12 Afro-Asian J. Finance and Accounting, Vol. 6, No. 1, 2016

Does family group affiliation matter in CSR reporting? Evidence from

Nahg Abdul Majid Alawi* Faculty of Economics, Aden University, Yemen Email: [email protected] *Corresponding author

Azhar Abdul Rahman Accounting Department, College of Business, Universiti Utara (UUM), 00601 Sintok, Kedah, Malaysia Email: [email protected]

Azlan Amran and Mehran Nejati Graduate School of Business, Universiti Sains Malaysia (USM), Penang, Malaysia Email: [email protected] Email: [email protected]

Abstract: While earlier studies have shown the role of family affiliation on increased social responsibility of firms, there is a dearth of literature on how family group affiliation moderates the link between company’s characteristics and social responsibility disclosure. This study aimed to investigate this moderating effect through performing a moderated multiple regression (MMR) analysis on empirical data gathered from 73 most active shareholding companies in Yemen. Findings from the study indicated that family group affiliation has a significant moderating effect on the relationships between company’s characteristics and corporate social responsibility disclosure; where the relationship was found stronger for family group affiliated companies as compared to the non-family group affiliated ones. The study has bridged the literature gaps by offering empirical evidence and new insights on the significant moderating effects of family group affiliation in the relationships between company’s characteristics and corporate social responsibility disclosure using the Yemeni samples.

Keywords: family group affiliation; corporate social responsibility disclosure; company characteristics; corporate social responsibility; CSR; Yemen.

Copyright © 2016 Inderscience Enterprises Ltd.

Does family group affiliation matter in CSR reporting? 13

Reference to this paper should be made as follows: Alawi, N.A.M., Rahman, A.A., Amran, A. and Nejati, M. (2016) ‘Does family group affiliation matter in CSR reporting? Evidence from Yemen’, Afro-Asian J. Finance and Accounting, Vol. 6, No. 1, pp.12–30.

Biographical notes: Nahg Abdul Majid Alawi is an Assistant Professor of Accounting at Faculty of Economics, Aden University, Yemen. He received his PhD in Accounting from University Utara Malaysia, Malaysia, MSc in Finance and Banking from Arab Academy for Banking and Financial Sciences, and BAcc from Tishreen University, Syria. His research interests are financial disclosure, corporate social responsibility and accounting education.

Azhar Abdul Raman is an Associate Professor in the Accounting Department, College of Business, University Utara Malaysia Campus, University Utara Malaysia, Kedah, Malaysia.

Azlan Amran is currently an Associate Professor at Graduate School of Business, Universiti Sains Malaysia. His research interests are related to corporate social reporting, corporate social responsibility and sustainability issues.

Mehran Nejati is a Senior Lecturer at the Graduate School of Business, Universiti Sains Malaysia (USM). He holds a PhD in Management and is a certified Six Sigma Green Belt by American Society for Quality (ASQ). He is also the author of numerous papers in international peer-reviewed journals and serves as editorial board member of several journals. He became a Certified Sustainability Reporting Specialist (CSRS) in 2012.

1 Introduction

The majority of the earlier studies on corporate governance and corporate social responsibility (CSR) disclosure have been conducted on developed (e.g., Aguilera et al., 2006; Branco and Delgado, 2011; Jo and Harjoto, 2012; Michelon and Parbonetti, 2012) or developing countries (e.g., Ghazali, 2007; Kamal and Deegan, 2013), and under-developed countries appear to be largely ignored in the literature. Contrary to this notion, CSR might be a key remedy to the least developed countries to enhance the society well-being and keep up with other developing countries, as it joins the regulatory endeavours to make corporations more attuned to public, environmental and social needs, through pursuing corporate governance as a framework for boards and managers in treating employees, consumers and communities (McBarnet et al., 2007; Rahim and Alam, 2014; Vogel, 2005). Additionally, most scholars have examined the convergence of corporate governance and CSR only from the perspective of strong economies (Belal, 2001); however, the link between corporate governance and CSR needs to be examined in weak economies (Rahim and Alam, 2014). Thus, examining the key determinants of corporate social responsibility from under-developed contexts can enhance the corporate governance literature and provide helpful implications to both researchers and administrators.

