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The effect of stakeholder pressure and corporate governance on the quality of

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DOI: 10.1108/IJOES-05-2017-0071

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 International Journal of Ethics and Systems
The effect of stakeholder pressure and corporate governance on the sustainability
report quality
Astrid Rudyanto, Sylvia Veronica Siregar,
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Issue: 2, pp.233-249, https://doi.org/10.1108/IJOES-05-2017-0071
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Stakeholder
The effect of stakeholder pressure pressure
and corporate governance on the
sustainability report quality
Astrid Rudyanto 233
Accounting Trisakti School of Management – Bekasi, Jakarta, Indonesia, and
Received 4 May 2017
Sylvia Veronica Siregar Revised 9 August 2017
Accepted 27 October 2017
Department of Accounting, University of Indonesia, Depok, Indonesia

Abstract
Purpose – The purpose of this study is to examine the effects of stakeholder pressure and corporate
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governance on the quality of sustainability report. This study uses environment, employee, consumer and
shareholder as stakeholders, while board of commissioner effectiveness and family ownership are used as
corporate governance components.
Design/methodology/approach – This research uses multiple regression method with total
observations of 123 sustainability reports of listed firms on Indonesia Stock Exchange in 2010-2014.
Findings – The result shows that companies which get pressure from environment and consumer have
higher quality of sustainability report than other firms. Pressure from employee positively affects the quality
of sustainability report. Meanwhile, pressure from shareholders has no effect on the quality of sustainability
report. Board of commissioner effectiveness positively affects the quality of sustainability report, and family
ownership has no effect on the quality of sustainability report.
Originality/value – This research reveals how various types of stakeholders and corporate governance in
Indonesia react to corporate social responsibility and thus influence the quality of sustainability report, which
has not been discussed by previous studies.
Keywords Corporate governance, Family ownership, Stakeholder pressure,
Board of commissioner effectiveness, Sustainability report quality
Paper type Research paper

1. Introduction
Previous studies have identified corporate social responsibility and sustainability as a form
of a firm’s ethics (Finch, 2005). However, the goal of sustainability activities carried out by
corporations is not a part of companies’ ethics but more to get competitive advantage.
Banerjee (2004) argues that for most business firms, sustainability means that something is
sustainable only if it is profitable. Recent papers disregard the morality of agents and
principals, assuming that all companies have the same goal, which is being profitable. In
fact, the difference among corporate sustainability depends on the morality of agents and
principals, without ignoring the stakeholders’ goal as the center of sustainability research
(Freeman, 1984; Phillips et al., 2003). Stakeholder is a person, group or organization that has
the same interest or an interest in a particular organization (Lamont, 2004). Without the
support of stakeholders, companies cannot run their business, and every industry
International Journal of Ethics and
classification has different primary stakeholders (Branco and Rodriguez, 2008; Fernandez- Systems
Feijoo et al., 2014). For example, Sweeney and Coughlan (2008) found that Vol. 34 No. 2, 2018
pp. 233-249
telecommunications companies and beauty companies have the same primary stakeholders © Emerald Publishing Limited
2514-9369
(customers), or the oil companies and the automobile companies have the same primary DOI 10.1108/IJOES-05-2017-0071
 IJOES stakeholders (environment). Using stakeholders’ goal as the purpose of corporate actions,
34,2 companies depend on stakeholders’ needs and pressure exerted by them and at the same
time on reducing the agency problem (Freeman, 1984). By the assumption of stakeholders
having the same moral responsibility and moral goals, companies have to show that they act
to meet the stakeholders’ moral responsibility by revealing their sustainability activities in
the sustainability report. Tang and Chan (2010) states that sustainability report is the report
234 that measures and discloses an organization’s economic, social and environmental impacts
on society and is accountable to internal and external stakeholders for organizational
performance towards the goal of sustainable development.
The pressure exerted by stakeholders demands a high-quality sustainability report
(Sampaio et al., 2012). The demands on the quality of sustainability reporting originate from
not only the outside (stakeholder) but also the inside (corporate governance). When the
pressure inside a company regarding the quality report is high, the company will generate a
high-quality report.
Sustainability report quality also depends on principal and agent’s morality. Principal’s
(or owner) morality is various. Several studies find that morality of family-owned companies
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is better than that of non-family-owned companies (Duh and Belak, 2009; Gavana et al., 2017;
L�opez-C�ozar et al., 2014). Duh and Belak (2009) find that family-owned companies have more
caring ethics than others, which triggers corporate sustainability. Agent’s morality is also
various. Depending on agent’s morality itself makes corporates sustainability fluctuating
and various. To control agent’s morality and make sure that the companies are sustainable,
board of commissioner is needed. The board of commissioners is a mandatory governance
structure (Indonesia Company Law No. 40 of 2007). The existence of the commissioners
cannot guarantee the quality of sustainability reports prepared if it is not well functioned.
Quality reports can be generated by a company with an effective board of commissioners.
The purpose of this study is not to make a mapping of the main stakeholders in each
company. The purpose of this study is to obtain empirical evidence from an ethical
perspective that pressure from stakeholders (environmental, end consumers, employees and
shareholders) and corporate governance (effectiveness of the board of commissioners and
family ownership) affect the quality of sustainability reports positively.

