Transparency reporting: What drives companies to disclose?

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Transparency reporting: What drives

companies to disclose?

The dutch transparency benchmark

Mike Koopman

s2494183

This paper tests the influence of stakeholder pressure groups on the degree of transparency of companies, and the influence of being listed on that relationship. This is analysed by using the data available from the Dutch transparantiebenchmark for the years 2014, 2015, and 2016. It is found that companies that operate in pressure-sensitive industries report more, and this effect doet not occur more often when a company is listed as well. The results are consistent with legitimacy- and voluntary disclosure theory, suggesting that firms want to be perceived as legitimate in the eyes of society.

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Transparency Benchmark, to assess the extent to which businesses account for their activities in the area of Corporate Social Responsibility (CSR) in their annual reports. The Transparency Benchmark's main working hypothesis is that it encourages businesses to be transparent about their policy and results in the area of CSR, to facilitate stakeholder dialogue, and therefore increase the focus on CSR policy and thus improve business performances in this area.

The Transparantiebenchmark is based on fifty criteria. The criteria can be split in content-oriented criteria, and quality-oriented criteria. On both sets of criteria, the maximum score is 100 points. So a total of 200 points can be scored. The criteria are illustrated in figure 1.

The award for the highest score on the Transparantiebenchark is “de Kristal”. In a press release of accountantweek.nl Alliander is announced the winner of 2016. Schiphol came second, and NS third. According to the jury, Alliander received the price because the company regularly discusses CSR-policies and dilemmas in the management board and the board of directors, has the aim to be climate-neutral in 2023, and includes stakeholders actively in these policies. But what drives a company to release a costly voluntary sustainability report to inform their stakeholders? Fernandez-Feijoo et al (2014) find that companies that operate in environmentally sensitive environments report more on CSR related activities. And companies that are in consumer industries or perceive high pressure from investors report even more. It is well researched that company characteristics play an important role in the area of voluntary reporting and CSR-disclosure (e.g.

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4 Michelon and Parbonetti, 2012), but the influence of being a listed firm on the relationship between different kinds of stakeholder pressure groups and the amount of transparency of the sustainability reports lacks attention. The central question of this research is: What is the influence of stakeholder pressure on the degree of transparency?

2. Relevance

Transparency becomes more and more important. Stakeholders can inform themselves by reading reports that companies publish. Some companies even disclose sustainability reports, where Corporate Social Responsibility (CSR) issues are addressed. These reports are still voluntary. Voluntary reporting has two roles: Firstly: informing stakeholders on how the company performed on environmental and social aspects and communicating what the firm does to mitigate negative impacts (Gray et al, 1996, De Klerk et al, 2015). And secondly: to establish and maintain a socially desirable appearance (Glennie and Lidhia, 2013). The results of research on why one company is more transparent than another are contradictory. Freedman et al (2005) and Cho and Patten (2007) find, for example, that firms that are poor environmental performers tend to report more on their operations. While Al-Tuwaijri et al (2004) find that firms that perform better environmentally report more.

3. Previous research

As stated in the introduction: It is common knowledge that company

characteristics play an important role in CSR. Stakeholders find different things important. Some are only interested in the financial returns of the firm; others find it essential to get to know more about the impact on, for example, the environment. Consequently, the company should be more transparent in their reporting in order to satisfy the information needs of their stakeholders

Li (2016) sheds light on the relationship between companies that operate in industries susceptible to environmental pressure groups and the degree of voluntary disclosure. In his paper he states in the introduction of information disclosure programs, i.e. the transparantiebenchmark, have come to play an increasingly important role in environmental policy. Before, the more traditional

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5 command and control approach and market-based instruments played the most important role in environmental policy-making (Tietenberg, 1998), and according to Li (2016) information disclosure programs are the next wave of environmental regulation. A wide array of empirical evidence has shown that the disclosure of voluntary environmental information to the public will lead to more sustainable technologies and cleaner production processes (Hamilton, 1995; Konar et al, 1997). However, these studies are conducted outside of Europe, let alone in the Netherlands. Other studies that focus on the effectiveness of voluntary disclosure programs are Maynard et al (2011), Pizer et al (2010), and Powers et al (2011). Maynard et al (2001) find that information disclosure programs that increase the transparency of environmental performance lead to more investments in cleaner technologies in the U.S. bleached kraft pulp industry. Pizer et al (2010) show the effectiveness of the (U.S.-based) 1605(b) program, a program set up to reduce ghg-emissions (greenhouse gas emissions). Powers et al (2011) find support of the effectiveness of the India’s Green Rating Project, where significant reductions in pollution loadings among pulp and paper plants in India are addressed.