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One of the poorest and least developed countries in the world, which is surrounded by some of the richest countries on the globe, is Yemen. As society’s needs in Yemen have exceeded the capabilities of the governments, the Yemeni government has called upon the private sectors to participate in the welfare and development of the country in fulfilling their social responsibilities by financially contributing to social programs or reducing the harmful effects of industrialisation to the environment and society at large. Yemeni shareholding companies are mostly controlled by family groups and this is common in countries with poorly developed financial markets (Khanna and Palepu, 1997). But what makes a family group unique is its ability to influence the ownership, the governance, the management and the degree of success of these companies, as well as their objectives, strategies and structure, along with how those are formulated, designed and implemented (Chua et al., 1999; Neubauer and Lank, 1998). There is noticeable evidence to suggest that some Yemeni companies are developing and implementing social responsibility policies. For example, the Hayel Saeed Anam Group has established the Hayel Saeed Anam and Associates Welfare Corporation and Al-Saeed Foundation for Science and Culture as institutional entities to organise social responsibility action of the group (Hayel, 2008). However, unfortunately companies have singularly failed to embrace any but the traditional model of accounting and “most companies in Yemen are still not aware of the broad view of social responsibility, believing that CSR is no more than building mosques, donations to charities or seasonal work during Ramadan; and these activities do not require any disclosure” (Althawra Daily, 2008). Therefore, this study is important in providing a systematic empirical examination of the moderating effect of family group affiliation in the relationship between company’s characteristics and corporate social responsibility disclosure. This study contributes towards theory development by testing legitimacy theory in the context of CSR disclosure by Yemeni companies and the influence of family group on the relationship from company size, industry type, profitability, and foreign ownership to CSR disclosure. Moreover, while the majority of the earlier studies concentrate on developed or emerging economies, this study contributes to the existing literature on CSR disclosure from a different perspective, by focusing on one of the world’s least developed countries, namely Yemen. The remainder of the paper is organised as follows: first, we present our theoretical framework for CSR disclosure using legitimacy theory and upper echelons theory. Second, we discuss the hypotheses development, followed by the research design and the method of content analysis. Third, discussions of the study findings are presented. Finally, summary and conclusions are drawn.

2 Theoretical framework and hypotheses development

Legitimacy functions as an organisational resource (Hearit, 1995) and failing to fulfil society’s expectations can result in a legitimacy gap (Wilmshurst and Frost, 2000), which may affect the ability of a company to continue operating (Deegan, 2009). Organisational legitimacy reduces possible product boycotts and other disruptive actions (Elsbach, 1994) and provides the top management with a degree of freedom about how and where the business is conducted. Thus, companies try to gain legitimacy by disclosing social and environmental verifiable data and information (Cho and Patten, 2007; Deegan, 2007; Bakar et al., 2011; Khan et al., 2013).