2. Literature review
Definition of sustainability is debatable (Van Horn, 2013) and vague (Becker, 2012), attracts
hypocrites and fosters delusions (Gibson, 1991). Holmberg and Sandbrook (1992) counted
more than 100 definitions of sustainability, and the number has increased since then.
However, the flexibility and elasticity of its definition leave space for people to improve the
definition, seeing from different sides (Van Horn, 2013; Robinson, 2004). This research
focuses on the ethical side.
Becker (2012) defines three main characteristics of sustainability: continuance,
orientation and relationship. Continuance means the ability of system, entity or process to
maintain itself or the ability of humans to maintain a certain system, entity or process.
Orientation means that sustainability should become the goal and orientation of human
actions. Relationship means systematic integrated analysis of the moral relationship of
humans and their contemporaries, humans and future generations and humans and nature
(Becker, 2012). Ethics is the conscientious reflection upon and reasoned justification about
what we should do to live well with others (van Horn, 2013). The definition of ethics is in
concordance with the characteristics of sustainability. Furthermore, Becker (2012) states
that ethics is inherent in sustainability.
 There are many ethical theories used to describe moral in sustainability, such as Stakeholder
deontology, Kantian, theory of justice and utilitarianism (Freeman, 1984; Donaldson and pressure
Preston, 1995; Phillips et al., 2003; Robinson, 2004). Environmental ethics encompasses
variety of different ethical approaches. Recent papers use environmental ethics as basis of
sustainability ethics (Jeffery, 2005; Zsolnai, 2011; Rajalakshmi, 2016). However,
environmental ethics is only a subset of sustainability ethics, which only concerns about the
relationship between human and nature. Failing to recognize this relationship results in
endogeneity issue between environment and sustainability (Becker, 2012). Becker (2012) 235
introduces sustainability ethics as meta-structures of interrelations among science,
technology and economy and human relations to contemporaries, future generations and
nature. Economy side of sustainability ethics reveals new perspective agency theory.
Agency theory highlights the different perspective of principal and agent in running
business (Gauthier, 1986). Both agent and principal have different goals, and the goal of the
other only shows up if the goal complements or is able to satisfy other’s goal. Goal
congruence can be achieved by having a third party, which is crucial for both principal and
agent, and that is stakeholder (Heath, 2009). By concentrating on stakeholders’ needs, agent
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and principal act to achieve the same goal. Stakeholder theory forces organizational
manager to be more responsive to the external environment and its needs (Freeman, 1984).
Stakeholder theory develops legitimacy theory, stating that organizations should act in the
ethical and legitimate way the stakeholders think, with the assumption that all stakeholders
have “universal attribution of moral personality” (Deegan and Unerman, 2011; Cragg, 2002).
Stakeholders give orientation, which is the direction to distinguish between right and
wrong, to organization managers to say how corporation should live (Becker, 2010).
Stakeholders give an orientation to lead organizations to sustain and maintain the quality of
life and furthermore continuously improve it such that it becomes crucial for the way
companies treat environment in doing business, which is defined as sustainability
(Kocmanová et al., 2011).
TIFAC (2008) states that sustainability is about promoting ethics responsibility and
sound corporate governance practices, providing a safe working environment in which the
health of employees is protected and their opportunities for self-development are enhanced,
promoting cultural diversity and equity in the workplace, minimizing adverse
environmental impacts and providing opportunities for social and economic development
within the communities we operate. Corporate sustainability is a strategy of the process of
corporate sustainable development, which focuses on effectiveness, efficiency and
productivity on creating value for the owners, from environmental, economic and social
dimensions (Kocmanová et al., 2011; Dutta et al., 2012). Although these three dimensions are
important, different stakeholders have different perspectives on the importance level of the
dimensions. Corporate organizations should balance different perspectives of stakeholders
on corporate sustainability by seeing the stakeholder saliency (Mitchell et al., 1997).
Stakeholder saliency is the extent of power, legitimacy and urgency of stakeholders. This
research conceptualizes different stakeholders’ saliency and its effect on corporate
sustainability.
If stakeholder theory is not apply agency theory implies that agent will act to
achieve his own goal, which is different from principal’s. Heath (2009) highlights
the misinterpretation of agency theory in terms of sustainability. Agents are said to
have negative preference over work and principals’ goal, including strategy for
sustainable development (Dees, 1992). Agents tend to pursue their own wealth, not
corporate sustainability. However, economy side of sustainability ethics reveals that
morality side of agent is crucial (Becker, 2012). Ethics and morality have been avoided
 IJOES by previous studies, resulting in failing to address fundamental moral and value
34,2 questions within human–nature relationships in economic environment (Orr, 1992;
Robinson, 2004). Sustainability ethics imply that human being is dependent and
relational in several relationships, including the relationship with its contemporaries,
future generations and nature (Becker, 2012). Agents are human beings dependent on
their surroundings and thus have their own moral to be sustainable and make the
236 corporation they lead to be sustainable corporation.
However, the morality level of agents is various. Principals need to control the morality
of agents to keep the company sustainable through effective corporate governance
mechanism (Jo and Harjoto, 2012; Cespa and Cestone, 2007). Board of commissioner, as a
supervisor, controls and directs manager (agent) to act in sustainable way (DeSimone, 2014).
Cramer (2011) identifies the board’s responsibility for sustainability: overseeing business
strategy; selecting and overseeing the chief executive and determining executive
compensation; and ensuring legal compliance. However, the mere existence of board of
commissioner is not enough to encourage corporate sustainability. It takes an effective
board of commissioners to make it happen.
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Corporate sustainability also depends on the morality of principal. Owner as the