According to Branco et al (2008) there is a reason to suspect that industry

affiliation is related to certain categories of voluntary disclosure. This means that companies that operate in industries that are highly visible to consumers

(consumer proximity industries) are more likely to consider their impact on society as a whole, and thus, are susceptible to stakeholder pressure and disclose more information (Clarke et al, 1999). Branco et al (2008) hypothesise the

influence of consumer proximity on the degree of voluntary disclosure as: “The nearer a company is to the individual consumer, the more probable is its name to be known to most members of the general public, and hence, the greater will be its social visibility. Thus, it is hypothesised that community involvement

disclosure is associated with the measure of a company’s proximity to the final consumer.” Branco et al (2008) accept that hypothesis because consumer proximity is significant with a positive coefficient in the case of community involvement disclosure on the internet. The sample of Branco et al (2008) however, consists of listed Portuguese companies on Euronext Lisbon. I am curious if the results can be extrapolated to a Dutch sample.

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6 In addition to companies that operate in industries that are sensitive to

environmental and consumer proximity pressure, I identify a third stakeholder pressure group, namely: Investors. If a company is not very leveraged, and is thus substantially financed by equity, investors have the power to demand more transparency from a company, and according to Chih et al (2010) companies will anticipate on that demand in that they will disclose more information than is lawfully mandatory.

My first set of research questions ask if stakeholders can affect the level of transparency in certain industries through pressure. To test these research questions, I apply the perspective of stakeholder theory, voluntary disclosure theory, and legitimacy theory to categorise three categories of industries. The first set of hypotheses are as follows:

H1a: Companies in environmentally sensitive industries publish reports that are more transparent than companies that are in the holdout group.

H1b: Companies in consumer proximity industries publish reports that are more transparent than companies that are in the holdout group.

H1c: Companies in high investor pressure industries publish reports that are more transparent than companies that are in the holdout group.

My second set of research questions flows from the voluntary disclosure theory explained in the paragraph 4.2, and aim to determine the moderating effect of being a listed company on the relationship between stakeholder pressure groups and the score on the transparantiebenchmark. The second set of hypotheses are as follows:

H2a: A listed company that operates in an environmentally sensitive industry will not be more transparent than non-listed companies in environmentally sensitive industries.

H2b: A listed company that operates in a consumer proximity environment will not be more transparent than non-listed companies in consumer proximity industries.

H2c: A listed company that operates in a high investor pressure industry will not be more transparent than non-listed companies in high investor pressure industries.

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4. Theoretical framework

Two major influences on the degree of transparency are acknowledged in this study: Social-political influences and economic influences. To have a complete theoretical framework, three theories are identified and their interrelations are schematically shown in figure 1. The theories are: 1) Stakeholder theory (§4.1); 2) Voluntary disclosure theory (§4.2); and Legitimacy theory (§4.3).

4.1 Stakeholder theory

The founding father of the stakeholder theory is Freeman (1984). Freeman defines a stakeholder as:

Any group or individual who can affect or is affected by the achievement of the organization’s objectives.

In his paper he provides a new view on strategic management. He calls this stakeholder management:

Stakeholder management, as a concept, refers to the necessity for an

organization to manage the relationships with its specific stakeholder groups in an action-oriented way.

Elijido-Ten et al (2010) state that for a company to exist, it is important that the firm manages their relationships with stakeholders. There is a wide array of stakeholders. According to the definition of Freeman (1984) stakeholders can for example be: shareholders, debt holders, employees, suppliers, NGOs, or the government. A firm should thus aim to maintain a healthy relationship with all of them. Ullman (1985) builds forth on the model of Freeman, and provides a conceptual model of CSR activities. He concluded that it is justified that the stakeholder theory is used in CSR studies, like this one. In this paper, it is

assumed that all companies engage in some kind of stakeholder management and that they are driven by two different kinds of motivations. 1) Some companies see being transparent as a mean to achieve a competitive advantage. They want to achieve higher economical results by being seen as a trustable entity in the eyes of the society. And 2) Other companies disclose more because of external

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8 believe that if they fail to do so, it will harm them in terms of profitability and survival. Being more transparent is their mechanism to operate in what appears to be within the boundaries of what is expected of stakeholders.