Does family group affiliation matter in CSR reporting? 15

Legitimacy theory is compatible with ethical stakeholder theory as it considers all stakeholder groups have the right to be provided with information (Roberts, 1992; Brammer and Pavelin 2006; Isack and Tan, 2008; Belhaj and Damak-Ayadi, 2011). Consistent with the expectation of legitimacy theory, it is conjectured that businesses will provide social information to the public, regarding their community involvement, human resources, physical resources, environment contribution and product and service contribution, with the aim of legitimising their activities and positively influencing the perceptions of public and stakeholders about their organisation. Thus, firms use social disclosure to guard their reputation and identity (Hooghiemstra, 2000; Menassa, 2010; Bakar et al., 2011; Muttakin and Khan, 2014), and achieve legitimacy. Given the wide-spread adoption of legitimacy theory in explaining corporate environmental reporting, this study adopts legitimacy theory for its theoretical framework. In a country like Yemen where Islam is the main religion in the country, religious practices have become a norm and integrated into the people’s way of life. This scenario forms a unique perception and expectation from the community point of view. The practice of giving, protecting the environment, fair treatment towards the employees, and honesty are important components in the Muslims’ way of life. Thus, it is also expected that companies in this context perform in ways promoted in the religion, as any violation to the society’s expectations may cause serious damage to the company’s reputation. The current study uses four important characteristics of firms to examine their level of CSR disclosure. These characteristics include company size, industry type, profitability and foreign ownership. Size has been frequently used in explaining the degree to which organisations disclose information (e.g., Adrem, 1999; Hossain and Reaz, 2007; Jaggi and Low, 2000; Branco and Rodrigues, 2008; Reverte, 2009; Li and Zhang, 2010; Kansal et al., 2014) and majority of earlier studies shown a positive link between organisational size and the extent of social disclosures. This could be attributed to the fact that larger companies are more closely scrutinised by the mass media than the smaller organisations (Stanny and Ely, 2008). Besides, nature of industry has an effect on CSR disclosure and industries with higher possibilities to public controversy will have keener attitude in their CSR practices and disclosure (Porter and Krammer, 2002; Reverte, 2009; Muttakin and Khan, 2014). Hence, high profile industries, defined as “those with consumer visibility and a high level of political risk” [Roberts, (1992), p.605] are expected to have a greater extent of social disclosure. Moreover, profitability is conjectured to positively influence the extent of CSR disclosure, as organisations with a sound finances have the necessary financial means for this purpose (Hackston and Milne, 1996; Pirsch et al., 2007; Menassa, 2010; Belhaj and Damak-Ayadi, 2011). Finally, as argued by Won et al. (2011), foreign investors are likely to be distinct from domestic investors in their preferences, time horizons, and the extent of the information asymmetry problem. Additionally, Khan et al. (2013) also argued that foreign investors are likely to have different values and knowledge because of their foreign market exposure. Besides, Chapple and Moon (2005) noted that globalisation enhances firms’ CSR engagement in Asian countries. Thus, we conjecture that higher foreign ownership in a company results in a higher degree of CSR disclosure. In line with the legitimacy theory, family firms view their ownership more of an asset to pass on to their descendants, than a consumable wealth during their lifetimes (Anderson et al., 2003). Therefore, it is suggested that they foster some kinds of socially responsible behaviours (Block, 2010; Deniz and Suarez, 2005; Stavrou et al., 2007;

16 N.A.M. Alawi et al.

Uhlaner et al., 2004) that build good reputation (Dyer and Whetten, 2006; Wiklund, 2006). Through the analysis of the family business group CIM in Spain, Martos and Torraleja (2007) analysed the aspects of the family business organisational culture that can generate higher levels of social responsibility. Their study found that family businesses are significantly aware of the local culture and show greater concern for social responsibility activities. Hence, they proposed a four-circle model of family business, which integrates the family, ownership, business system, and community. Moreover, family owners are often more actively involved in the management of the firm by serving as executives and/or directors. Thus, family CEOs often have deep knowledge of the firm and its business activities (Ward, 2004). They are able implement family’s value, priorities and objectives (Le Breton-Miller and Miller, 2009; Wiklund, 2006). Previous literature confirms the positive relationship between family companies and CSR and between business groups and CSR. For instance, Huang et al., (2009) showed that family business positively and significantly moderates the relationship between the pressure of internal stakeholders and the adoption of green innovations. They associated this moderating impact with the organisational culture and core values of the family firms. Uhlaner et al. (2004) found that the existence of family surname in the name of a firm resulted in enhanced social responsibility commitment by the companies. More recently, Suzuki et al. (2010) found affiliation to a business group is associated to institutionalisation of CSR in Japan. They argued that firms affiliated to a business group seem to hold a strong group identity and their managers often exchange information at meetings. Hence, membership in a business group contributes to the diffusion of business ideas and practices within the group, including the institutionalisation of CSR. However, empirical studies to understand the moderating influence of family group affiliation are missing in the literature. Morck and Yeung (2003) argued that this happens because these kinds of firms do not exist in the USA and UK where most corporate governance research is conducted. As such, this study aims to fill this gap, by examining the moderating role of family group affiliation on the influence of company size, industry type, profitability and foreign ownership on CSR disclosure (Figure 1).

