International environmental
programme
ENCON: Energy conversion
ENEFF: Energy eficiency
EFRTREN: Efforts to reduce
energy consumption
IPE: Increasing of product
eficency
RENCON: Research energy
conservation
Another possible reason behind poor IED
amongst Malaysian listed companies is lack of
knowledge amongst Malaysian accountants. The
accountants may see environmental accounting
as not within their jurisdiction. To alleviate this
problem, an extensive training on environmental
accounting treatment should be provided by the
Malaysian Institute of Accountants and Malaysian
Institute of Certiied Public Accountants.
RESULTS
Multiple regression analysis was utilised to test
the hypotheses. This was undertaken after running
Frequency
Percentage (%)
16
16
15
14
14
13
11
10
10
9
6
6
5
5
5
2
2
2
8.2
8.2
7.7
7.2
7.2
6.7
5.7
5.2
5.2
4.6
3.1
3.1
2.6
2.6
2.6
1.0
1.0
1.0
• AWAD: Awards
• SPACT: Support for public or
private action designed to protect
the environment
• LNDR: Land reclamation and
forestation programmes
• FINPOL: Financing for pollution
control equipment or facilities
• P & CEX: Past and current
expenditure for pollution control
equipment and facilities
• P & COC: Past and current
operating costs of pollution control
equipment and facilities
• F & CEX: Future and current
expenditure for pollution control
equipment and facilities
• F & COC: Future and current
operating costs of pollution control
equipment and facilities
quality tests for collected data, namely normality,
correlation analysis, and multicollinearity tests.
The results from the regression showed that
there are several variables that have signiicant
positive relationships with IED. These variables
are internationality, foreign shareholders, level of
technology, irm age, number of shareholders, and
listing status. However, the variables of dominant
personalities on the board of committees and
leverage do not show any signiicant relationship
with IED. Table 4 presents the results of multiple
regression analysis.
Malaysian Management Journal 13 (1 & 2), 51-67 (2009)
61
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Table 4: Multiple Regression Analysis of Determinants of Internet Environmental Disclosure
Independent Variables
Dominants personality in board committees
Chairman company and audit committee
Chairman of audit and nomination committee
Chair. com, audit and nomination committees
Company characteristics
Internationality
Leverage
Foreign shareholders
Level of technology
Firm age
No of shareholders
Listing status
Constant
ANOVA
Durbin Watson
Std.Error
F Value
Sig. F
R Square
Adjust R Square
Predicted Sign
Coeficients
t-statistics
VIF
?
?
?
-0.057
-.0.024
0.107
-0.605
-0.236
1.554
2.518
2.952
1.327
+
+
+
+
+
+
0.134
0.117
0.185
0.354
0.169
0.167
0.309
2.173 **
1.939
2.900 ***
5.649 ***
2.634 ***
2.578 **
4.695 ***
1.064
1.029
1.146
1.102
1.160
1.182
1.216
0.000
1.727
0.83739
12.569
0.000
0.448
0.412
*** signiicant at 1% level ** signiicant at 5% level
In addition, the productive ability of the
analysis was R2 = 448 and Adjusted R2 = .412 which
is respectable. Based on the indings of Table 3,
it was declared that hypotheses H4, H6, H7, H8,
H9, and H10 are accepted. However, hypotheses
H1, H2, H3, and H5 are rejected. Nevertheless,
information disclosure involves human judgment
and therefore cannot be solely explained by the
company’s characteristics. This paper, however,
provides some evidence to support signaling
theory, shareholder accountability theory, and cost
and beneit hypothesis in relation to disclosure.
DISCUSSION OF RESULTS
Dominant Personality in Board Committees
As mentioned in the above discussion, this group
of variables is a new group and has never been
tested before. The regression results showed that
none of the variables of dominant personalities
on the board committees show a significant
relationship with the extent of IED. This result
maybe due to the role of board committees being
not clear in terms of environmental disclosure.
Company Characteristics
From the regression analysis, all the variables
that represent company characteristics showed
positive signiicant relationships with IED, except
leverage. These variables are internationality,
foreign shareholders, level of technology,
company age, number of shareholders, and listing
status. More details about these relationships and
their justiications are provided in the following
paragraphs.
The variable of internationality has a
signiicant positive relationship with IED. This
result is in tandem with the initial expectation
that international companies are more concern
with the environment and therefore disclose more
environmental information on their websites. This
information includes environmental activities and
how their products are environmental friendly.
This in turn supports the legitimacy theory that
states that the companies have to undertake
some aggressive steps so that their activities and
performances can be accepted by the community
(Patten, 1991, 1992; Patten & Trompeter, 2003;
Deegan & Rankin, 1996; Wilmshurst & Frost,
2000). Nowadays, people tend to avoid buying
products that harm the environment (Shanka &
Gopalan, 2005).