4.2 Voluntary disclosure theory

Voluntary disclosure is disclosure that is not mandatory by law and regulation (Clarkson et al, 2008). Clarkson et al find that companies that perform well on the area of CSR, also report more. According to them, this is because this is a way of a firm to achieve a competitive advantage, but for the goal of this paper, this relationship is only translated to a constant in order to assess the relative relationship between stakeholder pressure and the degree of transparency. Following this logic: Companies that perform less in the area of CSR will not voluntarily report on bad performance. The theory of voluntary disclosure is used to explain the amount of voluntary disclosure. This theory is based on the agency theory of Jensen and Meckling (1976). Following the logic of these two theories, voluntary disclosure can be seen as a way to decrease the amount of information asymmetry between the company and their stakeholders. As stated in §4.1, companies try to keep pace with their peers due to external influences and do this in order to survive as an entity. If companies are obligated to do something because otherwise they would seize to exist, one can argue about whether the disclosure is still voluntary. But, to keep it clear, in this paper voluntary disclosure is defined as: disclosure that is not obligated by law.

4.3 Legitimacy theory

The legitimacy theory of Dowling and Pfeffer (1975) states that firms voluntarily disclose information because they want to be perceived as legitimate in the eyes of their stakeholders. The way a firm operates, conducts its business, and reports on it is influenced by the social values of the environment in which it operates (Dowling and Pfeffer, 1975; Guthrie et al. 1990; Gray et al. 1995). Companies close a ‘social contract’ with society (Brown et al, 1998). What the authors mean by the term ‘social contract’ is that when a company breaks the social norms (does not legitimize them anymore), society will break this contract and will try

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9 to ban the organization from the social intercourse. This can result in banning products, services, financing possibilities, legislation, etcetera (Deegan, 2002). A key paper cited by many social and environmental accounting researchers is Lindblom (1994). The author introduces a concept called “Legitimacy Gap”. He uses this term to describe the difference between the value system of the

organization and the value system of society. He also provides possible solutions (communication strategies) to narrow the Legitimacy Gap: 1) Correct the public misunderstandings of organisational performance; 2) Altering the publics’ expectations of organisational performance; 3) Communicating improved (CSR) performance; and 4) distracting the publics’ attention away from poor

organisational performance. These legitimacy-strategies relate to information management casu quo impression management. Impression management is a term used in (among other branches) accounting research, but originates from the psychology literature. Goffman (1959) defines impression management as: “A conscious decision on the part of the individual (or in my paper: the company) to reveal certain aspects of the self and to conceal others, as actors do when

performing on stage.” This can be an explanation why there is so much

competition between companies when they are trying to reach a high rank in the Transparantiebenchmark. Fiedler et al (2007) find evidence that companies in the construction industry in Australia cooperated with environmental

organizations in order to improve their legitimacy. Another reason for that cooperation can be stakeholder pressure.

The stakeholder theory and the legitimacy theory may look the same. This is because both theories originated from the political economics theory (Deegan, 2002). But the key difference is that in stakeholder theory, companies report on information that they think that is expected, or even demanded, from them by their stakeholders. In legitimacy theory, however, firms report to be perceived as legitimate in the eyes of stakeholders. It is possible that this even means that the disclosed information does not reflect true performance.

4.4 Construction of an integrated theoretical framework

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10 aims to construct an integrated theoretical framework based on the

aforementioned three theories, based on the method of An & Davey (2011), where the interrelationship among agency theory, stakeholder theory and legitimacy theory is shown. For the purpose of integrating the three aforementioned

theories, we need to understand the relationships between them. In the upcoming subparagraph, these relationships are examined.

4.4.1 The relationship between stakeholder theory and voluntary disclosure theory

Stakeholder theory’s lens is mainly focussed on the relationships of organizations with stakeholder groups in the society. There is a wide array of actors in a

societal system in which the organization operates. An organization is not only accountable to its shareholders, but to other stakeholders as well. Stakeholders might require information that is not mandatory by law and that is when,

according to the definition used in this paper, voluntary disclosure theory comes in.

4.4.2 The relationship between voluntary disclosure theory and legitimacy theory

Following legitimacy theory, organizations aim to conduct their daily business within the borders of societal expectations and norms. In other words: they do not want to break the social contract. If they stick to the social contract, legitimacy theory says, they will be perceived as legitimate in the eyes of society. Legitimacy theory can be linked to voluntary disclosure theory in that disclosing more

information than necessary can be seen as a means for organizations to discharge their accountability to multiple stakeholder groups and at the same time gain and maintain the status of legitimacy in society.

4.4.3 The relationship between legitimacy theory and stakeholder theory

Disclosing information to the public is the way of organizations of saying; we are accountable. Organizations want to be perceived as legitimate in the eyes of stakeholders, and they do not want to break the social contract. If they should choose to break the contract, the theories agree that the organization would seize to exist.

