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DOI: 10.1108/SRJ-10-2015-0147
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Social Responsibility Journal
Sustainability reports in Brazil through the lens of signaling, legitimacy and stakeholder theories
Hong Yuh Ching Fábio Gerab
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Hong Yuh Ching Fábio Gerab , (2017),"Sustainability reports in Brazil through the lens of signaling, legitimacy and
stakeholder theories ", Social Responsibility Journal, Vol. 13 Iss 1 pp. 95 - 110
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Sustainability reports in Brazil through
the lens of signaling, legitimacy and
stakeholder theories
Downloaded by FEI At 08:49 02 March 2017 (PT)
Hong Yuh Ching and Fábio Gerab
Abstract
Purpose – The purpose of this paper is to extend the applicability of stakeholder, legitimacy and
signaling theories by examining to what extent proactive corporate social responsibility disclosures are
interrelated to attempt to gain and maintain legitimacy, to gain support of the stakeholders and to reduce
information asymmetry.
Design/methodology/approach – To test the theoretical arguments, a longitudinal approach over a
five-year period of 145 companies’ sustainability reports and statistical analysis was applied to
investigate the evolution of their quality.
Findings – The results show a significant increase in the quality of sustainability reporting, and the
experience gained while writing these reports can contribute to this. Based on signaling and legitimacy
theories, this paper suggests that improvement in sustainability reporting quality acts as an important
signal to gain legitimacy in case of information asymmetry during the legitimacy process. Th disclosure
for economic and social dimensions is better than that of the environmental dimension, and the
improvement in quality over time is the because of synergies and interlinkages more between these two
dimensions of sustainability, and to a lesser extent because of the environmental dimension.
Practical implications – Firms should view investing in sustainability reporting disclosure as a
strategy for obtaining business legitimacy.
Originality/value – The results of this paper are of interest for several reasons: extend and broaden the
use of signaling in studying its use on sustainability reporting; the use of three theories is an appropriate
framework for empirical analysis of sustainability reporting disclosure quality in Brazil; and add to the
scarce evidence of sustainability reporting in Brazil.
Keywords Signaling theory, Stakeholder theory, Legitimacy theory, Sustainability report,
Dimensions of sustainability
Paper type Research paper
Hong Yuh Ching is based
at the Department of
Business, Centro
Universitário Da Fei, Sao
Bernado do Campo,
Brazil. Fábio Gerab is
based at the Department
of Mathematics, Centro
Universitário Da Fei, Sao
Bernado do Campo,
Brazil.
Introduction
Sustainability calls for a company to respond not only to its shareholders but also to other
stakeholders, including employees, trade unions, contractors, suppliers, customers,
creditors, affected communities, government and NGOs (Jenkins and Yakovleva, 2006;
Azapagic, 2004). In response to this, we see an increase in the number of sustainability
reports. Corporate social responsibility (CSR) communication takes on a crucial role in
addressing social and environmental issues and in effectively engaging in dialog with the
stakeholder group investors and the society (Lock and Seele, 2015).
Because CSR reports are about voluntary disclosure by companies and do not follow any
mandatory reporting criteria, the stakeholders find difficulty in determining which firms are
“good” (Mahoney et al., 2013). Moreover, these reports are being perceived as
non-credible communication tools for many readers (Chen and Bouvain, 2009), and these
have been criticized for showing little actual substance or that disclosures have been
DOI 10.1108/SRJ-10-2015-0147
Received 2 October 2015
Revised 16 May 2016
Accepted 18 May 2016
VOL. 13 NO. 1 2017, pp. 95-110, © Emerald Publishing Limited, ISSN 1747-1117 SOCIAL RESPONSIBILITY JOURNAL
PAGE 95
minimal (Lyon and Maxwell, 2011; Moseñe et al., 2013). Although the reporting quality has
improved over the past 10 years, it is still patchy (Corporate Register, 2013). On the other
hand, investors are no longer satisfied with financial information and claim for an enhanced
transparency. They need to trust in a company’s sustainable business conduct before
investing in it, and the sustainability reporting would be of good value (Jenkins and
Yakovleva, 2006; Lock and Seele, 2015).
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Our theoretical framework blends elements of three theories – signaling, stakeholder and
legitimacy. The information affects the decision-making processes used by individuals in
households, businesses and governments, and they make decisions based on public
information, which is freely available, and private information, which is available for only a
subset of the public. However, when this latter happens (private information), information
asymmetry will occur (Connelly et al., 2011a). The disclosure of sustainability reporting can
diminish informational asymmetries between the firm and its stakeholders and is used as a
communication tool to win their support (Chiu and Wang, 2015). The firms send signal about
quality by issuing quality CSR reports to seek legitimacy from their receivers (Connelly et al.,
2011a). Hahn and Kuhnen (2013) also agree that reporting quality is a central issue for
providing a true and fair view of a company’s sustainability performance and works as a signal
to boost sustainability legitimacy. However, relatively little attention has been paid to disclosure
quality of sustainability reporting. Quality is one distinguishing characteristic, and it refers to the
underlying, unobservable ability of the signaler to fulfill the needs of a receiver observing the
signal (Connelly et al., 2011a).
