Corporate governance and society disclosure: the application of legitimacy theory / Joanne Shaza Janang

It is important for companies to adhere to society’s values and norms by engaging in corporate social responsibility activities to remain legitimate, which in turn, translated into disclosures in annual reports. Corporate governance mechanisms have been used as explanatory factors in determining the level of CSR disclosures. This study aimed to investigate the corporate governance related motivating factors (audit committee, CSR committee, board size and independent directors) in influencing society disclosure in the Malaysian companies’ annual reports using the legitimacy theory. The control variables examined were size, industry type and leverage. The level of society disclosure examined against the Modified Society Disclosure Index (MoSDI), which was comprehensively developed based on the society indicator of Global Reporting Initiative Version 4.0, preliminary observation on 2016 NACRA winners’ annual reports and past literature. MoSDI comprises 50 items with nine main categories. The analysis involved 78 top companies’ annual reports and sustainability reports from the year 2014, 2015 and 2016 respectively. Based on the findings, it was found that, on average for three years, society disclosure is relatively low at 34.75%, whereby out of 50 items examined, on average, the companies in Malaysia disclosed 17 items. Specifically, the extent of society disclosure for the year 2014, 2015 and 2016 were 33.64%, 36.00% and 34.61% respectively. The hierarchical regression analysis results found that independent directors and company’s size were significantly associated with the level of society disclosure. By complying with good corporate governance practice, awareness can be raised and preventive measures can be taken in addressing society’s issues through proper society disclosure. In addition, legitimacy gap can also be reduced via society disclosure. This study contributes to the CSR literature by specifically examining the relationship between corporate governance mechanisms and society disclosure using the legitimacy theory. Theoretical implication and implications on government and policy makers, companies, communities and education system are also provided in the thesis.