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Figure 1

5. Research design

This research will be conducted quantitatively. The data will for a substantive part consist of data from the Transparantiebenchmark for the years 2014, 2015, and 2016. These data only comprise Dutch companies that received a score on the Transparantiebenchmark. So the data are of dutch companies only, but include different sectors. My initial sample consisted of 645 original companies,

multiplied by 3 years (2014, 2015, 2016) = 1935 observations. After deleting all observations for companies that did not receive a score, or received a score of 0 in the years 2014, 2015 and 2016 I am left with 888 firm-year observations, of 296 unique companies. I collected the data from the control variables from reports available in the GRI database, and on the websites of the companies.

5.1 Different stakeholder pressure groups (Independent variables)

To test the influence of different stakeholder pressure groups on the degree of transparency, I follow the method of Fernandez-Feijoo et al (2014). They identify four industries that are sensitive to stakeholder pressure groups that have a positive influence on the degree of CSR disclosure: Environmentally sensitive industries (§5.1.1), Consumer proximity industries (§5.1.2), High-investor

pressure industries (§5.1.3), and Industries with high-employee pressure. I leave out the fourth stakeholder pressure group, because my sample is limited to Dutch

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12 companies, where rules and regulations are more or less the same for the whole sample. I use 2-number Dutch SBI-codes to separate industries. For a complete overview of the number of observations per industry, see table 1 in the appendix. The variables take a value of 1 if the company operates in a certain industry, all other variables adopt a value of 0.

5.1.1 Environmentally sensitive industries

Tagesson et al. (2009), Gamerschlag et al. (2011), and Branco et al (2008) define environmentally sensitive industries as extractive or high pollution industries. Following their logic; the environmentally sensitive industries in this paper are:

5.1.2 Consumer proximity industries

Consumer proximity companies operate in an industry that is well-known to the general public, because they are their direct customers (Sweeney et al. (2008), Branco et al (2008)). Based on the methods of the aforementioned papers, the consumer proximity industries in this paper are:

SBI-number Industry #

1 Landbouw, jacht en dienstverlening voor de landbouw en jacht 3

6 Winning van aardolie en aardgas 3

8 Winning van delfstoffen (geen olie en gas) 1

9 Dienstverlening voor de winning van delfstoffen 2

17 Vervaardiging van papier, karton en papier- en kartonwaren 2

20 Vervaardiging van chemische producten 6

22 Vervaardiging van producten van rubber en kunststof 2

25 Vervaardiging van producten van metaal (geen machines en apparaten) 4

30 Vervaardiging van overige transportmiddelen 3

35 Productie en distributie van en handel in elektriciteit, aardgas, stoom en gekoelde lucht 7

36 Winning en distributie van water 4

38 Afvalinzameling en -behandeling; voorbereiding tot recycling 8

39 Sanering en overig afvalbeheer 14

41 Algemene burgerlijke en utiliteitsbouw en projectontwikkeling 8

42 Grond-, water- en wegenbouw (geen grondverzet) 5

43 Gespecialiseerde werkzaamheden in de bouw 4

45 Handel in en reparatie van auto’s, motorfietsen en aanhangers 7

49 Vervoer over land 6

50 Vervoer over water 2

51 Luchtvaart 3

52 Opslag en dienstverlening voor vervoer 3

53 Post en koeriers 1

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5.1.3 High investor pressure industries

Companies that operate in high investor pressure industries, are in this paper defined as companies that are listed, and companies that operate in the financial, and insurance sector. The following industries are high investor pressure

industries:

10 Vervaardiging van voedingsmiddelen 15

11 Vervaardiging van dranken 2

26 Vervaardiging van computers en van elektronische en optische apparatuur 8

27 Vervaardiging van elektrische apparatuur 1

35 Productie en distributie van en handel in elektriciteit, aardgas, stoom en gekoelde lucht 7

45 Handel in en reparatie van auto’s, motorfietsen en aanhangers 7

47 Detailhandel (niet in auto's) 8

61 Telecommunicatie 4

64 Financiële instellingen (geen verzekeringen en pensioenfondsen) 27 65 Verzekeringen en pensioenfondsen (geen verplichte sociale verzekeringen) 15