principal should have good ethics to direct agent to pursue sustainability. Companies in
Indonesia are mostly family-owned companies (Claessens, Djankov, and Lang, 2000).
Family ownership has special characteristics compared to other ownerships, which is
having three sub-systems: ownership, management and family (Vallejo, 2011). The decision-
making system in family-owned companies is concentrated on interests of the family, not on
the interests of the business itself or those of other stakeholders (Morck and Yeung, 2004;
Déniz and Cabrera, 2005; Barnett and Kellermanns, 2006). As a result, an excessive
paternalism happens (Chirico and Nordqvist, 2010). This excessive paternalism affects
company’s action on sustainability in two different ways. If the owner (family) is more
ethical based on family culture brought to the company, the company will more
concentrated on corporate sustainability, and vice versa. Previous studies state that family-
owned companies present a greater commitment of employees to their firms, a better
working environment and therefore greater organizational harmony, as well as
management that is more long-term-oriented (Vallejo, 2011; Aparicio and Valdés, 2009).
Lopez-Cozar (2015) also finds that the aspects favoring sustainability are stronger than the
barriers. Therefore, it is assumed that family ownership has a positive effect on
sustainability.
Agents and principals that use sustainability as common goal will sooner or later face a
question as to what method to use for the measurement of corporate sustainability, how to
set its goals and what measures and procedures should be used to achieve the goals set. The
indicators used in the measurement of corporate sustainability are developed on a
continuous basis by different international organizations with the aim of achieving an
internationally acknowledged standard. The most widely known international organization
is the Global Reporting Initiative (GRI), which concentrates on standardization of a report on
sustainable development, called sustainability report. Clarkson et al. (2008) state that
sustainability report is made to assist decision makers and stakeholders by translating
ecological, economic and social data. However, decision makers and stakeholders have to
make sure that the sustainability report made by corporation is transparent (Fernandez-
Feijoo et al., 2014), relevant, credible (Hąbek and Wolniak, 2015), reliable and comparable
(Whittington and Ekara, 2013), which are the characteristics of quality. Therefore, it is
crucial to measure the quality of sustainability report and the factors affecting it.
 2.1 Environment as the stakeholder and sustainability report quality Stakeholder
According to legitimacy theory, environmentally sensitive companies tend to have pressure
higher quality of sustainability report to legitimize the operations of the company. This
is due to the pressure from environmental groups (such as Greenpeace) and society in
general. Community and environmental groups demand the company to regenerate the
earth that has been damaged by the company's operational activities. To meet these
demands, the company tried to do social responsibility activities and report them
237
transparently. The more environmentally sensitive the companies, the higher the
importance of their sustainability reports are (Choi, 1999; Sulaiman et al., 2014; Amran
and Devi, 2008; Nasir and Yusoff, 2005; Gamerschlag et al., 2011; Brammer and Pavelin,
2006; Choi, 1999):
Ha1. Companies that are the members of environmentally sensitive industries have
higher sustainability report quality than companies that are not the members of
environmentally sensitive industries.
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2.2 Consumers as the stakeholder and sustainability report quality

