Does Moral Intelligence Affect Corporate Social Responsibility Disclosures? a Field Study of the Financial Statements Preparers in the Jordanian Industrial Sector

INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 8, ISSUE 11, NOVEMBER 2019 ISSN 2277-8616

Does Moral Intelligence Affect Corporate Social Responsibility Disclosures? A Field Study of the Financial Statements Preparers in the Jordanian Industrial Sector.

Tareq Bani-Khalid, Abdullah Matar Al-Adamat

Abstract: Exploring how the degree of corporate social responsibility (CSR) disclosure among Jordanian industrial firms is affected by fiscal statement arrangers’ moral intelligence is this research’s aim. It was anticipated that the higher extent of financial statements’ CSR disclosures is correlated to fiscal statement arrangers’ greater moral intelligence. Overall, the process of preparing fiscal reports and the level of CSR disclosure were found to be positively correlated to a greater degree of moral intelligence, thus confirming the research hypotheses..

Index Terms: Moral Intelligence, CSR Disclosure, Industrial Sector, Jordan. ————————————————————

1. INTRODUCTION Ethical and CSR results can each stem from the choices As Chapple and Moon [1], Jamali and Mirshak [2] and made by company leaders relating to the means of Gamerschlag et al. [3] have explained, over the past twenty stakeholder engagement [10]. Lennick and Kiel [11] years the aim of formulating greater harmony between social emphasized that moral intelligence is a significant aspect of principles and companies ’ activities has seen the promotion ethics, defined as the capacity to engage in decision making firms ’ engagement in activities with positive social outcomes. and other activities, shape values and individual aims in a Consequently, Brammer and Pavelin [4], Hąbek and Wolniak manner whereby ethical norms are applied. As Matsimbe [12] [5] and Baldini et al. [6] noted that the publication of corporate related, it is apparent that the maintenance of ethical conduct social responsibility (CSR) activities is a growing obligation for and positive values, as well as the influence of robust values, companies, given the perception of such activities increasing shapes the behavior of leaders with moral intelligence. significance. Baldini et al. [6] stressed that investors and Mahdavikhou et al. [13] posited that within the accounting market actors are specifically seeking greater CSR disclosure field, it is crucial to engage in ethical conduct. In this regard, by companies, alongside governments ’ requirements. business leaders ’ moral values shape decision making Accordingly, Garcia-Sanchez et al. [7] observed that as a to non-obligatory CSR disclosure and other forms of means of fulfilling their stakeholder responsibilities and overall transparent conduct. Ultimately, as Maruszewska [14] societal obligations, in terms of explaining business observed, such disclosures ’ dependability may be influenced operations ’ social and environmental implications, there has by ethical considerations.Jackling et al. [15], Gammie and been a marked expansion in firms voluntarily and compulsorily Gammie [16], Martinov-Bennie and Mladenovic [17], Nadaraja engaging in CSR information release.Furthermore, there is an and Mustapha [18], Payne et al. [19] and Todorović ’s [20] ‘ e thical quandary ’ that is a growing problem for studies are all examples of the varied research which has businesses; Hosseini et al. [8] defined this quandary as the sought to provide an accounting ethical code, as well as situation wherein it is imperative for ethical and uneth1ical studies such as Graafland and Van de Ven ’s [21] that actions to be recharacterized, based on the increasingly CSR ’s substantial ethical impetus. Neverthless, CSR ambiguous parameters of appropriate and inappropriate disclosure and other accounting field activities continue to conduct. Hamidizade and Nekooeezade [9] related how ethics suffer from morally dubious conduct. Meanwhile, Ferrell et al. is considered to be a social advantage in the contemporary [10] explained the tendency to conflate CSR and business competitive global economy, because sustainable rivalry and ethics, with the two areas lacking distinction in academic the attainment of strong performance are influenced by studies. On this basis and reflecting Mahdavikhou et al. ’ s [13] morality. Consequently, the decision-making processes of conclisions, there is a need for additional study based on businesses are shaped by ethical norms. psychological explanations of moral intelligence, in terms of its influence one ethical thought and conduct. It is apparent that the correlation of CSR disclosure extent and different factors has been investigated in numerous researches. Nevertheless, ______the requirement for appraising and overhauling ethical accounting in studies has increased in accorance with  Tariq Bani-Khalid:Assistant Professor of Financial Accounting at Department of Accounting,Faculty of significant financial deceptions and accounting scandals that Economics & Administrative SciencesAl al-Bayt University, have surfaced in recent decades. Accordingly, the extent to E-mail: [email protected] which the degree of CSR disclosure is influenced by fiscal :  Abdullah Al-Adamat Assistant Professor of Marketing at statement arrangers ’ extent of moral intelligence is the issue Department of Business Administration, Faculty of being explored in this research. The remainder of this study is Economics & Administrative Sciences, Al al-Bayt University, presented in the following manner. Having presented a broad E-mail: [email protected] introduction to the context in section 1, the critical literature review is provided in section 2. The study hypotheses are