66 Overige financiële dienstverlening 7

85 Onderwijs 14

86 Gezondheidszorg 17

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Figure 2

5.2 Degree of transparency reporting (Dependent variable)

In the part 1 of the research I will test the relationship between each stakeholder pressure group and the score on the transparantiebenchmark (Hypothesis 1a - Hypothesis 1c). In part 2 of the research I will test the moderating effect of being a listed company will amplify the relationship between the pressure groups and the degree of transparency (Hypothesis 2a - Hypothesis 2c). Every company receives a score on A) Content-oriented criteria and B) Quality-oriented criteria. Content-oriented criteria are broken down to a score (maximum score) for 1. Company and business model (33), 2. Policy and Results (34), 3. Management approach (33). Quality-oriented criteria can be broken down to: 4. Relevance (20), 5. Clearness (20), 6. Reliability (20), 7. Responsiveness (20), and 8. Coherence (20). Notice that both sets of criteria each add up to 100, and the sum of both criteria is 200. The maximum score reachable on the Transparantie Benchmark. For a schematic view; see figure 3 in the Appendix.

64 Financiële instellingen (geen verzekeringen en pensioenfondsen) 27 65 Verzekeringen en pensioenfondsen (geen verplichte sociale verzekeringen) 15

66 Overige financiële dienstverlening 7

Other companies that are listed 64

Total: 113 0 20 40 60 80 100 120 140 160 180 Environmentally sensitive industries Consumer proximity industries

High investor pressure industries

Holdout

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5.3 Listed companies (Moderating variable)

Companies that operate in the regulated market, are subject to more regulation than companies that are not. Listed companies in the Netherlands must comply with these regulations, and the AFM oversights this compliance. The financial reporting of listed companies should comply with the following regulations: * Internation Accounting Standards (IAS) is the international standard for annual reports. Companies and shareholders can easily assess the results of a firm in the financial statement section.

* Companies must deposit their (audited) annual reports at the AFM.

* Listed companies must have their reports audited by an independent auditor. When reading this section, it is logical to think that listed companies score higher on the Dutch transparency benchmark. But according to the voluntary disclosure theory, and the legitimacy theory explained in chapter 4, companies disclose what is expected from them by stakeholders, and not what is lawfully obligated. To measure this variable, I give the variable a value of 1 if the company is listed, and a value of 0 if otherwise.

5.4 Public interest entity (Control variable)

According to the Dutch financial market-authority (AFM; Autoriteit Financiële Markten) public interest entities are companies or institutions whose size or function in society is of such importance that a maliciously executed statutory audit can have a significant influence on the trust in the public function of the opinion of the auditor of the financial statements. In the first article of the Wta (Wet toezicht accountantsorganisaties) specific companies and institutions are regarded as public interest entities:

* A Dutch-based legal person governed by Dutch law whose securities are admitted to trading on a regulated market as referred to in Art. 1:1 Wft.

* A bank based in the Netherlands as referred to in Art. 1:1 of the Wft, which has been licenced to conduct business as a bank.

* A central credit institution based in the Netherlands as referred to in Art. 1:1 Wft, which has received a licence to conduct business as a credit institution. * An insurer as referred to in Art. 1:1 Wft, based in the Netherlands, and not being an insurer of limited risk.

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16 * A company, institution, or public body belonging to one of the categories stated in Art. 2. Wta.

5.5 Size (Control variable)

I use total FTEs as a proxy for size. In this research, a company receives a value of 1 if it has more than 500 FTEs, and a 0 as otherwise. This is consistent with the approach of Fifka et al (2011). They conclude that bigger companies are more transparent.

5.6 Model

In model 2 (H1a - H1c) three linear regressions are conducted per hypothesis, one for every year. In model 4 (H3a - H3c) a moderating variable is included in the analysis.

Controls only

𝑇 = 𝑎0+ 𝑎1PIE + 𝑎2SIZE + 𝑎3𝑌2014 + 𝑎2𝑌2016 + 𝜀 Hypothesis 1a - Hypothesis 1c

𝑇 = 𝑎0+ 𝑎1ESI + 𝑎2CPI + 𝑎3HIPI + 𝑎4𝑌2014 + 𝑎5𝑌2016 + 𝜀 Hypothesis 2a - Hypothesis 2c