Figure 1 Research framework

Company size

Industry type CSR disclosure Profitability

Foreign ownership

Family group affiliation

It is expected that family group affiliation will have positive moderating impact on the relationship between company characteristics and CSR disclosure. This indicates that affiliation to any family group will enhance the explanatory power of company’s characteristics on CSR disclosure. Therefore, the following hypotheses are developed:

Does family group affiliation matter in CSR reporting? 17

H1 The family group affiliation moderates the relationship between company’s size and the level of social responsibility disclosure.

H2 The family group affiliation moderates the relationship between high profile industries and social responsibility disclosure.

H3 The family group affiliation moderates the relationship between profitability and social responsibility disclosure.

H4 The family group affiliation moderates the relationship between foreign ownership and social responsibility disclosure.

3 Research methodology

3.1 Sample of the study

The study population comprises of all shareholding companies registered with the Ministry of Industry and Trade in Yemen. Owing to lack of a stock exchange in Yemen, there are no listed companies. These companies have been chosen because the Companies Act (No 22) for the year 1997 on Commercial Companies in Article (92) requires shareholding companies to publish their financial annual reports to the public. Also these companies are required to submit a copy of their annual reports to the Ministry of Trade and Industry. Therefore, the annual reports were collected through a request letter addressed to Ministry of Industry and Trade or by visiting the company office in 2010. As of December 2007, there were 102 companies registered with the Ministry of Trade and Industry in Yemen.

Table 1 Distribution of companies based on the family group affiliation

Family group affiliation Frequency Percent No 30 41.1 Yes 43 58.9 Total 73 100

3.2 Data collection

This study focused on CSR disclosure in three years (2007, 2008 and 2009) using three mediums of communication, namely annual reports, websites and newspapers. The three media sources were chosen because focusing on one media source might result in obtaining incomplete conclusions. Hence, researchers also focused on companies’ websites as well as advertisements and articles in the largest Yemeni newspaper, named Althourah Daily, since many companies may use other tools of media to demonstrate their social responsibility disclosures (see Zeghal and Ahmed, 1990). Besides, earlier studies have mentioned the importance of websites and newspapers as the resources for future research on CSR disclosure (Haniffa and Cooke, 2005; Ghazali, 2007).

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3.3 Content analysis

Content analysis of the three sources of data, namely annual reports, websites and newspapers, was performed through unweighted count of the number of words on social disclosure. This is supported by Deegan and Gordon (1996) who suggested the use of words over other forms of measure, such as ‘part-page’ disclosure. Words lend themselves to more exclusive analysis (Gray et al., 1995b), provide greater detailed descriptive values as the unit of analysis (Zeghal and Ahmed, 1990), and yield the same results in repeated trials, as it can be easily replicated (Gamerschlag et al., 2011). Moreover, word count has been used in previous studies (Zeghal and Ahmed, 1990; Deegan and Rankin, 1996; Deegan and Gordon, 1996; Douglas et al., 2004; Haniffa and Cooke, 2005; Xiao et al., 2005; Gao et al., 2005; Ratanajongkol et al., 2006; Gamerschlag et al., 2011). Similarly, Haniffa and Cook (2005) used both word and sentence counts and also found that there is a high correlation between the two measurements. Thus, the choice of word as the unit of analysis is deemed to be suitable for this study.

3.3.1 Annual reports Each company’s annual report was analysed and the number of words under each CSR theme related to any of the CSR categories was added to the scoring sheet. Each scoring sheet was then coded with the company’s name and the year of the annual report. This procedure was replicated for all of the annual reports for each year.