Consumers tend to pay attention more on companies that have close relations with end
consumers. Companies that produce goods consumed by final consumers tend to receive
more attention than companies that produce production goods (McWilliams and Siegel,
2001). This forced the company to pay attention to their actions and operate in accordance
with the wishes of consumers. Currently, consumers have been more transparently informed
about the impact of consumer products on the environment so that they are more concerned
about sustainability. Moral value that consumers have on corporate sustainability affects
the quality of sustainability report in environment section (Saka and Noda, 2013; Branco and
Rodriguez, 2008; Gamerschlag et al., 2011; Darus et al., 2014). This statement is also
supported by several studies that classify companies into companies in high-profile industry
(more proximity to the community and consumers) and low-profile industry (less proximity
to the community and consumers) (Roberts, 1992; Branco and Rodriguez, 2008; Faisal et al.,
2012):
Ha2. Companies that are members of the industry group with the consumer as the
primary stakeholder revealed higher level of sustainability report quality than
companies that are not incorporated in the industry with the consumer as
primary stakeholders.

2.3 Employee as the stakeholder and sustainability report quality

Currently, employees and prospective employees consider whether the company where
he/she works is a sustainable-aware company. Qualified employees have understood
the importance of sustainability. The most valuable asset for the company is no longer
an asset that can be measured and can be seen but assets that cannot be measured,
namely, intellectual capital or human resources. Moral value that employees have on
corporate sustainability affects the quality of sustainability report. Sun and Yu (2015),
Huang and Kung (2010), Betts et al. (2015), Turban and Greening (1997) and Campbell
(2007) found that employees in the sustainable-aware companies work better than in
places that are not:
Ha3. Employees’ pressure positively affects sustainability report quality.
 IJOES 2.4 Shareholders as the stakeholder and sustainability report quality
34,2 A company with a high level of ownership concentration tend to have higher-quality
sustainability report than the company with a low level of ownership concentration. This is
because companies with a high level of ownership concentration are in the same group that
have the same moral responsibility. As socially responsible investment grows, shareholders
in the same group have the same eyes on how sustainability is developed. Through general
238 meeting of shareholders, majority owners have decisive power in voting for corporate
sustainability (Sjåfjell, 2016). Sjåfjell (2016) adds that the requirement of duty of loyalty in
some countries prohibits majority shareholders to act in the manner that could harm the
interest of company as a whole, especially corporate sustainability. In addition, shareholders
can put higher pressure by constantly keeping a watch on corporate sustainability in
companies with a high level of ownership concentration (Holderness and Sheehan, 1988;
Margaritis and Psillaki, 2010; Cris�ostomo et al., 2013). Therefore, shareholders’ pressure can
improve the quality of sustainability report (Choi, 1999; Liu and Anbumozhi, 2009; Roberts,
1992):
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Ha4. Shareholders’ pressure positively affects sustainability report quality.

2.5 Board of commissioner and sustainability report quality

Board of commissioners’ function is to supervise management to act in the interests of
its stakeholders (Huse and Ridova, 2001 in Handajani et al., 2014). An effective board of
commissioners helps the company to ensure that management behaves in accordance
with the wishes of the ethical stakeholders, which is the basis of corporate social
responsibility by stakeholder theory. Related to the quality of sustainability reports,
institutional theory concluded that the presence of the commissioners as a supervisor
can effectively improve the quantity of the disclosure and quality of the reports
presented:
Ha5. Board of commissioners’ effectiveness positively affects sustainability report
quality.