H2a: T = 𝑎0+ 𝑎1PIE + 𝑎2SIZE + 𝑎3𝑌2014 + 𝑎4𝑌2016 + 𝑎5ESI + 𝛼6(𝐿𝐼𝑆𝑇 ∗ 𝐸𝑆𝐼) + 𝜀 H2b: 𝑇 = 𝑎0+ 𝑎1PIE + 𝑎2SIZE + 𝑎3𝑌2014 + 𝑎4𝑌2016 + 𝑎5𝐶𝑃𝐼 + 𝛼6(𝐿𝐼𝑆𝑇 ∗ 𝐶𝑃𝐼) + 𝜀 H2c: T = 𝑎₀+ 𝑎₁PIE + 𝑎₂SIZE + 𝑎₃𝑌2014 + 𝑎₄𝑌2016 + 𝑎₅𝐻𝐼𝑃𝐼 + 𝛼₆(𝐿𝐼𝑆𝑇 ∗ 𝐻𝐼𝑃𝐼) + 𝜀

Where T is the score on the transparantiebenchmark; ESI is Environmentally sensitive industries, LIST means a company trades its shares in a regulated market, PIE is public interest entity, SIZE is size, CPI is Consumer proximity industries, and HIPI is high investor pressure industries.

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6. Empirical results 6.1 Descriptive statistics

In table 1, the means, standard deviations, and range of variables are displayed. It is shown that 27% of the sample is a PIE, 70% has more than 500 FTEs, and 25% is listed. What most people will notice instantaneously, is that the

percentages of the group ESI, CPI, HIPI, and OTHER exceed the number of 1 if summed. This is because firms can operate in, for example, both ESI, and in CPI. In the years 2014 and 2015, 6 and 4 companies received a score that was even lower than 0, respectively.

Table 1: This table presents the descriptive statistics for continuous and

dichotomous variables for the full sample where SCORE is the dependent variable, it measures the total score of a company that is included in the

transparantiebenchmark of the respective year. SIZE equals 1 if a firm has more than 500 FTEs, and 0 if otherwise. LIST takes a value of 1 of a company’s shares are traded on a regulated market, and 0 if otherwise. ESI, CPI, HIPI and OTHER are dummy variables, where the OTHER category is the holdout group. Y2014, Y2015, and Y2016 are dummy variables used to control for year effects, where 2014 and 2016 are compared to 2015.

6.2 Correlation

In table 2, I present the correlation between the dependent variable, and the independent variables. In the full sample, the highest correlations are 0,460, 0,480, and 0,9. Which shows some possible multicollinearity issues. As explained in the descriptive statistics, companies can have operate in multiple stakeholder pressure sensitive industries. Further analysis of the effect of the probable

Variable N Minimum Maximum Mean Sd

PIE 888 0 1 0,27 0,445 SIZE 888 0 1 0,70 0,461 LIST 888 0 1 0,25 0,436 ESI 888 0 1 0,43 0,495 CPI 888 0 1 0,46 0,499 HIPI 888 0 1 0,17 0,372 OTHER 888 0 1 0,53 0,500 SCORE 888 -12 198 61,28 59,194 Y2014 888 0 1 0,33 0,472 Y2015 888 0 1 0,33 0,472 Y2016 888 0 1 0,33 0,472

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18 multicollinearity I obtained variance inflation factors (VIFs). The maximum value of these VIFs is 8,126, which is <10 so acceptable.

Table 2 the Pearson correlation coefficients among all variables. Correlation with an absolute value greater than 0,05 are statistically significant at the 1% level and are marked with **. Correlations with an absolute value of 0,03 are

statistically significant at the 5% level, and are marked with *.

6.3 Regression H1

In this section, I empirically analyse the effect of the independent variables on the scores of the transparantiebenchmark. In table 3, 3 models are used. The first model only includes the control variables. The second model only includes the linear relationships of H1a - H1c, and the third model represents the full model, including the control variables. Tests for H2a – H2c are conducted in the next paragraph.

Table 3

PIE SIZE LIST ESI CPI HIPI SCORE Y2014 Y2015 Y2016

PIE 1 SIZE ,175** 1 LIST ,213** ,172** 1 ESI ,219** ,067* -,032 1 CPI ,244** ,075* 0,01 ,967** 1 HIPI ,261** ,097** -0,32 ,460** ,480** 1 SCORE ,078* ,253** ,075* 0,027 ,072* 0,039 1 Y2014 ,000 ,000 ,004 ,000 ,000 ,000 0,063 1 Y2015 ,000 ,000 0,002 ,000 ,000 ,000 -,236** -,500** 1 Y2016 ,000 ,000 0,002 ,000 ,000 ,000 ,173** -,500** -,500** 1 (1) (2) (3) Intercept 18,383 *** 37,582 *** 16,249 *** PIE 4,686 0,687 SIZE 31,603 *** 32,126 *** ESI 38,892 ** 74,410 ** CPI 47,89 ** 75,308 ** HPI -9,297 7,127 Y2014 25,037 *** 25,037 *** 25,037 *** Y2016 34,199 *** 34,199 *** 34,199 *** Adjusted R-squared 0,121 0,087 0,147 F-value 31,455 *** 18,004 *** 22,893 *** Highest VIF 1,333 6,268 8,126

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6.3.1 Control variables

The results concerning the control variable SIZE remain relatively stable

throughout the models. In line with the previous research of Fifka et al (2011) I find a significant positive effect of the size of a firm on the degree of transparency (β = 31,603, p < 0,01) There is no significant relationship found between PIE and SCORE.

