The Effects of Voting Ownership Concentration on Social and Environmental Disclosure: Empirical Evidence from Brazil.
| Autor | Viana, Dante Baiardo Cavalcante, Jr. |
I Introduction
Climate change, international environmental conferences, and environmental accidents have been important factors for the increase in stakeholders' demands for firms' social and environmental disclosure (Fernandes, 2013). This stakeholder pressure may be a factor that has contributed to the adoption of corporate social responsibility practices, which may have an effect on a firm's competitive capacity and even in its search for legitimacy, leading to the increasing dissemination of information about social and environmental responsibility (Fernandes, 2013; Barth, Cahan, Chen, & Venter, 2016; Viana Junior & Crisostomo, 2016).
Many benefits are expected by firms due to the adoption of social and environmental disclosure practices, such as a reduction in cost of capital (Gamerschlag, Moller, & Verbeeten, 2011), an improvement in corporate reputation (Cardoso, De Luca, & Gallon, 2014), and a reduction in market value uncertainty (Dhaliwal, Li, Tsang, & Yang, 2011). In this discussion, Marquezan, Seibert, Bartz, Barbosa, and Alves (2015) emphasize that in Brazil, despite the changes in accounting legislation promoted by Law No. 11,638/2007, the changes did not go so far as to make social and environmental disclosure mandatory, which means this activity is voluntary on the part of firms.
Some theories, as is the case of the Stakeholder theory, try to explain social and environmental disclosure (Freeman & Phillips, 2002). "The Stakeholder theory proposes that the disclosure of information on social responsibility may be due to the pressures from the various firm stakeholders. The Legitimacy Theory suggests that voluntary disclosure practices are motivated by the pursuit of legitimacy by the firm (Suchman, 1995). In light of these theories, research has sought the determinants of social and environmental disclosure. These factors may be related to the firm's economic-financial characteristics (Marquezan et al., 2015; Kansal, Joshi, & Batra, 2014; Zhang, 2015; Michelon, 2011; Abdullah, Percy, & Stewart, 2015), or even linked to the legal and institutional environment in which organizations operate (Delmas, Hoffmann, & Kuss, 2011; Rover & Santos, 2014). Under the Agency theoretical framework, it is important to seek mechanisms that favor the reduction of conflicts among stakeholders, and disclosure of firm information is one such mechanism for reducing these conflicts. High levels of ownership concentration contribute to minimizing conflicts between shareholders and managers due to the better alignment of interests between the parties, among other factors. However, high ownership concentration can also favor the emergence of conflicts between controlling and minority shareholders.
Ownership concentration has been shown to be able to interfere with firm policies, including social and environmental policy (Crisostomo, & Freire, 2015; Okimura, Silveira, & Rocha, 2007). In this context, the disclosure of firm social and environmental information helps the process of firm legitimacy with external stakeholders. In this framework, controlling shareholders, usually with a longer-term perspective to remain in the firm's ownership, may be more interested in the search for legitimacy than minority shareholders, and this may lead to a greater volume of social and environmental disclosure (Barnea & Rubin, 2010; Crisostomo & Freire, 2015; Faller & Knyphausen, 2016; Li & Zhang, 2010).
The search for legitimacy of firm actions, and the concern with firm image and reputation, may encourage investments in social and environmental responsibility with the respective intensification of its disclosure (Bebbington, Larrinaga-Gonzalez, & Moneva-Abadia, 2008; Brown, Guidry, Patten, 2009). In this context, studies still point to an association between these concerns and aspects of ownership structure (Barnes & Rubin, 2010; Crisostomo & Freire, 2015; Rees & Rodionova, 2015).
Considering the relevance of the firm's social and environmental policy and its respective disclosure, and the reality of excess power in the hands of controlling shareholders arising from a high ownership concentration, which favors the prevalence of their interests, as is the case in Brazil, this study tries to answer the following research question: What is the influence of ownership concentration on firms' social and environmental disclosure? Thus, the objective of this study is to investigate the influence of the voting ownership concentration on the social and environmental disclosure of the Brazilian firms listed in the B3 exchange in the period 2010-2014.