outlined in section 3. The study method is detailed in section 4, and distinguishing between control and ownership. while the data analysis proceeds in section 5. Finally, the Environmental and social reporting is the sole component of discussion and conclusion comprise section 6. CSR reporting that is concentrated on in this study, which Hussainey et al. [37] characterized as a firm ’s explication and 2 LITERATURE REVIEW: reporting of the environmental impacts stemming from its operations. Adoption of socio-environmental methods, 2.1 Corporate Social Responsibility adherence to environmental legislation and limitation of As Garcia-Sanchez et al. [7] suggested, papers that seek to noxious emissions into the aquatic or air environment may all detail business operations ’ environmental, social and be aspects of such CSR activities. economic effects over a particular time frame to every stakeholder may be defined as a CSR report. Gray et al. [22] 2.2 Moral Intelligence noted that a firm ’s revenue is not the focus in such CSR Clarken [38] and Beheshtifar et al. [39] suggested that in term reports, with other outcomes of company operations being of enhancing comprehension of behavior and knowledge conveyed to stakeholders by the firm ’s managers. Rather, as acquisition, greater understanding of moral intelligence shows Williams and Pei [23] detailed, alongside established fiscal considerable promise, despite a greater amount of extant reporting practices, the means through which revenue is being research having focused on social, emotional and cognitive produced will be explicated through such CSR data. In this intelligence. As Clarken [38] related, the explication of regard, Williams [24] related that the impact on customer acquisition and adoption of knowledge and capabilities is wellbeing of a firm ’s goods, the organization ’s charitable possible based on intelligence, with learning and cognitive giving, community engagement, consumer and supplier capacities indicated by it. Beheshtifar et al. [39] noted that relationships, industrial relations and actions, among various learnt, genetic and inherent features all influence the level of other types of information, may be incorporated into CSR intelligence, which differs among individuals. Furthermore, disclosures. Gray et al. [22] observed that there has been a Borba [40] and Clarken [38] characterized moral intelligence marked expansion in CSR reporting ’s extent and detail in the as engagement in upstanding conduct, possession of robust contemporary period, with Van der Laan Smith et al. [25] moral principles and adherence to them, as well as the pointing to the parallel growth in accounting studies focusing capacity to determine inappropriate and appropriate actions. on this issue.Meek et al. [26] explained that certain regulations Moral intelligence has also been defined as the cognitive pertaining to financial reporting and accounting are obligatory, ability to ascertain the manner in which individual principles, although these may be supported with additional reporting that aims and activities should be influenced by broadly applicable is discretionary or voluntary. Thus, as Cotter et al. [27] pointed human moral norms [11,p.7]. Ultimately, as Clarken [38] out, this is a form of company-stakeholder interaction that is summarized, the manner of individual action, sentiment and not governed by regulations. Gamerschlag et al. [3], cognition is pertinent to moral intelligence, with resolve, desire Giannarakis [28] and Baldini et al. ’s [6] studies exemplify the and understanding all influencing the concept.Fairness, vast research that has been undertaken focusing on the tolerance, kindness, respect, self-control, conscience and influential variables shaping discretionary corporate reporting. empathy are the seven traits that Borba [41] proposed as Such reporting has been explained via a number of theories in influencing the formulation of moral intelligence. Additionally, the extant literature, for example legitimacy theory [29], forgiveness, compassion, responsibility and integrity were stakeholder theory [30], political economy theory [31], determined as being moral intelligence ’s four norms in the proprietary cost theory [32], signaling theory [33]; [34], as well context of organizational efficacy [11]. Further to this, Clarken as agency theory [35]. Two broad categories may be identified [38] outlined how compassion, forgiveness, responsibility and to distinguish such theories, as Cotter et al. [27] proposed. integrity have one, two, three and four proficiencies One category is socio-political theories, which includes accordingly that comprise them. Compassion involves concern political economy, stakeholder and legitimacy theory; the for others. Forgiveness comprises of: letting people ’s errors influence on particular organizational conduct such as go, as well as letting your personal errors go. Responsibility discretionary reporting of political as well as social variables is comprises of: taking on responsibility for helping others; proposed by the three theories, meaning they have acknowledging failures and errors, as well as adopting considerable intersection. The second category are economy- personal accountability. Integrity comprises of: fulfilling grounds theories such as proprietary cost, signaling and promises; taking a stand for moral correctness; being honest, agency theories, given that firms ’ business and accounting as well as taking action in accordance with one ’s opinions, reporting decisions as part of organizational conduct are norms and values. According to Rahimi ’s [42] model, moral considered to be influenced by a concern with optimizing individuals typically express seven principal characteristics, profit. Regarding socio-political theories, a reaction to political with moral intelligence determined in accordance with the as well as social pressure, in addition to the legitimization of a possession of such characteristics. Rahimi [42] explained company, are deemed to be the principal impetuses shaping these as: rationality; collaboration; accountability; equitability; disclosure. Patten [36] explained that environmental and social consistency; empathy, in addition to regulation of inhibitions. reporting are deemed to be shaped by political as well as Certain characteristics identified by Rahimi [42], Borba ’ s [41] social variables under such theories, with Cotter et al. [27] seven qualities and Lennick and Kiel ’s [11][43] four noting that non-fiscal reporting as opposed to fiscal reporting proficiencies pertaining to moral intelligence intersect to some is usually the emphasis in such theories. Even so, a mitigation degree. Equitability and consistence [42], as well as fairness of moral risk issues through surveilling manager conduct is and conscience [41], are each reflected by integrity. When deemed to be an aspect of CSR reporting according to agency moral values are adhered to by an individual in the process of theory. Indeed, moral risk appears to be a significant emphasis them matching their talk with their conduct, such uniformity under agency theory, in terms of surveilling managers ’ and congruence is summated in the concept of integrity.