6.3.2 H1: The relationship between stakeholder pressure and the degree of transparency

H1a: a significant positive association is found between environmentally

sensitive industries and the degree of transparency (β = 74,410, p < 0,05), which suggests that firms that operate in an environmentally sensitive environment are more transparent than firms that are in the holdout group. H1a accepted.

H1b: a significant positive association is found between consumer proximity industries and the degree of transparency (β = 75,308, p < 0,05), which suggests that firms that operate in consumer proximity environments are more

transparent than firms that are in the holdout group. H1b accepted.

H1c: A positive association between high investor pressure industries and the degree of transparency is found (β = 7,127). However, this relationship is not significant, which does not give enough evidence that firms that operate in high investor pressure industries are more transparent. H1c rejected.

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6.4 Regression H2

In this section, I empirically analyse the effect of the moderator variable LIST on the relationship between every stakeholder pressure group and the score on the transparancybenchmark. scores on the transparantiebenchmark. In table 4, 3 models are used, For H2a – H2c separately.

Table 4: This table presents the linear regression for continuous and dichotomous

variables for the full sample where PIE takes a value of 1 if a firm is a public interest entity, SIZE equals 1 if a firm has more than 500 FTEs, and 0 if otherwise. LIST takes a value of 1 of a company’s shares are traded on a

regulated market, and 0 if otherwise. ESI, CPI, and HIPI are dummy variables. zESI, zCPI, and zHPI are the computed moderator variables that aim to test H2a – H2c. Y2014 and Y2016 are dummy variables used to control for year effects, where 2014 and 2016 are compared to 2015.

H2a: no significant moderating effect is found on the relationship between

environmentally sensitive industries and the degree of transparency (β = -5.453), which suggests that firms that operate in an environmentally sensitive

environment, and that are also listed, are not significantly more transparent as compared to the other firms in the sample. H2a accepted.

H2b: no significant moderating effect is found on the relationship between consumer proximity industries and the degree of transparency (β = 1,36), which suggests that firms that operate in a consumer proximity environment, and that are also listed, are not significantly more transparent as compared to the other

H2a H2b H2c Intercept 18,089 *** 16,367 *** 15,976 *** PIE 5,04 3,061 3,881 SIZE 31,755 *** 31,335 *** 33,248 *** ESI 1,532 CPI 5,349 HPI 13,558 ** zESI -5,453 zCPI 1,36 zHPI -20,404 * Y2014 25,019 *** 25,042 *** 25,037 *** Y2016 34,199 *** 34,199 *** 34,199 *** Adjusted R-squared 0,119 0,121 0,125 F-value 21,054 *** 21,345 *** 22,165 *** Highest VIF 1,333 1,333 1,333

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22 firms in the sample. H2b accepted.

H2c: a significant moderating effect is found on the relationship between

environmentally sensitive industries and the degree of transparency (β = -20,404, p < 0,1), which suggests that firms that operate in a high investor pressure

environment, and that are also listed, are significantly less transparent as compared to the other firms in the sample. H2c rejected.

7. Discussion 7.1 Findings

The aim of this paper was to analyze the influence of different stakeholder pressure groups on the degree of transparency of annual reports, and the

moderating influence of being a listed company. The stakeholder pressure groups that were identified in this research are stakeholders from environmentally sensitive industries, consumer proximity industries, and high investor pressure industries. The stakeholder pressure groups were classified by using Dutch SIC-codes. My data, which consisted of 888 firm-year observations in the years 2014, 2015, and 2016, reveal that most of the initial expectations were correct: The hypotheses regarding the environmentally sensitive industries and consumer proximity industries can all be accepted. However, the hypotheses regarding high investor pressure groups are rejected. Subsequent analysis shows that this is probably because of the fact that the sample of this stakeholder pressure group is underrepresented in the Dutch transparency benchmark.