The purpose of this practical research undertaken is to extend the applicability of
stakeholder, legitimacy and signaling theories by examining to what extent proactive CSR
disclosures are interrelated to attempt to gain and maintain legitimacy, to gain support of
the stakeholders and to reduce information asymmetry. Hypotheses about the relationships
between legitimacy, stakeholder and signaling theories and the quality of CSR reports will
be tested. This article also provides a useful method for evaluating disclosure quality, i.e.
a score system that measures the quality of these reports.
Assuming that these three theories are guiding corporate decisions related to the
sustainability reporting, we must expect, among other behaviors:
1. an increase in the number of companies publishing sustainability reports;
2. gradual increase in the amount of information reported, as well as the quality of
disclosure; and
3. companies seeking external assurance of these reports and less asymmetry of
information that signaled two distinct groups of audience.
To test these theoretical arguments, we adopted a longitudinal approach 145 companies’
sustainability reports over a five-year period of and used statistical analysis to investigate
the evolution of their quality. Social, economic and environmental circumstances do not
unfold over one financial year; with a longer period of analysis, the quality of CSR reports
may be identified more consistently (Mahadeo et al., 2011), and it may also help in
observing whether there is a trend (Legrand and Coderre, 2012). This article also adds to
the scarce evidence on sustainability reporting in Brazil.
We decided to analyze Brazilian companies listed at Indice de Sustentabilidade
Empresarial (ISE) for three reasons: this price index has entered into a mature phase (has
been operational since 2005 and is the fourth stock index created after New York DJSI,
London FTSE4Good and Johannesburg JSE); there is an additional demand to strengthen
disclosure quality regarding their sustainable activities; and extant literature regarding ISE
is still incipient (Corrêa et al., 2012; Macedo et al., 2012; Ching et al., 2013).
After a literature review on signaling, legitimacy and stakeholder theories, the research
method is presented in the section soon after. Here, we present the score system
PAGE 96 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
developed to evaluate sustainability reports regarding the amount of information disclosed
and the quality of its information. Following the sections of the descriptive statistics and the
results, the discussion and conclusion is presented in the final section with
recommendations for further developments.
Literature review
Among the theories that explain sustainability reporting practice, Hahn and Kuhnen (2013)
found studies adopting stakeholder and legitimacy theories, as well as institutional theory.
However, these studies mostly refer to isolated theoretical reference points instead of
embracing different theoretical explanations regarding sustainability reporting. Studies on
signaling theory were not mentioned by them. The application of signaling theory is often
found in corporate finance (Dionne and Ouederni, 2011), marketing (Wells et al., 2011;
Mavlanova et al., 2012) and human behavior (Gregory et al., 2013). Some aspects of the
three theories – signaling, legitimacy and stakeholder – were combined to discuss the
results of this paper.
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Economic-based disclosure theories (especially voluntary disclosure and signaling
theories)
Dye (1985) and Verrecchia (1983) state that firms voluntarily disclose information to reduce
information asymmetries between managers and stakeholders to communicate the firm’s
good performance. To reduce information asymmetry, the better-informed groups try to
credibly transmit information about themselves to the less-informed groups (Connelly et al.,
2011b; Spence, 2002). Signaling can be seen as an extension of the voluntary disclosure
theory. The signaling timeline includes two actors – the signaler, a person or firm, which
sends the information the receivers would find useful, and the receiver, who observes and
interprets the signal – as well as the signal itself (Connelly et al., 2011a).
The core of signaling theory consists of the analysis of different types of signals that a
signaler sends to the receiver and the situations in which they are interpreted and used.
Signals convey information about signaler characteristics and the receiver examines them
to evaluate signaler credibility (Spence, 2002). For Janney and Folta (2006), the extent to
which signaling is effective depends, in part, on whether receivers scan the environment for
signals. The signaling theory suggests that “good” corporate citizens issue standalone
CSR reports to eliminate information asymmetries that may prevent them from reaping
benefits of their actions. Yet, signaling suggests that firms use standalone CSR reports as
a signal of their superior commitment to CSR (Mahoney et al., 2013). Some signaler
characteristics are more likely to enhance the effectiveness of a signal, and credibility is a
way to reflect the extent to which a signaler is honest (Davila et al., 2003). External
stakeholders will seek information from auditors, providing independent assurance of
corporate responsibility (CR) information and showing that the company is as serious about
CR data as it is about its financial information (KPMG, 2013).
Regarding the quality of the signals of the sustainability reporting, the quality varies
significantly. Marquis and Qian (2014) state that Chinese reporting has been criticized for
its low quality, where half of the reports released contained only limited information on
specific CSR activities. CSR itself has been criticized for showing little actual substance or
disclosures have been minimal (Lyon and Maxwell, 2011; Moseñe et al., 2013), and
although the reporting quality has improved over the past 10 years, it is still patchy
(Corporate Register, 2013). Huang and Wang (2010) analyzed 162 sustainability reports
from 2002 to 2008 and found that its quality has polarized. Even though the reporting
system of some companies has arrived at a relatively high level, most of the reports need
improvement in many aspects such as report types, disclosing time, report content and
shapes.
