Factors Influencing the Extent and Quality of Corporate Social Responsibility Disclosure in Indonesian Shari’ah Compliant Companies

Abstract

This study aims to assess the extent and quality of corporate social responsibility (CSR) disclosure practices of Shari’ah Compliant Companies (ShCCs) in Indonesia. Further, the study examines the factors influencing the extent and quality of CSR disclosure of ShCCs in Indonesia. A checklist comprising of 33 items was constructed to measure the extent and quality of disclosure. Using data from the year 2014 annual reports of 100 ShCCs in Indonesia, the results showed that the extent and quality of CSR disclosure among ShCCs in Indonesia were low with more than half of the sample companies scored less than 50% for extent of disclosure and all sample companies scored less than 50% for quality of disclosure. The multiple regression analysis revealed that award and leverage had an impact on the extent and quality of CSR disclosure. The findings indicate the need for improvement in the disclosure practice in annual reports of ShCCs. The relevant regulatory authority may issue guidelines and monitor companies’ compliance to the guidelines to assist companies in enhancing CSR disclosure. Continuous and concerted efforts by the regulatory authority and ShCCs are necessary to ensure achievement of social transparency and accountability. This in turn may propel the development of Islamic capital market to the next level.

Shari'ah compliance and environmental performance - Evidence from the USA

“…Ameraldo and Ghazali (2021) provide evidence that leverage influences Shari'ah-compliant companies' environmental disclosure. Ameraldo and Ghazali (2021) extract samples from the Shari'ah stock index in Indonesia, therefore, limiting an opportunity to compare CSR (Corporate Social Responsibility) disclosure between Shari'ah-compliant and non-compliant firms. Another limitation of past studies focusing on CSR disclosure is that environmental issues do not receive proper attention.…”

“…A plethora of past studies explores corporate social responsibility initiatives of Shari'ah-compliant firms (Ameraldo & Ghazali, 2021;Arsad, et al, 2015;Mallin, et al, 2014). Ameraldo and Ghazali (2021) provide evidence that leverage influences Shari'ah-compliant companies' environmental disclosure.…”

“…A plethora of past studies explores corporate social responsibility initiatives of Shari'ah-compliant firms (Ameraldo & Ghazali, 2021;Arsad, et al, 2015;Mallin, et al, 2014). Ameraldo and Ghazali (2021) provide evidence that leverage influences Shari'ah-compliant companies' environmental disclosure. Ameraldo and Ghazali (2021) extract samples from the Shari'ah stock index in Indonesia, therefore, limiting an opportunity to compare CSR (Corporate Social Responsibility) disclosure between Shari'ah-compliant and non-compliant firms.…”

“…Another limitation of past studies focusing on CSR disclosure is that environmental issues do not receive proper attention. For example, the CSR index of Ameraldo and Ghazali (2021) only includes two environmental items (use of resources, pollution, and environmental protection program) out of 33 items available in the index.…”

“…As such, the findings from the studies focusing primarily on CSR may not be relevant to the current study that focuses on environmental performance. Second, past studies explore CSR from a disclosure perspective, meaning authors investigate the CSR disclosure of Shari'ah-compliant firms (Ameraldo & Ghazali, 2021;Mallin, et al, 2014). Mallin et al (2014) adapted the CSR index of Maali et al (2006) which includes only two environmental issues (donations to environmental projects and bank finance that lead to harming the environment).…”