2.6 Family ownership and sustainability report quality

Companies in Indonesia are mostly family-owned companies (Claessens et al., 2000). Family-
owned companies have strong leadership concentrated on family leadership. The ethics
families bring into the companies make family-owned companies have stronger values than
others, which constitute corporate value and ethics (Duh and Belak, 2009). Knights and
O’Leary (2006), Morrison (2001) and Molyneaux (2003) use the term ethical leadership, where
development of a specific value or set of values is important for an enterprise’s success as
integrity, prudence, courage, temperance and justice. Families lead their companies to be
more ethical and have more long-term orientation (Vallejo, 2011; Duh and Belak, 2009;
Gavana et al., 2016). In addition, because family-owned companies are more concerned about
their reputation, they have better sustainability report quality (Gavana et al., 2016; Gomez-
Mejia et al., 2007; Kalm and Gomez-Mejia, 2016):
Ha6. Family ownership positively affects sustainability report quality.

3. Research method
The research model that reflects the research hypotheses is as follows:
 CSRQUALit ¼ b 0 þ b 1 ESIit þ b 2 CPIit þ b 3 EOIit þ b 4 IOIit þ b 5 BOCEFFMit Stakeholder
þ b 6 FAMit þ b 7 SIZEit þ b 8 LEVit þ b 9 PROFITit þ « it (1) pressure

To measure the quality of sustainability report, this study uses content analysis with GRI
G3 and G4, number of pages, opinion on the sustainability report and independent party
assessment on GRI application check. These measurements use Man’s measurement (2015),
which is the number of pages and opinions on sustainability report but replacing the content 239
analysis of 89 items developed by Man (2015) with content analysis based on GRI G3 and G4
(Dilling, 2010; Fernandez-Feijoo et al., 2014), as well as adding independent party
assessment on GRI application check. Measurement of content analysis based on the GRI G3
and G4 depend on what each company uses (G3.1, 2000; G4, 2013a, 2013b). If in a given year,
a company still uses GRI G3, the company is scored based on general standards and specific
standards of GRI G3. If in the next year, the company has used GRI G4, the company is
scored based on general standards and specific standards of GRI G4. The score for GRI
content analysis is 0 for components that are not disclosed, 1 for components expressed
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qualitatively and 2 for components expressed quantitatively. This measurement is used

because this measurement is a combination of various measurements in previous studies
and covers all elements of the qualitative characteristics of information.
Quality measurements are taken of the results of the factor analysis of a percentage of
disclosure quantity score with GRI G3 and G4, the natural logarithm of the number of pages
on corporate sustainability report, existence of opinion on the sustainability report and
existence of an independent party assessment on GRI application check.
Classification of industries with environment as the stakeholder is using measurement
from a study by Fernandez-Feijoo et al. (2014), which has been adjusted with list of
industries in the Indonesia Stock Exchange. The industries are agriculture, mining,
chemical, machinery, automobile parts and components, cables, property, housing,
construction, energy, highways, airfields, ports, transport, construction of non-building and
electronics industry; these industries are rated 1 while other industries are rated 0.
Classification of industries with consumer as the stakeholder is using measurement from a
study by Fernandez-Feijoo et al. (2014), which has been adjusted with list of industries in the
Indonesia Stock Exchange. The industries are consumer goods, financial services,
restaurants, hotels and tours, retail goods, printing, advertising, media, health care, textiles
and garments, footwear, energy, investment, telecommunications industry; these industries
are rated 1, while other industries are rated 0. Classification of industries with consumer
as the stakeholder is using measurement from a study by Saka and Noda (2013), which is the
number of employees. This variable was measured by using a ratio scale. This research uses
natural logarithm of number of employees so that the number of employees is not too large
compared to other measurements. Classification of industries with shareholder as the
stakeholder is using measurement from a study by Thomsen et al. (2006), which is level of
ownership structure concentration. The degree of concentration is measured by comparison
of the number of shares held by the parent company by the number of total shares. The
parent company is a company with the name of “the majority shareholder of the company”
in the nature of relationships and related party transactions section in notes to the financial
statements. But if the parent company is not mentioned, information about the parent
company is searched from internet and the company's website.
Board of commissioners’ effectiveness is measured by the scoring method based on a
study by Hermawan (2009), where there are 17 questions divided into four categories based
 IJOES on the characteristics of the board of commissioners: independence, activities, size and
34,2 competence of the board.
Family ownership according to Arifin (2003) is measured by the ownership percentage of
all individuals and companies whose ownership is recorded (ownership more than 5 per cent
must be recorded), which is not a public company, the government, financial institutions and
public (individual ownership shall not be recorded).
240 Firm size is used as a control variable, because it has been widely used by researchers as
a variable that positively affects corporate social responsibility disclosure (Guthrie and
Parker, 1989; Hackston and Milne, 1996). In accordance with Lan et al. (2013), Purwanto
(2011) and Gamerschlag et al. (2011), firm size was measured using natural logarithm of total
assets at the end of the year. Leverage is used as the control variable, because many
previous studies have shown that leverage is a variable that positively affects corporate
social responsibility disclosure (Meek et al., 1995). Next, profitability is used as control
variable because it is also a variable that has been widely studied to observe its positive
influence on corporate social responsibility (Gamerschlag et al., 2011; Brammer and Pavelin,
2006; Quick and Knocinski 2006 in Albers and Günther, 2011).
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The population considered in this study comprise all companies listed on Indonesia
Stock Exchange. The study period is five years, from 2010 to 2014. The year 2010 is chosen
because in 2010, the ISO member countries (including Indonesia) agreed on issuance of ISO
26000 Guidance on Social Responsibility, which provides guidelines for the implementation
of corporate social responsibility. ISO 26000 is also associated with GRI-measured
sustainability report. This period (2010-2014) is chosen to get the latest and sufficient data to
evaluate the effects of stakeholders’ pressure and corporate governance on the quality of
sustainability report. This study uses purposive sampling technique to obtain a
representative sample in accordance with the specified criteria.