VOL. 13 NO. 1 2017
SOCIAL RESPONSIBILITY JOURNAL
PAGE 97
Socio-political theories of disclosure
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Socio-political theories including political economy, legitimacy theory and stakeholder
theory suggest that CSR is a function of social and political pressures facing the
corporation (Patten, 1992).
Legitimation is the process whereby a corporation justifies its right to continue to operate
to its conferring public. Legitimacy can be characterized as a generalized perception or
assumption that the actions of an entity are either desirable or appropriate within some
socially constructed system of norms, values, beliefs and definitions (Suchman, 1995). Its
theory states that the greater the likelihood of adverse shifts in a corporation’s conferring
public’s perceptions of how a socially responsible corporation is, the greater the desirability
on the part of the corporation to adopt legitimation tactics in an attempt to manage these
shifts in social perceptions (O’Donovan, 2000). Legitimacy also refers to the degree to
which the broader public or stakeholders regard a firm’ actions as both appropriate and
useful (Suchman, 1995) or when the firm’s performance is socially accepted and judged to
be fair and worthy of support (Eugénio et al., 2013). To continue to exist, a corporation will
act to remain legitimate in the eyes of those it considers have the ability to affect its
legitimacy (Marquis and Qian, 2014; Wei et al., 2017). In other words, the theory is based
on the idea that companies must act within the bounds of what the society identifies as
socially acceptable behavior to continue operating (O’Donovann, 2002) and show
adherence to social norms and expectations (Nikolaeva and Bicho, 2011). The firms have
to voluntary conform to moral, social values and norms while demanding market-related
resources such as information sharing, access to financial and human capital and
endorsements from the stakeholders (Wei et al., 2017). This is critical for firm survival
because it ensures continuous inflow of external resources and support from various
stakeholders (Suchman, 1995). However, when societal expectations of the firm’s behavior
differ from the perception of its behavior, the society could revoke the organization’s license
to continue operating (Eugénio et al., 2013).
The identification of important stakeholders that the organization attempts to influence their
perception, usually through sustainability information disclosures, has its roots in the
stakeholder theory (O’Donovan, 2000). In meeting the demands of various stakeholder
groups, a company manager may not accord all stakeholders the same level of importance
(Chiu and Wang, 2015). The focus of stakeholder theory is to gain approval for corporate
decisions by groups whose support is required for the organization to achieve its objectives
(Tricker, 1983). Patten (1992) and Roberts (1992) state that while there is an obvious
overlap between stakeholder and legitimacy theories, legitimacy theory offers a broader
perspective in attempting to explain environmental disclosures than stakeholder theory,
which is more focused on corporations. The common thread between stakeholder theory
and legitimacy theory is obviously identifying important stakeholders (O’Donovan, 2000).
While stakeholder theory addresses the different interest groups that influence a company,
legitimacy theory more broadly refers to society as a whole that demands sustainable
business conduct (Cotter and Najah, 2012).
The acceptability of a company in society is directly linked to stakeholder thinking (Hahn
and Kuhnen, 2013). The long-run survival of the company requires the support of its
stakeholders, and a principal function of the manager is to handle stakeholders’ needs,
expectations and demands, as well as to balance conflicts among them (Chiu and Wang,
2015). To manage legitimacy, corporations must be able to identify who these stakeholders
are and what are their needs or demands.
Brower and Mahajan (2013) found evidence that firms are sensitive to diverse stakeholder
demands and are exposed to greater scrutiny or risk of actions from their stakeholders.
They respond with the implementation of policies and programs intended to reach the
overarching goal of CSR.
PAGE 98 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
Methods to measure the quality of sustainability reports
The need for independent assurance has a purpose of enhancing the reporting quality.
Despite being voluntary, many companies seek out assurance, motivated by a need to
demonstrate credibility with external stakeholders (KPMG, 2013). Unfortunately, this neither
captures the amount of sustainability information disclosure nor the quality of the
information disclosed. Score systems can be seen as a method to provide perceived
credibility to the readers regarding the amount of disclosure in the reports. Some scholars
and organizations have developed score systems to measure reporting quality.
Skouloudis and Evangelinos (2009) developed a score system, where each of the Global
Reporting Initiative (GRI) topics/indicators was allocated a score between 0 and 4 points as
follows: 0 point: when a specific topic was not mentioned; 1 point: brief or generic
statements; 2 points: more detailed coverage; 3 points: extensive coverage; and 4 points:
when coverage was full and systematic.
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United Nations Environment Programme (UNEP) (2002, 2006) also used 0-4 scores, where
“0” means no relevant coverage, or nothing sufficiently significant to suggest that the
company is taking this issue seriously and “4” means the reporting is serious, systematic
and extensive, and it is clear how reporting is linked to general business decision-making
and core processes.