Regarding responsibility, this is considered to be stronger in conduct codes, as well as the pervasive requirement that those individuals expressing a greater degree of moral knowledge and application of ethical norms characterizes intelligence [42]. When an individual takes responsibility for financial report arrangers. Moreover, financial report arrangers their activities or lack of activity irrespective of results, this might start to overlook their responsibility to a broad array of owning of one ’s errors is termed accountability. Accordingly, stakeholders, relegating the importance of such disclosures ’ respect and self-regulation [41] are reflected by responsibility. precision and fairness below the aim of increasing profit, as Moral intelligence is shaped further by action that expresses time progresses. Consequently, it is proposed that authentic concern for others, which may be termed degree of CSR reporting will be affected by financial report compassion [11][43]. Kindness [41] and empathy [41][42], are arrangers ’ degree of moral intelligence:H01: The degree of both conveyed through the concept of compassion. Lastly, the CSR reporting is influenced by moral intelligence to a ability to let personal errors and those of others go comprises statistically significant degree.The following sections introduce the trait of forgiveness. Borba ’s [41] positing of tolerance is the four additional hypotheses that have been devised as part reflected by the concept of forgiveness as delineated by of this principal hypothesis.IntegrityManallack [53] described Lennick and Kiel [11], given that the acceptance of people ’s integrity as the congruity of our thoughts and perspectives with errors is an aspect of forgiveness.Beheshtifar et al. [39] noted our actions, while Hosseini et al. [8] noted the significance of that for all corporate organizations, strategic capital is provided acting in the best interests of other individuals as well as by moral behavior. Indeed, as Hamidizade and Nekooeezade oneself, pursuing courses of action that we understand to be [9] related, a social advantage is provided by morality in a appropriate. Furthermore, Beheshtifar et al. [39] considered global market characterized by increasing rivalry, with Villa [44] constant honesty to be an aspect of integrity. Fulfilling suggesting that in terms of a company ’s esteem, morality is a promises, defending rightness, honesty and harmony between principal component. Consequently, a business ’ effectiveness one ’s perspectives and values are the four aspects of is significantly affected by virtuous conduct. Razavi and identified by Clarken [38]. Matsimbe [12] also considered Sanagooe [45] found that estimation of work effectiveness is standing up for appropriate norms and beliefs, adhering to linked to moral intelligence. Moreover, corporate efficacy was promises, as well as truthfulness to be crucial to integrity. As established as being significantly and beneficially connected to Clarken [38] stressed, regardless of whether anybody is the moral intelligence of managers, based on a sample of 112 witnessing their behavior, individuals with integrity always Iran-based managers [8]. This is due to the enhancement of a strive to act appropriately. Osborn [54] suggested that such company ’s circumstances compared to one ’s rivals being individuals will have considered the outcomes of actions for improved through the moral intelligence of managers. other people even prior to those people expressing their Additionally, Pahlavani and Azizmalayeri [46] established that position. Therefore, it is proposed that businesses ’ degree of organizational development