4. Results and discussion

The number of samples that meet the criteria is 123 observations with a total of 37
companies. The majority of the samples is in the financial services industry, which
amounted to 26.01 per cent. In addition, the industry that has the least sustainability report
is the trade, service and investment industry (retail industry; 3.25 per cent).
Descriptive statistics of all variables are presented in Table I; 66.67 per cent of the
company's sustainability report is the environmentally sensitive industries (ESI). This
shows that environmentally sensitive companies are compelled to disclose reports to show
the public how they have restored the environment they have used in their operations. The
effectiveness of the board of commissioners (BOCEFF) has an average of 0.7583. This shows
that on average, companies that disclose sustainability report that is separated from the
annual report are companies that have an effective board of commissioners, which is 75.83
per cent. Family ownership (FAM) in companies that disclose sustainability report
separated from the annual reports varies from 0 to 97 per cent. From the analysis conducted,
it appears that the sample firms are mostly state-owned enterprises.
Based on an analysis of the quality of sustainability reports, it can be concluded that
the quality of sustainability report in Indonesia is still low, shown by the low number of
opinions on sustainability report and independent party assessment on GRI application
check. The small number of sustainability reports show that companies in Indonesia
are still unaware of the importance of corporate sustainability reporting to the public.
Broadly speaking, the number of sustainability reports in Indonesia is still limited. In a
five-year study period, there were only 123 stand alone sustainability reports (from
annual reports). Nevertheless, the number of sustainability reports is increasing from
 Variable Minimum Maximum Average Standard deviation
Stakeholder
pressure
CSRQUAL 2.024 2.6646 0.0000 1.0000
ESI 0.00 1.00 0.6667 0.47333
CPI 0.00 1.00 0.3577 0.48129
EOI (people) 230 225,580 18,106.2 37,914.63
EOI (ln) 5.44 12.33 8.7071 1.4631
IOI 0.0000 0.9855 0.3682 0.3756 241
BOCEFF 0.57 0.92 0.7583 0.07575
FAM 0.00 0.97 0.1785 0.29945
SIZE (ln) 28.00 34.00 31.0976 1.35147
SIZE (in million rupiah) 2,000,000 802,000,000 78,980,000 136,321,000
LEV 0.00 0.92 0.5697 0.23942
PROFIT 0.53 0.43 0.1747 0.11915