Daub (2007) used a rating between 0 and 3 to assess to what degree the reporting fulfills
the criterion, where: 0 ⫽ no meaningful information is provided on the specific criterion;
1 ⫽ patchy information is provided; 2 ⫽ the reporting provides good information on the
criterion, however, one relevant area/indicator is not addressed; and 3 ⫽ the reporting
includes full information on the criterion. In his study, 33 individual criteria were broken
down into four main categories, combining a number of meaningfully associated criteria.
KPMG (2013) and Chiu and Wang (2015) chose, instead, to use criteria or facets to analyze
the quality of CR reporting. KPMG (2013) sought to assess against seven criteria, while the
latter used five facets. Ching et al. (2013) also constructed their own score system, and it
will be used in this paper because of the fact that the dimensions and aspects of triple
bottom line are used in an equitable way. This will be detailed in the methodology section.
Research method
We divided this section in the following subsections: formulation of hypotheses, method to
calculate the scores and use of content analysis, sample selection and study period.
Formulation of hypotheses
The three theories of legitimacy, signaling and stakeholder were combined to uncover ways
of explaining firm behavior with respect to sustainable reporting disclosure. Legitimacy
suggests that firms that adapt to changing sustainability norms and regulations will be more
likely to survive (Connelly et al., 2011a). One problem that firms face is that their
commitment to sustainability often is not readily observable by stakeholders (Connelly
et al., 2011b). For them, the likelihood of long-run survival of the firm could be moderated
by two factors:
1. the support of different interest stakeholders that influence the firm; and
2. the ability to communicate the value and actions with respect to sustainability to them.
And CSR reports can be seen as a way of communicating or signaling a firm’s superior
commitment.
In line with legitimacy and signaling theories, we contend that companies may resort to
sustainability reporting quality as part of a strategy to maintain their standing in society, as
well as signaling to a diverse audience the image of concern with social responsibilities.
VOL. 13 NO. 1 2017
SOCIAL RESPONSIBILITY JOURNAL
PAGE 99
These reports should act as an important signal to gain legitimacy when information
asymmetry occurs during the legitimacy judgment process (Wei et al., 2017). By improving
the quality of sustainability reports over time, firms may create even better conditions for
their legitimacy (Shocker and Sethi, 1973).
From the perspective of the above theories, there is a greater incentive to disclose
information and the better its quality, the better the firm will be perceived by society and
stakeholders, its actions be legitimized and the information asymmetry be reduced. Along
same lines, companies can reduce this asymmetry by proactively reporting on their
sustainability activities (Hahn and Lulfs, 2013). For them, the sustainability performance of
a company can be regarded as asymmetric information because it is difficult for parties
outside the company to gain credible information on sustainability aspects. We therefore
hypothesize the following:
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H1. There is a significant increase in the quality of sustainability reports post 2008.
Legitimacy, stakeholder and signaling theories can contribute to the notion that
good-quality disclosure in each sustainability dimension should enhance firm’s legitimacy
with groups of stakeholders (social, economic and environmental audiences) in meeting
their specific needs and regulatory and normative expectations. Araya et al. (2014) stated
that disclosing information about sustainability would help reinforce stakeholders’ trust.
Along same lines, better social performers are those who increase the breadth of their
disclosure to stakeholders and uniformly distribute disclosure across stakeholders (Vurro
and Perrini, 2011). Ching et al. (2013) found that the companies are reporting the content
in all the three dimensions with same quality level and with the same level of adherence to
GRI indicators (Ching et al., 2014).
Taking into account the above arguments, and the results obtained in previous studies, we
want to examine whether the firms accord all stakeholders the same level of importance in
terms of quality disclosure:
H2. There is no significant difference in the quality of information disclosed among the
economic, environmental and social dimensions after 2008.
Method to calculate the scores
We followed the same method used by Ching et al. (2013) that created four levels to
calculate the scores based on GRI G3 Guidelines. The bottom level has 79 information/
indicators: 9 indicators in the economical dimension (EC1 to EC9), 30 in the environmental
dimension (EN1 to EN30) and 40 in the social dimension (LA1 to LA14, HR1 to HR9, SO1
to SO8 and PR1 to PR9). These 79 information/indicators were aggregated, in an upper
level, by aspects, and the scores, in each aspect, were calculated using the arithmetic
mean of their respective indicators. Moving up, the aspects were aggregated by
dimension, and their scores were composed using the arithmetic mean of their respective
aspects. Finally, the overall score (OS) gathering the scores of the three dimensions is the
top level. An exception was made for the social dimension, where there is one more level,
category, between aspect and dimension levels.
By using the arithmetic mean, we say that every information/indicator to compose the score
in each aspect and every aspect in each dimension has the same weight, despite (the
aspects and dimensions) having a greater or lesser amount of information/indicator. For
instance, the four indicators of the economic performance aspect have together the same
weight as the three indicators of the market presence aspect and as the effects of two
indicators of the indirect economic aspect. These three aspects in the economic dimension
have the same importance as the nine aspects of the environmental dimension.