and moral intelligence are CSR reporting will be affected by company financial report substantially connected. Among Jordanian manufacturing arrangers ’ amount of integrity. firms, their strategic dexterity was linked to higher moral H01-1: There is a statistically significant effect for integrity level intelligence [47]. As Matsimbe [12] andBezanjani et al. ’ s [48] on the level of CSR disclosures. studies indicate, leadership is the common focus of moral Responsibility intelligence research. The principles of moral intelligence Hosseini et al. [8] proposed that being accountable for the underpin successful leadership within the business field, actions one engages in characterizes responsibility. Osborn based on Lennick and Kiel’ s [43] findings. Hass [49] and [54] suggested that whether or not accurate estimation of Lennick and Kiel [43] showed that particular principles are every outcome was achieved, accountability should be shown encouraged among individuals and they will strive to adhere to by people. Seeking to fulfil the needs of others, being open such principles as part of their individual culture, as part of the about errors, as well as accepting individual accountability are corporate phenomenon of moral intelligence. Al-Raqqad [50] the three aspects of responsibility according to Lennick and determined that a company ’s reputation is enhanced by Keil [11][43]. Actions, conduct, errors and implications of leaders who act morally, while Turner et al. [51] evidenced that behavior will all be taken responsibility for among high moral they strengthen creativity. intelligence individuals. Accordingly, it is posited that companies ’ degree of CSR reporting will be affected by company financial report arrangers ’ level of responsibility. 3 HYPOTHESES DEVELOPMENT H0 : There is a statistically significant effect for responsibility Even in the absence of appropriate legislation, beneficial 1-2 level on the level of CSR disclosures. social transitions in conduct relating to environment and social groups may be compelled among firms as a consequence of Compassion moral incentive [52]. As Hosseini et al. [8] evidenced, strong Clarken [38] identified one ’ s direct concern for other people performance and amalgamation of ethical action into their indicative of compassion, which Beheshtifar et al. [39] linked roles characterizes managers possessing greater moral further to respect for other people. Accordingly, as Hosseini et intelligence, with their perspectives and principles reflected in al. [8] established, planned actions can be more the activities they undertake.However, Ferrell et al. [10] straightforwardly participated in by other people when they are suggested that it often takes a scandal or wrongdoing to bring nurtured and encouraged to do so. Regardless of whether an ethical choices of managers to light, whereas greater individual needs such encouragement, a compassionate transparency and openness characterizes CSR processes. It individual will offer it. It is apparent that compassionate action is apparent that financial report arrangers broadly lack often begets compassion in kind from others [53]. Therefore, it appropriate ethical understanding due to a dearth of relevant is proposed that companies’ degree of CSR reporting will be and regular educational and workplace training sessions affected by company financial report arrangers ’ degree of pertaining to moral conduct and business ethics, despite the compassion. fact that the majority of workers must adhere to company 563 IJSTR©2019 www.ijstr.org INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 8, ISSUE 11, NOVEMBER 2019 ISSN 2277-8616