Notes: CSRQUAL: sustainability report quality; ESI: environmentally sensitive industries; CPI: consumer-
proximity industries; EOI: employee-oriented industries; IOI: investor-oriented industries; BOCEFF: board
of commissioner’s effectiveness; FAM: family ownership percentage in a company; SIZE: company size; Table I.
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2LEV: leverage; PROFIT: profitability Descriptive statistics

year to year, from 19 reports in 2010 to 32 reports in 2013. The number of companies
that disclose sustainability reports decreased in 2014 (n = 26) because a lot of
companies that typically make a sustainability report every year failed to make a
sustainability report in 2014. Typically, sustainability is reported in April-October in
the following year.
From Table II, it can be seen that the environmentally sensitive companies have a higher
quality of sustainability report than others. Thus, Ha1 is accepted. This is supported by
Fernandez-Feijoo et al. (2014), Sulaiman et al. (2014), Amran and Devi (2008), Nasir and
Yusoff (2005) and Gamerschlag et al. (2011), who stated that environmentally sensitive
companies have a higher quality of sustainability report than non-environmentally sensitive
companies. These results indicate that Indonesia is really concerned about environment

Variable Sig. Variable Sig.

Constant 0.020 FAM 0.238**

ESI 0.023* SIZE 0.023*
CPI 0.038* LEV 0.000*
EOI 0.042* PROFIT 0.050**
IOI 0.191** Adjusted R2 0.391
BOCEFF 0.006* Sig (F-statistic) 0.000

CSRQUALit ¼ b 0 þ b 1 ESIit þ b 2 CPIit þ b 3 EOIit þ b 4 IOIit þ b 5 BOCEFFMit þ b 6 FAMit

þ b 7 SIZEit þ b 8 LEVit þ b 9 PROFITit þ « it

Notes: CSRQUAL: sustainability report quality; ESI: environmentally sensitive industries; CPI: consumer-
proximity industries; EOI: employee-oriented industries; IOI: investor-oriented industries; BOCEFF: board
of commissioner’s effectiveness; FAM: family ownership percentage in a company; SIZE: company size; Table II.
LEV: leverage; PROFIT: profitability; *0.05 significant (one-tail); **0.1 significant (one-tail) Result
 IJOES condition and the impact of companies’ operation on environment. Companies with
34,2 consumer as the main stakeholders (CPI) have higher sustainability report quality than
others. Thus, Ha2 is accepted. The result of this study indicates that companies with
pressure from consumers have higher sustainability report quality than companies without
pressure from consumers.
The result supports the finding from Fernandez-Feijoo et al. (2014), Saka and Noda
242 (2013), Branco and Rodriguez (2008), Gamerschlag et al. (2011) and Darus et al. (2014), who
state that companies that are close to consumer have a better sustainability report than
those who are not. This also indicates that consumers in Indonesia consider whether the
product they consumed is made of environmentally friendly materials, whether forced labor
is employed and other sustainability considerations.
Employees (EOI) negatively affect the quality of sustainability report, seen from the one-
tail significant value of 0.042. Because hypothesis indicates the reverse direction, i.e.
employees positively affect the quality of sustainability report, Ha3 is rejected. The result of
this study does not support the statement of Fernandez-Feijoo et al. (2014), Huang and Kung
(2010), Betts, Wiengarten, and Tadisina (2015), Turban and Greening (1997) and Campbell
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(2007), who define that employee is internal stakeholder that affects the quality of
sustainability report positively.
Employees in Indonesia tend to see social responsibility and sustainability report as
something that are unfavourable for the company and reduce the value of the company.
This is in accordance with Ceil’s (2012) statement, which is employees tend to presume that
social responsibility activities increase company’s expense and thus reduce their salaries.
Besides, social responsibility activities also make employees feel left out because the
practice of corporate social responsibility is not socialized properly. Although the disclosure
of the number and rate of new employee recruitment and employee turnover became the
most widely expressed component (92 per cent) in a report using the GRI G4, the disclosure
may not be addressed to employees as readers of sustainability reports but to other parties.
On the other hand, maybe, companies have no idea that employees do not appreciate social
responsibility activities and sustainability report, so they still disclose employee-related
items in their sustainability reports.
The result of this study indicates that the shareholders (IOI) do not affect the
sustainability reports’ quality, with one significant value-tail 0191. Thus, Ha4 is rejected.
This result does not support the statement from Fernandez-Feijoo et al. (2014), Holderness
and Sheehan (1988), Margaritis and Psillaki (2010) and Cris�ostomo et al. (2013), who reveal
that shareholder’s pressure positively influences quality of corporate social responsibility
report. The result of this study is supported by Mukti (2013), who finds that the
shareholders do not react to the announcement of corporate social responsibility report. This
indicates that shareholders in Indonesia do not pay attention to corporate social
responsibility report in determining which companies they should invest. Shareholders still
do not understand the concept of social responsibility and its impact on companies, so there
is no significant shareholder pressure effect on the quality of corporate sustainability report.
The effectiveness of the board of commissioners (BOCEFF) positively affects the quality
of sustainability report, with one-tail significant values of 0.006. Thus, Ha5 is accepted. The
result of this study is supported by Das, Dixon and Michael (2015) and Hossain and Reaz
(2007), who find that the board of commissioners’ independence positively affects corporate
social responsibility disclosure, and Kruger (2010), who finds that the board replacement
positively affects corporate social responsibility disclosure. Family ownership (FAM) in
companies does not affect the quality of corporate social responsibility report, with
significant value of 0.238. Thus, Ha6 is rejected. The result of this study is not consistent
 with findings of Gavana et al. (2016); Gomez-Mejia et al. (2007); and Kalm and Gomez-Mejia Stakeholder
(2016), who say that a good-quality report is owned by a family-controlled company. This pressure
result may indicate that there is no difference in sustainability report quality between a
family-owned company and non-family-owned company in Indonesia. This is because
family-owned companies in Indonesia have ethical conflicts. They have moral responsibility
awareness but shareholders do not have interest in sustainability matter.
Control variables, which are company size (SIZE), leverage (LEV) and profitability
(PROFIT), affect the sustainability report quality. Firm size (SIZE) positively affects
243
the sustainability report quality. Leverage (LEV) negatively affects the sustainability
report quality. Profitability (PROFIT) positively affects the sustainability report
quality.