Each indicator/information was then assigned a score from 0 to 1 using the wording of the
sustainability report. For this purpose, content analysis was applied to make applicable and
PAGE 100 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
valid inferences from data in their context (Jenkins and Yakovleva, 2006). With this method,
we are looking at the amount and quality of information disclosed.
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The different scores between the companies can be exemplified as: when there is no
disclosure regarding the information, the score for it was 0 and its level was considered “no
coverage”. “Sketchy” is when the information is not presented in a coherent and systematic
way in the report, so its score is 0.25. For illustration, in Bradesco’s 2009 report (financial
company), this company received financial aid from the government (EC4), but it was not
detailed how much or how this financial aid was received. When the company presents the
information in a coherent and systematic way, but still misses relevant aspects, it was given
0.5 and it was considered “systematic” level. As an example, Coelce (an energy company)
did not split how much energy was saved because of improvements in efficiency programs
(EN5). When the information is complete, but with little or no evidence that it affects the way
the company conducts its business, it was given 0.75 and considered “extensive” level. It
was observed on Tractebel’s 2008 report (energy), on indicator LA5, about the minimum
period for notifications about operational changes to the employees. There is no such
minimum period. Finally, Score 1 is given for “integrated” information, showing high
importance for the company. Most of the companies received score on indicator EN22,
about disposal of waste, an important point for sustainable analysis.
To mitigate potential bias in this study, two raters scored the reports following the criteria
described. Possible discrepancies were analyzed together to standardize the analysis.
This method provided robustness to our criteria and classification.
Sample selection and study period
We worked with all the 46 companies listed at ISE for the period of 2008-2012, in a total of
145 reports: 25 in 2008, 25 in 2009, 29 in 2010, 35 in 2011 and 31 in 2012. We downloaded
all the reports from the companies’ websites. There has been a mild turnover of companies
in the ISE list. Just for illustration, of the 25 companies that published reports in 2008, 17 of
them published in 2009, 2010 and 2011 and 16 in 2012. Eight new firms were added in
2009, an equal number of firms deleted in the same year, five additions in 2010, while one
was deleted. The same analysis can be done for other years. Further details can be found
in the Discussion of the Results sections in Table VIII.
Descriptive statistics
The terminology used for sustainability reporting varies between companies and there is no
single globally accepted definition. The most common terms to name the report are
“corporate responsibility”, “corporate social responsibility” and “sustainability report”,
although the latter was used by 43 per cent of companies in the KPMG Survey (2013).
Table I shows the temporal development of ISE companies from 2008 to 2012. Overall, 145
company’s reports on sustainability are presented in this period, in whatever form of
reporting. Only 1 company disclosed social and environmental information within the
Table I ISE companies
Types of report
2008
2009
2010
2011
2012
Total
Sustainability Reports
Annual Report and Sustainability
Integrated Reporting
Annual Report
Social Responsibility Report
Total
Reports with external assurance
Reports following GRI guidelines
14
10
0
1
0
25
13
21
15
9
0
0
1
25
14
22
16
12
0
0
1
29
15
28
15
16
3
0
1
35
24
35
12
13
5
0
1
31
24
29
72
60
8
1
4
145
90
135
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SOCIAL RESPONSIBILITY JOURNAL
PAGE 101
Annual Report, 60 reports (or 41 per cent of total) were produced as Annual Report and
Sustainability Report, 8 were produced as Integrated Report, 4 were produced as
standalone Social Responsibility Report and the majority (72 or 49 per cent of total) as a
specific Sustainability Report. This latter is the dominant form of reporting (Hahn and
Kuhnen, 2013; Kolk, 2010). The KPMG survey (2013) shows that 51 per cent included
sustainability information in their annual financial report, while in the Fortune Global 250,
54.4 per cent reported separately and only 20 per cent were included in the financial report
(Kolk, 2008).
Although the Sustainability Report represents the majority, its evolution was not as
significant as the Annual Report and Sustainability types that has risen from 10 reports in
2008 to 16 in 2011 and dropped to 13 in 2012. The remarkable aspect is the emergence
of Integrated Report in 2011, being eight in total. Although these eight reports do not label
themselves as Integrated Report, we have considered so in this study. They have
incorporated some contents of integrated reporting into their reports, such as governance,
operating context, strategic planning and/or organizational overview.
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Table I also shows the variability in the types of reports produced and in the development
of more sophisticated forms of reporting. In 2008, only 21 companies stated that they were
reporting in accordance with the GRI guidelines (84 per cent of total), in 2012, this figure
has risen to 29 (93.5 per cent). The same happens with external assurance of the data
contained in the reports. In 2008, 13 reports (or 52 per cent of total) were externally audited
and there has been a gradual increase in levels of assurance going up to 24 reports (77.4
per cent of total) in 2012. This result is much higher than presented by Corporate Register
(2013) with slightly over 20 per cent in 2012.