Malaysian Management Journal 13 (1 & 2), 51-67 (2009)
62
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The indings also indicated that there
is a significant positive relationship between
foreign shareholders and the extent of IED
in Malaysia. The results lend support to the
argument that higher foreign shareholding leads
to higher asymmetry information, and eventually
leads to higher financial and environmental
disclosures (Xiao et al., 2004). In addition, as
environmental issues are given serious attention
by many companies in the world, the increase
in environmental information requirement from
foreign shareholders is unquestionable. Hence
more information is required to mitigate that
perception. This could be achieved through
extensive voluntary disclosure. On the other
hand, global dissemination of financial and
environmental information is necessary to create
greater transparency, which might be important
to foreign investors (Isenmann & Lenz, 2001).
This research also obtained a positive
relationship between level of technology and
the extent of IED. This result was as expected
because internet reporting requires the companies
to acquire relevant technologies and establish a
department that is responsible for maintaining the
website. Although the cost for internet disclosure
is low in comparison to printed media, but it has
other operational costs such as setting up the
website design, maintaining iles and software,
uploading information, updating information,
and maintaining the website. All these costs
discourage the companies from having their own
website (Lodhia, 2004). Therefore, if the company
has a department to handle its website and acquire
necessary technologies for internet reporting,
a high level of IED is considered logical. In
short, having necessary tools and an information
system department can spur IED. This argument
is consistent with previous studies (Debreceny et
al., 2002).
The variable of company age also has
a significant positive relationship with IED.
This positive relationship can be explained
by the signaling theory which stipulates that
old companies are generally disclosing more
information in order to differentiate themselves
from the new comer on the stock exchange
(Morris, 1987; Watts & Zimmerman, 1986;
Skinner, 1994). Another possible explanation is
that old companies are more experienced in both
environmental issues and internet usage. This
phenomenon is driven by the need to maintain
market dominance and to please the public and
investors. Besides its dominance in the market,
old companies are always under public scrutiny.
In short, it is logical to observe a high level of
IED amongst old Malaysian listed companies. The
inding is similar to that of Cormier and Magnan
(2004).
The ifth identiied variable was number
of shareholders. It shows a signiicant positive
relationship with IED. This result supported the
shareholder accountability theory which states that
the management has to fulill the shareholders’
demand in order to avoid accountability inquisition.
It is logical to observe this phenomenon because
the Internet has wide coverage and low reporting
cost compared to other printed media. In other
words, the companies that have a large number
of shareholders prefer to exploit the advantages
of internet technology to disclose environmental
information due to the following reasons:
•
•
•
to ensure equal access to companies’
environmental activities amongst
shareholders,
to respond to different shareholders’ needs
in relation to environmental information, and
to reduce costs because environmental
information has its preparation and
dissemination costs.
The last variable that shows a signiicant
positive relationship with IED was listing status.
This variable is a new variable and has never been
tested in previous studies. The results of regression
analysis indicated that if the companies are listed
on the main board of Bursa Malaysia, they are
inclined to have websites and disclose more
environmental information on them compared
to the companies that are listed on the second
board. In other words, there is a gap between the
companies that are listed on the main board and the
companies that are listed on the second board. This
gap in turn inluences the level of transparency
and the usage of advanced technology such as
Malaysian Management Journal 13 (1 & 2), 51-67 (2009)
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63
the Internet. Nevertheless, it is not surprising to
observe this phenomenon because of different
requirement of Bursa Malaysia in relation to
main and second boards. This is because the main
board consists of large organisations (inancial
capital of more than RM60 million) and therefore
capture more public and government concern in
relation to the level of transparency, technology
development, and environment. This results in
the policy makers of Bursa Malaysia to set more
stringent requirements and regulations for main
board companies. Internet reporting is an option
to fulill all the requirements in a cheap and fast
manner.
To recapitulate, the above six variables
were critical in determining the level of IED
amongst Malaysian listed companies. Therefore,
Malaysian government should examine as to
whether the involved variable information has
been shared with the companies or not. This could
be translated into action by imposing relevant
rules and regulations. Stringent action should be
taken on the companies that fail to comply with
the imposed rules and regulations.
Conclusion and Future Research
This paper examined the relationship between 10
variables and the extent of IED by Malaysian listed
companies. The results provided evidence that
there is a signiicant positive relationship between
internationality, foreign shareholders, level of
technology, irm age, number of shareholders,
and listing status and the level of IED. The rest of
variables do not show any signiicant relationship
with IED. Therefore, it is recommended that
the Malaysian government should give more
consideration to these determinants and impose
new regulations so that IED can be improved in
the future. The study also observed a transparency
gap between the main and second board of listed
companies.
It can be concluded that, there are several
measures that the Malaysian government, policy
makers, and regulatory authorities can take in
order to enhance the level of transparency amongst
Malaysian listed companies. By considering
the above significant independent variables,
it is argued that Malaysian companies can be
motivated to be more transparent and sensitive to
information technology. The regulatory bodies
can also impose necessary rules and regulations
to obligate the companies to take advantages of
internet technology. This step seems to be useful
in realising vision 2020, which is to turn Malaysia
into a developed nation.
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