H01-3: There is a statistically significant effect for compassion population. 46 firms overall were identified as relevant to the level on the level of CSR disclosures. sample. Ultimately, 400 questionnaires were given out, with an 88.5% return level achieved with 354 questionnaires received Forgiveness back. Statistical Package for Social Science (SPSS) version Comprehending and tolerating the potential for mistakes is 23.0 was adopted to undertake analysis of the quantitative crucial, given the imperfections of people. Indeed, Manallack information obtained. In terms of responding to the study aims, [53] suggested that a decline in shared good stems from multiple regression analysis, Pearson correlation analysis, inflexibility and unbending nature, makes the acceptance of descriptive statistics and Cronbach ’s coefficient alpha had the people ’s imperfections and potential for error fundamental. greatest applicability among the statistical methods available. Clarken [38] believed that accepting the errors of other people and the errors that you make yourself are the two aspects of 5 RESULTS forgiveness. Additionally, Matsimbe [12] proposed that being The data relating to Jordanian industrial firms with relevance open to alternating perspectives and viewpoints, accepting the to the variables ’ descriptive statistics is presented in table 1. potential for such difference, in addition to tolerating your own The moral intelligence variables ’ arithmetic mean (M) was and other people ’s shortcomings and mistakes—as long as found to be 3.98 at 0.39 S.D. A substantial degree of moral benchmark norms are not transgressed in the process—are intelligence among Jordanian industrial firms ’ financial report aspects of forgiveness. On this basis, it is suggested that developers was indicated by the moral intelligence sub- companies ’ degree of CSR reporting will be affected by arithmetic mean results, which were from 3.87 to 4.11. The company financial report arrangers ’ degree of ability to lowest result of M= 3.87 and S.D.= 0.51 was found for the H01-4: There is a statistically significant effect for forgiveness independent sub-variable ‘ compassion ’, while the highest level on the level of CSR disclosures. results of M= 4.11 and S.D.= 0.45 were calculated for the independent sub-variable of ‘ integrity ’. Furthermore, a 4 RESEARCH METHOD degree of CSR reporting among Jordan ’s industrial firms was In accordance with Cooper and Schindler [59] and Hair et al. found, based on the M= 3.25 and S.D.= 0.53 values calculated [60], collecting quantifiable information in order to establish the for the degree of CSR overall. Additionally, reflecting Osborne causal association between the dependent variable and and Waters ’ [55] explanation, no invalidation of the independent variables is the concern of this research and its significance assessments or relationships was identified due adopted study methods. In this regard quantitative methods to significant kurtosis or skewness among the variables, as and a deductive approach were applied in this research, Table 1 indicates. based on the substantial explicatory and descriptive material drawn on. Ultimately, in order to establish how the degree of TABLE 1 CSR reporting is influenced by financial report developers ’ DESCRIPTIVE STATISTICS OF THE STUDY VARIABLES moral intelligence, a survey data collection method was adopted to obtain quantitative data.The study ’s investigatory Skewness b Cronbach's Mean S.D. a Kurtosis character required pertinent information to be obtained relating Alpha to the dependent and independent variables via a Moral Intelligence 3.98 .389 .064 -.228 %91.9 questionnaire. Lennick and Kiel [11] and Mahdavikhou et al. ’s Integrity 4.11 .453 -.384 -.111 %82.2 [13] research were drawn on to formulate the independent Responsibilit %80.4 3.92 .510 .181 -.488 variable, namely moral intelligence, with CSR reporting as the y dependent variable being formulated according to Gray et al. Forgiveness 4.04 .454 -.228 .390 %81.0 [22] and Hussainey et al.’ s [37] studies. Each question Compassion 3.87 .513 .274 -.444 %83.1 comprising the questionnaire was answered by participants CSR Level 3.25 .532 -.293 -.394 %95.3 according to a five-point Likert scale, with substantial agreement indicated by ‘ 5 ’ and substantial disagreement a. Std. Error = 0.130 b. Std. Error = 0.259 indicated by ‘ 1 ’ . Collection of demographic information was Table 2 presents the collinearity and correlation assessments, also pursued.Having devised the questionnaire content, the with the dependent variable ’s relationship with every thematic arrangement of the questionnaire was verified by independent variable indicating a significant positive providing the document to a number of accounting experts, correlation (from 0.57 to 0.72, P value  0.001) according to thus providing an assessment of validity. Hair et al. [60] the Pearson ’s test. Moreover, the independent variables had advocated this process as a means of finalizing the study no multicollinearity, intercorrelation or significant queries, prior to the questionnaire ’s release to sample interrelationship issues, according to the Pearson ’s results participants. As table 1 indicates, the scale ’s general presented in Table 2. (0.31 to 0.68 at P value  0.001) were dependability was confirmed in relation to the present the correlation results obtained. In accordance with Field et research ’s data, with the 46 components of CSR ’s general al. ’s [56] suggestion of permissible VIF test and Tolerance scale achieving 95.3.7%, the 10 components of the moral values, the VIF was below 10 and the Tolerance result intelligence scale comprising of four aspects achieving 80.4% exceeded 0.01. and 83.1%, while the 40 components of the moral intelligence TABLE 2 scale generally achieving 91.2%. The Amman Stock Exchange PEARSON CORRELATION AND COLLINEARITY STATISTICS official internet site was drawn on as a means of establishing Collinearity the study population and an appropriate sample. Financial Pearson Correlation managers, editors, accountants and every other staff member Statistics participating in Jordanian industrial firms ’ financial disclosure CSR Comp. Forgiv. Respon. Tolerance VIF *** *** *** *** processes were deemed as comprising the statistical Integrity .568 .336 .441 .314 .800 1.250