7.2 Implications

My findings of the first set of hypotheses suggest that stakeholders expect more transparency from companies that operate in certain industries. In order to survive in today’s economy, the results thus suggest that companies should do what their main stakeholders expect them to do. My findings of the second set of hypotheses verify the voluntary disclosure, and the legitimacy theories.

Companies report more than is lawfully obligated to appear as legitimate in the eyes of their stakeholders. Further research could build on this information and test for cross-cultural differences using the cultural dimensions of Hofstede

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23 (2001). Perhaps in the near future a transparency benchmark will exists for

annual reports worldwide.

7.3 Limitations

This study is prone to some limitations. First, I only took Dutch companies into account. It is unclear whether the results can be generalized to companies in other parts of the world. Second, other theoretical frameworks such as

institutional theory and resource dependency theory are not the framework of this paper. The theories seem fruitful frameworks for future studies in this area. Third, there is not enough evidence that supports the hypotheses regarding high investor pressure stakeholder groups, because the sample is underrepresented in the Dutch transparency benchmark.

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28 Appendix

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29

SBI-number Industry # Industries

38 Afvalinzameling en -behandeling; voorbereiding tot recycling 8 41 Algemene burgerlijke en utiliteitsbouw en projectontwikkeling 8 78 Arbeidsbemiddeling, uitzendbureaus en personeelsbeheer 5 71 Architecten, ingenieurs en technisch ontwerp en advies; keuring en controle 7

47 Detailhandel (niet in auto's) 8

62 Dienstverlenende activiteiten op het gebied van informatietechnologie 6 9 Dienstverlening voor de winning van delfstoffen 2 18 Drukkerijen, reproductie van opgenomen media 3 64 Financiële instellingen (geen verzekeringen en pensioenfondsen) 27 43 Gespecialiseerde werkzaamheden in de bouw 4

86 Gezondheidszorg 17

42 Grond-, water- en wegenbouw (geen grondverzet) 5 46 Groothandel en handelsbemiddeling (niet in auto's en motorfietsen) 13 45 Handel in en reparatie van auto’s, motorfietsen en aanhangers 7 70 Holdings (geen financiële), concerndiensten binnen eigen concern en managementadvisering 3 74 Industrieel ontwerp en vormgeving, fotografie, vertaling en overige consultancy 1 1 Landbouw, jacht en dienstverlening voor de landbouw en jacht 3 94 Levensbeschouwelijke en politieke organisaties, belangen- en ideële organisaties, hobbyclubs 3

92 Loterijen en kansspelen 3

51 Luchtvaart 3

85 Onderwijs 14

84 Openbaar bestuur, overheidsdiensten en verplichte sociale verzekeringen 1 52 Opslag en dienstverlening voor vervoer 3 66 Overige financiële dienstverlening 7

82 Overige zakelijke dienstverlening 2

35 Productie en distributie van en handel in elektriciteit, aardgas, stoom en gekoelde lucht 7 59 Productie en distributie van films en televisieprogramma´s; maken en uitgeven van geluidsopnamen 1 69 Rechtskundige dienstverlening, accountancy, belastingadvisering en administratie 5

73 Reclame en marktonderzoek 1

79 Reisbemiddeling, reisorganisatie, toeristische informatie en reserveringsbureaus 1 33 Reparatie en installatie van machines en apparaten 3

39 Sanering en overig afvalbeheer 14

72 Speur- en ontwikkelingswerk 1

61 Telecommunicatie 4

58 Uitgeverijen 5

68 Verhuur van en handel in onroerend goed 1 29 Vervaardiging van auto's, aanhangwagens en opleggers 1 20 Vervaardiging van chemische producten 6 26 Vervaardiging van computers en van elektronische en optische apparatuur 8

11 Vervaardiging van dranken 2

27 Vervaardiging van elektrische apparatuur 1 21 Vervaardiging van farmaceutische grondstoffen en producten 3 24 Vervaardiging van metalen in primaire vorm 1

31 Vervaardiging van meubels 1

28 Vervaardiging van overige machines en apparaten 7 30 Vervaardiging van overige transportmiddelen 3 17 Vervaardiging van papier, karton en papier- en kartonwaren 2 25 Vervaardiging van producten van metaal (geen machines en apparaten) 4 22 Vervaardiging van producten van rubber en kunststof 2 10 Vervaardiging van voedingsmiddelen 15

49 Vervoer over land 6

50 Vervoer over water 2

65 Verzekeringen en pensioenfondsen (geen verplichte sociale verzekeringen) 15 96 Wellness en overige dienstverlening; uitvaartbranche 2

6 Winning van aardolie en aardgas 3

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Transparency reporting: What drives companies to disclose?