3.3.2 Websites Each company’s website was accessed and examined entirely during 2007, 2008 and 2009 and each CSR theme related to any of the CSR categories, which were disclosed and dated within the period of the study, was printed. The number of words was counted and then added to the scoring sheet of each year. This similar procedure as what Williams and Ho Wen Pei (1999) applied was adopted to ensure the reliability and control the potential fluctuations owing to the timing differences between combing and comparing the information obtained from websites with those taken from the annual reports and newspapers. In examining a company’s website, the approaches suggested by McMurtrie (2001) were followed except the following links: • web pages that were not rooted in the company’s name, and excluding all external links that took the user outside the sphere of control of the target company • neither online copies of the annual report (Patten and Crampton, 2003), nor online copies of social and/or environmental reports, were included in the web page and newspaper analysis • links to external press release disclosures were also excluded (but press releases of the companies were examined for CSR disclosure) (Patten and Crampton, 2003). There are two reasons for the exclusions: first for segregation, as the idea is to collect the data separately on the two media analysed (Frost et al., 2005). Second, because this exclusion is an appropriate means of setting the boundaries (Douglas et al., 2004).

Does family group affiliation matter in CSR reporting? 19

3.3.3 Newspaper All issues for the years 2007, 2008 and 2009 were entirely analysed. Words related to CSR theme under any of the CSR categories disclosed by the sampled companies were counted and added to the company’s scoring sheet.

3.4 Measurement 3.4.1 Corporate social responsibility disclosure There are two types of measurements to measure the level of CSR disclosure, and the choice between these methods depends on the objectives of the study. Some studies used the measurement of CSR disclosure to measure the quality of this disclosure (e.g., Guthrie and Parker, 1990; Cormier and Gordon, 2001; Hasseldine et al., 2005), while others used the measurement of CSR disclosure to measure the quantity of CSR information disclosed (e.g., Zeghal and Ahmed, 1990; Zain, 1999; Haniffa and Cooke, 2005). The quantity measurement is a measurement method which captures ‘quality’ of disclosure, whereas measurement of counting the words, sentences and page for each item of disclosure, captures the ‘extent’ or ‘level’ of disclosure and gives a clearer picture of the extent to which the item is disclosed and puts more emphasis on the particular content category of the item disclosed (Zeghal and Ahmed, 1990; Haniffa and Cooke, 2005). In this study, the level of CSR disclosure is deemed important and the quantification issue helps the study to capture a richer picture of the CSR information provision (Unerman, 2000). In addition, the quantity of disclosures could be a proxy for quality (e.g., Deegan and Gordon, 1996; Deegan and Rankin, 1996; Nielsen, 2008). However, Hooks and van Staden (2011) and Gunawan (2010) found that the measurements of the quality and the quantity of CSR disclosures are highly correlated and thus the choice between the two methods had little difference. The current study measured the quality level of CSR disclosure in annual reports, websites and newspaper of the most active shareholding companies in Yemen similar to the prior studies on CSR disclosure and developed a self-constructed CSR disclosure index. However, Wallace (1988) indicated that there is no general theory on the items that should be selected to assess the extent of disclosure. Moreover, the relevant literature shows that there is no commonly used theory to determine the number and selection of items for a disclosure index (Hooks et al., 2002). Thus, only the categories and items that are important and applicable to the Yemeni environment and are capable of capturing the areas that fall under CSR disclosure (Haron et al., 2007) were selected for this study. The final checklist for the index consists of 36 CSR information items grouped into four categories, including human resources, community involvement, product/service and environment. This categorisation is similar to previous research in the CSR literature (Guthrie and Parker, 1989, Zeghal and Ahmed, 1990; Gray et al., 1995a; Hackston and Milne, 1996; Zain, 1999; Haniffa and Cooke, 2005; Zain and Janggu, 2006; Branco and Rodrigues, 2008).

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3.4.2 Measurement of independent variables 3.4.2.1 Company size Company size was measured by a number of alternative measurements either by the number of employees, sales volume, total asset value, or an index rank, such as the Fortune 500 (Choi, 1999). However, Choi (1999) suggested that there is no theoretical reason for a particular measure of size in disclosure studies and previously, Kimberly (1976) and Hackston and Milne (1996) found that employee numbers, sales, market capitalisation, and total assets are highly correlated and thus the choice between the different measurements of company size might cause little difference. In this study, company’s total asset was used as a proxy of size and the logarithm of firm’s total asset was used as size variable in the multiple regression analyses. This is in line with the previous studies (Haniffa and Cooke, 2005; Branco and Rodrigues, 2008) that measured firm size by using the natural logarithm of the book value of the total firm assets.