This gradual increase in both the GRI guidelines and external assurance is in line with
Jenkins and Yakovleva’ (2006) study, with the top ten listed mining companies from 1999
to 2003. In 1999, no company reported using GRI guidelines and only two companies had
external assurance. In 2002, only two companies were reporting in accordance with GRI,
and in 2003, this figure rose to six, while six companies had external assurance in 2002 and
it grew to eight in 2003. This is also in line with the KPMG survey of 2013. In total, 82 and
59 per cent of G250 largest companies refer to GRI guidelines and invest in external
assurance, respectively, as opposed to 78 and 46 per cent, respectively, in 2011. This
contrasts with Kolk’s (2008) study, where only one-third of Fortune 250 companies resort to
external verification. Motivations that are given include assessing quality, continuous
improvement and responsibility to hear opinions and enhance the credibility of the reported
data.
Looking at all companies in Table II, the average OS was 0.497, with a standard error of
0.017. It is possible to note that the size sample is well distributed over the years, going
from a minimum size of 25 reports, for 2008 and 2009 years, to a maximum size of 35
reports in the 2011 subset. The results show slight score differences across the years. The
average scores point to a gradual and consistent year-by-year increase. This result is in line
Table II Descriptive of the OS results
Subset
N
Mean
Median
SD
Standard error
All companies
2008
2009
2010
2011
2012
Economic
Environment
Social
145
25
25
29
35
31
145
145
145
0.497
0.418
0.460
0.472
0.535
0.573
0.551
0.460
0.495
0.519
0.418
0.463
0.430
0.572
0.630
0.542
0.457
0.526
0.200
0.215
0.211
0.162
0.203
0.182
0.224
0.256
0.225
0.017
0.043
0.043
0.030
0.034
0.033
0.019
0.019
0.020
PAGE 102 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
with the G250 companies that achieved a quality score of 59 out of a possible 100 (KPMG,
2013), but they contrast with Skouloudis and Evangelinos’ (2009) results, with scores
climbing to 26 per cent in 2006 from 21 per cent in 2005.
Moreover, looking at the average score of the sustainability dimensions and the economic
sectors for the entire period of 2008-2012, there are no clear differences among the three
dimensions (economic, environment and social) scores and for the four economic sectors.
Results
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Correlation–regression analysis and inter-comparison of distinct subsets are presented
and discussed, followed by sample subsets, separated by year and by sustainability
dimensions. To decide between parametric or non-parametric statistical approach, both
Kolmogorov–Smirnov and Shapiro–Wilk normality tests were applied to the OS, considering
all 145 company reports. Table III presents the goodness-of-fit results. Both tests,
assuming a 0.05 significance level, indicate that the OS results are not normally distributed.
So, to measure the correlation between the variables, Spearman’s correlation was used.
Following the same approach, Kruskal–Wallis non-parametric test was applied for multiple
subsets’ inter-comparison.
To investigate whether Sustainability Reports’ disclosure had a consistent increase during
the studied period, a linear model was used, having the OS as the dependent variable and
the report year as the independent variable. For paired data, simple linear regression
analysis can be applied, despite the fact that the OS may not be normally distributed.
Table IV shows the respective linear regression results.
The OS can be described as a function of the year (Y), with the equation being
OS ⫽ ⫺77,560 ⫹ 0.039 Y. These results indicate one annual increment of 0.039 on the
measured average OS.
Aiming to detect significant differences in the OS, Kruskal–Wallis non-parametric test was
applied to perform a directly comparison among all distinct year reports. Table V shows the
test results.
These inter-comparison test reveals that, at a 0.05 significance level, there are differences
in the OSs when they are grouped by the publication years.
The obtained p-value (0.037), lower than the selected test significant level (0.05), allows us
to look where these differences are. Therefore, to identify whether there are differences in
homogeneous year groups, we apply the post hoc test for Kruskal–Wallis suggested by
Daniel (1978) and Siegel and Castellan (1988). This procedure adjusts the level of
Table III Score normality test
Statistic
df
p-value
Kolmogorov–Smirnova
0.083
145
0.016
Shapiro–Wilk
0.976
145
0.012
a
Note: Lilliefors significance correction
Table IV Linear regression analysis between score and year variables
Model
Unstandardized coefficients
B
Standard error
(Constant)
Year
⫺77.560
0.039
23.165
0.012
Standardized coefficients
Beta
t
p-value
0.271
⫺3.348
3.370
0.001
0.001
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Table V Kruskal–Wallis test for OS, grouped by year
Year
N
Mean rank
2008
2009
2010
2011
2012
Total
25
25
29
35
31
145
57.68
64.64
67.72
80.34
88.74
Kruskal–Wallis test statistics
Test variable
Grouping variable
Chi-square
df
p-value
Overall
Year
10.198
4
0.037
significance for multiple comparisons, allowing detecting the distinct homogeneous
subsets. These subsets are presented in Table VI.