Responsibility .721*** .683*** .647*** .457 2.190 ‘ r esponsibility ’ and CSR activities showing the most Forgiveness .686*** .634*** .470 2.130 correlation. With a P value  0.001 and βeta = 0.325, the *** Compassion .716 .467 2.139 degree of company CSR reporting was significantly affected *** Sig. (1-tailed)  0.001 by the financial report arrangers ’ degree of responsibility. The linear regression model assessment provided results for a P value  0.001 and βeta = 0.157, company CSR reporting this study that have been summarized in tables 3 and 4, with a was influenced the least by the financial report arrangers ’ discussion of the findings now following. degree of compassion. Overall, backing for each sub-

hypothesis (H01-1; H01-2; H01-3; and H01-4) was established TABLE 3 through the statistical analysis. REGRESSION MODEL SUMMARY Durbin- R R2 Adjusted R2 F Sig. Watson 5 DISCUSSION AND CONCLUSIONS .850 .722 .719 227.10 .000 1.628 The collection, analysis, summation and release of fiscal Dependent Variable: CSR Level information on a daily basis, enabling a company ’s external Predictors: (Constant), Compassion, Integrity, Forgiveness, and internal stakeholders to utilize the data, is the requirement Responsibility of fiscal report arrangers and accountants in their expert and fundamental roles. However, moral and ethical problems and In terms of the degree of CSR reporting and the effect of activities may be overlooked when fiscal concerns become the financial statement arrangers ’ level of moral intelligence, the dominant focus of such actors ’ activities. Accordingly, causal association was found to be statistically meaningful Jordanian industrial firms ’ degree of CSR reporting and the based on the regression analysis, as table 3 shows. In effect of moral intelligence factors was concentrated on in this particular, statistical significance in the model ’s adjusted R2 research.It was found that forgiveness, compassion, value of 0.719, at P value  0.001, is indicated in table 3. responsibility and integrity as the four aspects of moral Accordingly, 71.9% of the data variance is explained by the intelligence were shown to a significant extent by the financial linear regression. The crucial values for the Durbin-Watson report arrangers. Promotion of ethics as a component of score are 1.5

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