3.4.2.2 Industry type

Industry type was measured using a dummy variable which took a value of one if the company was affiliated to high profile sectors (manufacturing/ telecommunication), and zero otherwise. Roberts (1992, p.605) defines high profile industries “as those with consumer visibility, a high level of political risk, or concentrated intense competition”. In this study the companies were re-classified into high profile sectors and low profile sectors, due to the small distribution of companies in some sectors, which could prevent performing a basis for statistical analysis. High and low profile sectors classification was chosen because high profile sector was found previously to be related to the high level of CSR disclosure (Patten, 1991; Roberts, 1992; Hackston and Milne, 1996; Abu-Baker and Naser, 2000; Ratanajongkol et al., 2006). Moreover, the manufacturing sector contained companies dominated by Yemeni society as high profile companies.

3.4.2.3 Profitability

Similar to the studies by Hackston and Milne (1996) and Haniffa and Cooke (2002, 2005), company profitability was measured using their return on equity (ROE). The reason for adopting accounting-based measurement is that it relies on past performance (McGuire et al., 1988), unlike market-based measures which rely on investors’ viewpoints on company’s performance (Reverte, 2009).

3.4.2.4 Foreign share ownership

The measure of foreign share ownership in this study is the percentage of shares held by foreign shareholders, similar to the measure used by the earlier researchers (e.g., Haniffa and Cooke, 2002, 2005; Amran and Devi, 2008; Said et al., 2009).

Does family group affiliation matter in CSR reporting? 21

3.4.3 Measurement of the moderating variable 3.4.3.1 Family group affiliation Khanna (2000) argued that an understanding of the definition of business group is important in any research that uses this construct. Business groups are special types of enterprise system existing in almost every market economy. A business group can be defined as “a set of legally independent firms that are linked to each other through various economic and social relationships, and are operated in a coherent manner” [Chung, (2001), p.721]. The important characteristic of a business group is that, each firm within a group is legally independent in terms of identity and management. However, the firms in the group are tied together by various relationships. This study used only family group affiliation to measure the association of a company with shareholding companies. The process of identifying these affiliations began with gathering information about a company’s shareholders from the Ministry of Industry and Trade in Yemen. The names of the shareholders (i.e. company, foundation and individuals) were then traced in company’s publications and prospectuses. Consistent with previous studies, the family group affiliation was identified by a dummy variable that is set equal to ‘one’ if the company is affiliated to family business group and ‘zero’ if it is not affiliated (Khanna and Rivkin, 2001; Singh and Gaur, 2009).

4 Data analysis

This research employed moderated multiple regression (MMR), in order to examine the moderating impact of family group affiliation on the relationship between company’s characteristics as the independent variables and corporate CSR disclosure as the dependent variables. MMR analysis is an appropriate method for detecting the effects of moderator variables (Baron and Kenny, 1986; Aguinis, 1995, 2004). Following Aguinis (1995), Li and Atuahene-Gima (2001), and Goll and Rasheed (2004), MMR was conducted using two-stage regressions. In the first stage, the dependent variable was regressed with the independent variables and moderator variable to represent the variables in the ordinary least-squares model. Equations (3) and (4) show the OLS regressions that test the additive models of the main effect of company’s characteristics and family group affiliation (moderator) on CSR disclosure. • Model 1 (OLS model):

CSRDL= β01++ββ SZE 2 IND + β 3 PRO + β 4 FRGOWN + β 5 FAMGP +ε

• Model 2 (MMR model):