It is possible to verify that there are two year subsets. The first one groups, without
significant differences, reports from 2008 to 2011. The second one groups reports from
2009 until 2012. It means that this difference evidences that 2012 reports present an
average OS greater than reports of 2008.
These results, concerning the overall report score analysis, corroborate to accept the first
hypothesis of this work:
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H1. There is a significant increase in the quality of sustainability reporting post 2008.
We, then, wondered whether this increase in the quality is the result of the ability in writing
good reports year after year because of a gain in experience. The company experience in
reporting was identified, for each company, as the first report on the 2008-2012 period, the
second report in this period, up to the fifth report. It means that one company that published
three reports during the five-year period, regardless of the year published, will have the
first, second and third reports. The fifth report will be associated with the last one for
companies that published reports in the five-year period. This is shown in Table VII.
For illustration, 25 companies published reports in 2008 (first report); 17 of them published
in 2009 (second report), 2010 and 2011; and 16 in 2012 (fifth report) (see the figures in italic
in diagonal). Of the total 46 companies in the first report, 10 published only one report, other
Table VI Post hoc Kruskal test among the years for the OS
Subset for alpha ⫽ 0.05
Year
N
Mean rank
1
2008
2009
2010
2011
2012
Total
25
25
29
35
31
145
57.68
64.64
67.72
80.34
88.74
57.68
64.64
67.72
80.34
2
64.64
67.72
80.34
88.74
Note: Adjustment in the level of significance
Source: Daniel (1978), Siegel and Castellan (1988)
Table VII Company experience in the observed period 2008-2013
Year
All companies
1st
2nd
Experience Nth report
3rd
4th
5th
Total
2008
2009
2010
2011
2012
Total
25
8
5
8
0
46
0
17
7
4
8
36
0
0
17
6
3
26
0
0
0
0
16
16
25
25
29
35
31
145
PAGE 104 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
0
0
0
17
4
21
10 published 2 reports, 5 published 3 reports, other 5 published 4 reports and 16
companies published for all the five years (2008-2012).
The descriptive statistics for company experience is shown in Table VIII.
The results show an improvement in the mean OS with an increase in experience. Kruskal–
Wallis test was applied to detect significant differences in the OS across the experience
(Nth report). These inter-comparison tests reveal that, at a 0.05 significance level, there are
differences in the OSs when they are grouped by the experience. Post hoc test for
Kruskal–Wallis shows that the fifths’ reports of OS are better than the firsts’ reports.
It means that, very likely, companies are increasing its ability in writing a good report
because they are doing it annually.
Table IX shows the linear regression between OS and experience.
This regression has statistical significance at 0.05 level. It shows that the OS presents an
average 0.044 ⫾ 0.012 increment for each report in the company experience as years
go by.
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Moving now to confirm the next hypothesis, it is necessary to perform a detailed statistical
analysis of each sustainability dimension looking at their specific report scores. One
question arises:
Q1. Is the average score for each dimension similar to the entire three dimensions
during the 2008-2012 period?
This question could be addressed applying the Kruskal–Wallis test among the economic,
environment and social scores. These Kruskal–Wallis analyses, involving all the 145
studied reports, together with the post hoc test mentioned above, detected, using a 0.05
level of significance, that the disclosure for the economic dimension is bigger than the
disclosure of the environment dimension, although this difference is subtle (Table II). The
economic dimension has an average score of 0.551, while the environment dimension has
a score of 0.460. Social dimension, with an average score of 0.495, is statistically
compatible with both economic and environment dimensions. Therefore, H2 cannot be
confirmed. These results are much better than those presented in Skouloudis and
Evangelinos’ (2009) research, with average scores of 25, 15 and 21 per cent for economic,
environmental and social dimensions, respectively. One thing in common is that
environmental dimension has the lowest score.
Table VIII Descriptive for company experience for 2008-2013
Year
Reports
Mean
Median
SD
SE
1st
2nd
Experience Nth report
3rd
4th
5th
46
0.411
0.385
0.189
0.028
36
0.520
0.559
0.207
0.037
26
0.510
0.509
0.158
0.031
21
0.553
0.572
194
0.042
16
0.601
0.650
0.211
0.053
Table IX Linear regression analysis between OS (dependent) and experience
(independent) variables
Model
Unstandardized coefficients
B
Standard error
Constant
Experience
0.389
0.044
0.033
0.012
Standardized coefficients
Beta
t
p-value
0.296
13,723
3.707
0.000
0.000
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PAGE 105
To verify a consistent behavior of the three dimensions during the analyzed period, a
non-parametric Spearman correlation analysis was performed. Table X presents these
coefficients among all the TBL dimensions, and the correlations between the year of the
reports and each dimension score were separated.
The correlation results indicate that all sustainability dimensions are positively correlated,
with Spearman correlation coefficients around 0.6 (0.667 between environmental and
social; 0.639 between economic and social; 0.546 between economic and environmental).
All the coefficients are strongly significant (p-value ⬍ 0.01). It means that we expect that an
improvement in one sustainability dimension score should be followed by the improvement
in the other two complementary sustainability dimensions.
