Determinants of environmental, social and governance (ESG) disclosures by Malaysian companies: the application of resource-based view theory / Monie Ramba

The tragedy of 2007’s global financial crisis has been adversely affected the global and local businesses. Being one of the most open and export-dependent countries in the international trade, Malaysia was affected by the 2007’s global financial crisis, in which, Malaysia’s foreign direct investment was reduced by 17% in 2008 as compared to 2007. The unemployment rate increased as Malaysian corporations implemented staff retrenchment to minimize the operating expenses. Hence, Malaysian companies revised their business strategies by providing environmental, social and governance (ESG) disclosures to the stakeholders to create and sustain the competitive advantage. This thesis focuses on the extent of ESG disclosures by Malaysian public-listed companies from 2015 to 2017. Specifically, this study aims to determine the factors that influence the extent of ESG disclosures in the Malaysian companies’ annual reports and sustainability reports, using the Resource-Based View Theory (RBVT) as the underlying theory. The final sample of this thesis comprises 67 listed companies in Bursa Malaysia for three years (2015-2017). An index - Modified Environmental, Social and Governance Index (MESGi), had been developed to measure the extent of ESG disclosures in the companies’ annual reports and sustainability reports. The study used hierarchical regression to analyse the relationship between firm internal factors from the RBVT perspective, such as CSR Awards (rare), ISO certification (rare), foreign ownership (rare), qualification of BODs (valuable and rare) and R&D expenditure (valuable) with ESG disclosures. The results indicate that there is a statistical increase in the extent of ESG disclosures by the Malaysian companies, especially in the year 2017. The study found that the extent of ESG disclosures was influenced by different resources in different years. The ISO certification and research and development expenditure influenced the extent of ESG disclosures in 2015. In 2016, the extent of ESG disclosures was explained by CSR Awards, research and development expenditure as well as industry type. In 2017, CSR Awards, foreign ownership, research and development expenditure, firm leverage and industry type have a significant relationship with the extent of ESG disclosures. However, research and development expenditure influenced the extent of ESG disclosures in a negative direction, which indicates that higher utilization of research and development expenditure will reduce the disclosures of ESG information, as higher exposure on firms’ ESG practices may become a threat to business operations, which is not supported by RBVT. This study indicate that two attributes of RBVT - valuable and rare are important in creating firm’s competitive advantage. The findings of this study provide useful implications to Malaysian government, policy makers and regulatory bodies in improving the existing regulations in regard to ESG disclosures by Malaysian corporations. The study hopefully could assist companies to utilize the resources efficiently in order to provide sufficient ESG disclosures to stakeholders.