5. Results and discussion

Based on the results, it can be concluded that ethics awareness of Indonesian companies
regarding corporate sustainability are various. Environmentally sensitive companies
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have a higher quality of sustainability report than non-environmentally sensitive

companies. These results indicate that Indonesian companies are really concerned
about environment conditions and the impact of companies’ operation on environment.
Companies with consumers as the main stakeholders have higher sustainability report
quality than those without consumers as the main stakeholders. This also indicates
that consumers in Indonesia have high moral awareness and concern on corporate
sustainability. Employees’ pressure negatively affects the quality of sustainability
report. This shows that employees in Indonesia tend to see sustainability report as
something that is detrimental to the company and something that reduces the value of
the company. Shareholders’ pressure does not affect the sustainability report quality.
This indicates that shareholders in Indonesia do not have high sustainability
awareness and do not pay attention to sustainability report in determining which
companies they should invest in. The effectiveness of the board of commissioners
positively affects the quality of sustainability report. Family ownership in companies
does not affect the quality of corporate social responsibility report. This result may
indicate that there is no difference in sustainability report quality between family-
controlled and non-family-controlled companies in Indonesia.
The implication of this research is for companies and regulators. For companies, this study
shows that the pressure from environment and consumers positively affect corporate
sustainability report. Therefore, companies should disclose items related to the environment
and the product more, because the results showed that companies that are environmentally
sensitive and close to the end consumer have better sustainability report quality. For
regulators, this study shows that the effectiveness of the board of directors affect corporate
sustainability report quality positively. Therefore, the regulator is expected to tighten
supervision of the implementation of the regulation related to board of commissioners. For
instance, this research finds that there is a company that have board of commissioners with
proportion of independent commissioner still below 30 per cent. In addition, the results showed
that difference in sustainability report quality is due to differences in pressure from
stakeholders (environmental, consumer and employee). To enhance the quality of corporate
sustainability report, the regulator may require the implementation of a sustainability report
and make regulations regarding the minimum amount of disclosure and pages. Regulators are
also expected to make socialization to increase Indonesian awareness and concern on corporate
sustainability to make this world a better place.
 IJOES There are several limitations of this study. First, the number of samples is limited
34,2 because only few firms have disclosed stand-alone sustainability reports. We also have not
examined whether different stakeholders put pressure on different types of information
disclosed in sustainability reports. We only use linear regression model to test our
hypotheses. It is possible that the relationship is non-linear in nature, or a simultaneous
model can better capture the endogeneity nature of ethical values arising from corporate
244 social responsibility.

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Corresponding author
Sylvia Veronica Siregar can be contacted at: sylvia.veronica@ui.ac.id

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