Table X also presents the correlations between year and each sustainability dimension
score separately. Although weaker, compared with inter-dimension correlations, the
correlations between the report year and each dimension are still significant for economic
(0.254) and social (0.292) dimensions. However, for environmental dimension, it was not
possible to detect a significant correlation (0.143).
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To detect the homogeneous year groups and their corresponding differences, Kruskal–
Wallis non-parametric test, together with the post hoc test for Kruskal–Wallis, were again
applied. No statistic difference could be found by environmental dimension. For both
economic and social dimensions, reports published in 2012 are better than those in 2008.
One possible explanation for the improvement in the social dimension can be offered by
Vurro and Perrini (2011) that state that better social performers are those that increased the
breadth of their disclosure. These results are in agreement with results obtained by the OS
(Table VI). The results show that the economic and social dimensions presented a
consistent improvement from 2008 to 2012; however, this was not clear for the
environmental dimension.
Discussion of the results and conclusion
The purpose of this practical research undertaken is to extend the applicability of
stakeholder, legitimacy and signaling theories by examining to what extent proactive CSR
disclosures are interrelated to attempt to gain and maintain legitimacy, to gain support of
the stakeholders and to reduce information asymmetry. The firms are gradually assimilating
the assumptions of these theories and turning them into business practices. There is a
steady increase in the number of sustainability reports published, the amount of information
reported and the quality of disclosure.
Table X Spearman correlation analysis among all TBL dimension and between dimensions and report year
TBL dimensions
and report year
Economic
Environmental
Social
Year
Spearman’s rho a,b
Economic
Environmental
Social
Year
Correlation coefficient
significance (two-tailed)
N
Correlation coefficient
significance (two-tailed)
N
Correlation coefficient
significance (two-tailed)
N
Correlation coefficient
significance (two-tailed)
N
1.000
0.546**
0.000
145
1.000
0.639**
0.000
145
0.667**
0.000
145
1.000
0.254**
0.002
145
0.143
0.087
145
0.292**
0.000
145
1.000
a
b
145
0.546**
0.000
145
0.639**
0.000
145
0.254**
0.002
145
Notes: -; *Significant at 0.05 level; -; **Significant at 0.01 level
PAGE 106 SOCIAL RESPONSIBILITY JOURNAL
VOL. 13 NO. 1 2017
145
0.667**
0.000
145
0.143
0.087
145
145
0.292**
0.000
145
145
Sustainable practices as well as reportings, because they help overcome asymmetric
information about firms’ intents and behaviors, can be an effective means for them to
achieve social acceptance. The results show a significant increase in the quality of
sustainability reporting and the gain of experience in writing these reports can contribute to
this. Based on signaling and legitimacy theories, we suggest that the improvement in
sustainability reporting quality acts as an important signal to gain legitimacy when
information asymmetry happens during the legitimacy process. It seems to be more and
more important for the companies to build a company culture of good reporting and use
this reporting process to generate value and trust for their stakeholders, to build a
meaningful relationship with them. Furthermore, by improving the quality of sustainability
information over time, companies may create even more conditions for their legitimacy.
Other dimensions of sustainability reporting may also have similar signaling effects in
information asymmetry conditions. The disclosure for economic and social dimensions is
better than the environmental dimension, and the quality improvement over time was the
result of synergies and inter-linkages more between these two dimensions of sustainability,
and to a lesser extent because of the environmental dimension. This should enhance firm’s
legitimacy with social and economic audiences. Society and stakeholders exerting
pressure for better and more detailed disclosure must encourage greater and better quality
of the reporting.
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The results of this paper are of interest for several reasons:

extend and broaden the use of signaling in studying its use on sustainability reporting;

the use of three theories is an appropriate framework for empirical analysis of
sustainability reporting disclosure quality in Brazil; and

it adds to the scarce evidence of sustainability reporting in Brazil.
Firms should view investing in sustainability reporting disclosure as a strategy for obtaining
business legitimacy as a practical implication of this article.
One limitation of this study is that it does not assess the sustainability performance and/or
practices of an organization, but rather evaluates the extent to which the organization seeks
to report this performance to the society and its stakeholders.
Finally, as a suggestion for future study, a similar analysis could be made with sustainable
companies of the New York Stock Exchange or London Stock Exchange and the results
compared with ISE companies.
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pp. 373-383, available at: http://link.springer.com/article/10.1007/s10551-015-2704-3/fulltext.html
Further reading
Donaldson, T. and Dunfee, T.W. (2000), “Précis for ties that bind”, Business & Society Review, Vol. 105
No. 4, http://dx.doi.org/10.1111/0045-3609.00092
Woodward, D.G., Edwards, P. and Birkin, F. (1996), “Organizational legitimacy and stakeholder
information provision”, British Journal of Management, Vol. 7, pp. 329-347, http://dx.doi.org/10.1111/
j.1467-8551.1996.tb00123.x
Corresponding author
Hong Yuh Ching can be contacted at: hongching@fei.edu.br
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