Through lexical analysis of firms' annual financial statements and performing correlation analysis and estimating a set of econometric models for a sample of 1,252 annual observations of 252 firms, our results indicate that there is a positive effect of the voting ownership concentration on the social and environmental disclosure. These results reinforce arguments from previous research that indicate that controlling shareholders seem to be concerned about disclosing social and environmental information to the market. Controlling shareholders may be finding motivation in the search for legitimacy and an improvement in the firm's reputation and image (Diez, Gago, & Garcia, 2012; Huafang, & Jianguo, 2007). In addition, our findings indicate that firm disclosure of social and environmental information is also explained by firm profitability, by whether the firm is a member of the ISE index, and whether the firm belongs to a potentially environmentally aggressive industry.
This study contributes to the literature by using a social and environmental disclosure index based on a lexical analysis of mandatory accounting reports over a long period of five years, increasing the knowledge regarding factors that contribute to social and environmental disclosure in Brazil. Knowing about the level of social and environmental disclosure and firm attributes that determine this type of disclosure is important to academics and market practitioners. Researchers and market professionals will have additional evidence on the effects of ownership concentration on the level of firm social and environmental disclosure, which has a connection with Agency Theory. In addition, the fact that social and environmental disclosure is more intense for firms included in the ISE sustainability index and for firms from potentially environmentally aggressive industries indicates that such firms are motivated to increase their disclosure level, which is associated with Legitimacy theory, as well as being related to Voluntary Disclosure theory.
Ownership concentration has been shown in the literature to be able to interfere in several firm policies, including social and environmental policy (Crisostomo & Freire, 2015; Okimura, Silveira, & Rocha, 2007). This association may be caused by agency conflicts. In the case of social and environmental policy, controlling shareholders' interests may prevail over the interests of other stakeholders. That is one motivation for this work, together with the evaluation of factors that are suggested as also being able to interfere in the level of social and environmental disclosure, as is the case of a presence in sustainability indices and whether the firm is from an environmentally risky industry.
This study differs from previous research in some respects. Firstly, it does so by using lexical analysis to operate the disclosure of information about social and environmental activities, a method still little explored in Brazil. The application of several techniques of content analysis in studies on the subject of social and environmental disclosure has been questioned in the literature (Abhayawansa, & Guthrie, 2012; Gamerschlag et al., 2011), among other reasons due to the researcher's subjectiveness when judging certain aspects of what is to be quantified. Thus, the use of lexical analysis to measure disclosure helps to mitigate this deficiency. It is also worth mentioning the period of analysis (2010-2014), which provides an additional contribution in relation to other works in Brazil that have worked with shorter periods of time (Domenico et al., 2015; Dhaliwal et al., 2011; Marquezan et al., 2015; Rover, & Santos, 2014; Rover, Tomazzia, Murcia, & Borba, 2012; Batista, Cruz, & Bruni, 2016). Finally, the paper presents possible firm attributes that are still scarcely considered in the literature as possible determinants of voluntary social and environmental disclosure, such as the ownership concentration, firm membership of the sustainability index, and whether the firm is from an environmentally risky industry.
2 Social and Environmental Disclosure and Ownership Concentration
Agency theory intends to explain the conflicts between firm owners (principal) and firm managers (agent) resulting from the separation between firm ownership and firm control, which makes the firm a set of contracts (Fama & Jensen, 1983). The contract between the shareholders (principal) and firm managers (agent) is considered as the central point, the unit of analysis, in the agency context (Eisenhardt, 1989). In this context, it is necessary to find ways to minimize such conflicts in order to reduce the agency costs resulting from them (Jensen & Meckling, 1976). A high ownership concentration is seen as a relevant factor that contributes to the alignment of interests between ownership and management due to the power exercised by controlling shareholders over firm management, which leads to the reduction of conflicts between principal and agent (Hitt, Ireland, & Hoskisson, 2008). On the other hand, ownership concentration may also be detrimental due to the possibility of controlling shareholders' interests prevailing over those of minority shareholders, giving rise to the principal-principal agency model, in which the main conflict is between controlling shareholders and minority shareholders (Morck, Wolfenzon, &...
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