CSRDL=+ββ01 SZE + β 2 IND + β 3 PRO + β 4 FRGOWN

++ββ56()SZE*(*) FAMGP IND FAMGP

+ ββ78(*PRO FAMGP )(++ FOROW * FAMGP )ε

CSRDL = corporate socialresponsibility disclosure level ∂=constant

22 N.A.M. Alawi et al.

SZE = the log of total assets

IND = 1 indicates industrytype is high profile and 0 otherwise

PRO ==Return on Equity Net Income/Shareholder’s Equity

FRGROWN = percentage of sharesheld by foreign shareholders

FAMGP = 1 indicates companyaffiliated to family group, and 0 otherwise

To test the data, the correlation matrix was reviewed and the variance inflation factors (VIF) was computed in order to detect the existence of any multicollinearity problem. However, as in many moderated regression analyses in the literature (e.g., Brock et al., 2006), generating a new variable by multiplying together two existing variables risks creating a multicollinearity problem. One approach to overcome this problem, suggested by Aguinis (1995) is centring approach. This procedure involves, converting variables to Z scores that have mean zero and standard deviation one. The standardised variables are then multiplied together to create the interaction variable and entered in the moderated regression. The standardised variables are then tested using the same approaches to see whether the problem still persists. Accordingly, the results of this study showed that the problem was ceased.

5 Results

Table 2 presents the results of the moderating effect of family group affiliation on the relationship between two independent groups and corporate social responsibility disclosure. Model 1 examines the association of independent variables and moderated variable with CSR disclosure in Yemen, while, model 2 examines the moderating impact of family group affiliation on CSR disclosure level. Findings of the analysis as depicted in Table 2 shows that Model 1 has the R square of 0.470 [F(5, 213) = 37.714, p = .0000], indicating that 47% of the variation in the CSR disclosure could be explained by the independent and the moderator variables. Model 2 presents the results after the interaction term (independent × moderator variable) was added into the equation. Table 2 indicates that the R2 change from model 1 to model 2 is statistically significant (R2 change = .095, F(4, 209) = 11.364, p = 0.000). This R2 change confirms that there is a significant moderating impact by family group affiliation on the link between the independent variables and CSR disclosure level (Baron and Kenny, 1986; Aguinis, 1995; Hair et al., 2006). The results of model 2 also show that only three of the interactions produced a significant relationship, as the coefficient of the interaction of (size * family group), (profitability * family group), and (foreign ownership * family group) with CSR disclosure level were significant at 1% significance level. This result implies that the impact of company size, profitability, and foreign ownership on social responsibility disclosure is stronger in companies affiliated to family group. Hence H1, H3, and H4 are supported.

Does family group affiliation matter in CSR reporting? 23

Table 2 Regression results for the moderating effect of family group affiliation on the relationship between company’s characteristics and CSR disclosure

Model 1 Model 2 Variables Coeff t-statistics Sig. Coeff t-statistics Sig. Constant 1,097.562 17.519 .000 796.924 9.281 .000 Company’s characteristics Size 359.503 4.517 .000203.939 2.568 .011 Industry type 284.531 3.600 .000 104.884 1.330 .185 Profitability (ROE) 298.904 3.947 .000 306.556 3.990 .000*** Foreign ownership 71.809 1.083 .280 82.399 1.288 .199 Moderator variable Family group affiliation 174.353 2.108 .036 459.352 4.959 .000*** Interaction effects Size × family group 291.477 3.686 .000*** Industry type× family group 133.631 1.625 .106 Profitability × family group 291.945 4.033 .000*** Foreign ownership × 173.7342.855 .005** family group R2 .470 .564 Adj. R2 .457 .546 R2 change .095 F-value 37.714*** 11.364*** Note: ***Significant at the 0.01 level **Significant at the 0.05 level *Significant at the 0.1 level.

6 Conclusions and discussion

Findings of this study indicated that family group affiliation has significant moderating effect on the relationships between the company’s characteristics and CSR disclosure. This result is consistent with the argument that family firms are unique. Owing to the influence of a family group on the ownership, governance, management and succession in the company, as well as on its objectives, strategies and structure and the way in which these are formulated, designed and implemented (Chua et al., 1999; Neubauer and Lank, 1998), they view social responsibility differently. As these firms view their ownership as an asset to pass on to their descendants, rather than wealth to consume during their lifetimes (Anderson et al., 2003), they are seen to show greater commitment towards their social responsibility which can build a good reputation for them (Dyer and Whetten, 2006; Wiklund, 2006). This ensures their legitimacy and avoids unnecessary risks of conflicts between the stakeholders and the company. The finding of this study supports previous studies that showed a positive relationship between the family companies and CSR and between business groups and CSR. For instance, Suzuki et al. (2010) found affiliation to a business group is associated with

24 N.A.M. Alawi et al.

institutionalisation of CSR in Japan. They argued that firms affiliated to business groups seem to hold strong group identity and their managers often exchange information at meetings. It is therefore possible that membership in a business group contributes to the diffusion of business ideas and practices within the group, including the institutionalisation of CSR. Moreover, Huang et al. (2009) found that family business positively and significantly moderates the relationship between the pressure of internal stakeholder and the adoption of green innovations in Taiwan. They linked this moderating impact to the organisational culture and core values of family firms. Uhlaner et al. (2004) studied the impact of family surname in firm name on corporate social responsibility in family firms in Netherlands. They concluded that the existence of family surname in firm name increased the company’s social responsibility. Gallo (2004) reported that family firms are more socially responsible than non-family firms. He further argued that family firms have a more long term orientation, which could lead to more sustainable management activities and ultimately higher performance sustainability (Anderson and Reeb, 2003). Our findings are in line with above studies. The possible explanation for the significant moderating impact of family group affiliation in this study lies in the study context. Since Yemen is a poor country, the rich families in the country have a strong commitment to philanthropic activities. In addition, given that Yemen is a Muslim country where the principles of brotherhood are always promoted and sought after, companies are under increasing pressure by the society to seek these expectations and responsibilities. Moreover, according to Islam, contributing small portions to the society is a must. This is a religious practice known as zakat and is considered as a norm for Muslim countries. Going against a norm may create conflict which eventually may jeopardise the business operation. Hence, practicing CSR and communicating it to the public is very important to maintain the license to operate. The moderating effect of family values towards a company which is big in size is clearly consistent with legitimacy theory. The bigger the company, the higher its visibility in the public’s eyes, resulting in increased urgency for the company to maintain its reputation and obtain legitimacy. Any misbehaviour can easily tarnish the image of a company and invite unwanted attacks and scrutiny from the stakeholder. A company is also expected to perform more CSR practices when making more profit. This is expected as the company has more resources to perform bigger contributions to the society at large. It is expected that foreign shareholders should help to further enhance the relationship with stakeholders through CSR campaigns as this will help them to maintain their operation running in Yemen.

6.1 Implications

There are important potential implications from the results of this study. First, this study indicated that legitimacy theory appears to support the findings of this study. The legitimacy theory suggests that organisations utilise CSR disclosure of social responsibility to justify and legitimise their conducts to the society. Thus, this study established the argument that the company’s characteristics affect CSR disclosure and this relationship was moderated by the affiliation to a family group. Secondly, this research also provides additional insights on the CSR disclosure literature, in response to calls for additional research on the link between the family business and CSR (Gallo, 2004; Deniz and Suárez, 2005; Dyer and Whetten, 2006; Martos and Torraleja, 2007).

Does family group affiliation matter in CSR reporting? 25

Even though a number of researchers have studied the impact of the family business towards the CSR, there are not sufficient prior studies which investigate the moderating influence of family group affiliation on the CSR practices of firms.

6.2 Limitations

The current study has two important limitations. First, the sample of the study consists of only 73 active registered shareholding companies in Yemen. Hence, extending the sample by including other types of companies would provide extra evidences of CSR disclosure level. The second limitation pertains to the measure used for measuring the level of CSR. Since CSR is in its early stages in Yemen, there is a need for an in-depth study into the quantity of CSR disclosure and identification of areas of future improvement. Since this study focuses on family business and CSR disclosure, future studies could be conducted to further examine the moderating effects of family group in the relationships between CSR disclosure and other critical independent variable such as managers’ characteristics (age, working experiences and educational level). Future studies could also investigate the effects of few other established moderating variables such as organisational culture on the above relationships to provide new insights and information on the boundary conditions for degree of CSR disclosure relationship.

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