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Attaining legitimacy by employee information in annual reports

Pamela Kent (Bond Business School, Bond University, Gold Coast, Australia)
Tamara Zunker (Bond Business School, Bond University, Gold Coast, Australia)

Accounting, Auditing & Accountability Journal

ISSN: 0951-3574

Article publication date: 16 September 2013

Abstract

Purpose

The purpose of this study is to provide evidence on the category, quantity and quality of voluntary employee-related information Australian listed companies disclose in their annual report. An explanation is also sought to determine whether companies adopt employee-related disclosures to legitimise their relationship with society. Voluntary adoption of corporate governance best practice recommendations is used as a measure of companies' attempts to attain ex ante legitimacy. Media agenda setting theory is used as a measure of an attempt to gain legitimacy ex post following adverse publicity from the media.

Design/methodology/approach

The annual reports of all companies with at least one employee listed on the Australian Stock Exchange with a 30th June balance date of 2004 are examined to identify employee-related disclosures. This employee-related information is categorised and identified as positive, negative or a combination of positive and negative information by three independent coders. Ordinary least squares regression is used to explain the quantity of disclosure with a corporate governance score and number of adverse newspaper articles included as experimental variables.

Findings

Adopting voluntary corporate governance mechanisms is associated with the quantity of voluntary annual report employee-related disclosures. Higher levels of adverse publicity are also significantly associated with higher quantities of employee-related disclosures. The quality of these disclosures is questioned because 124 companies had adverse publicity relating to employees and only two of these companies reported any negative employee-related disclosures. Few companies from the whole sample reported any negative information relating to their employees in their annual report, with 98 per cent of companies reporting positive news or no news.

Originality/value

Most previous social responsibility research has focused on environmental disclosures. This study is original because it focuses on employee-related disclosures. Honest, transparent employee disclosures are an international corporate governance recommendation by the Organisation for Economic Co-operation and Development and studies have not previously tested the relation between reporting recommended corporate governance mechanisms and employee-related disclosures in annual reports.

Keywords

Acknowledgements

The authors acknowledge with thanks the helpful comments of Muhammad Jahangir Ali, Kamrad Ahmed, Jacqueline Christensen, Jere Francis, Orapin Duangploy, Janice Hollindale, Ray McNamara, Carolyn Windsor and workshop participants at 20th Asian-Pacific Conference on International Accounting Issues, Paris, France, 9-12 November, 2008 and European Accounting Association 33rd Annual Congress, Istanbul, Turkey, 19-21 May 2010 and three anonymous referees. This project is funded by AFAANZ.

Citation

Kent, P. and Zunker, T. (2013), "Attaining legitimacy by employee information in annual reports", Accounting, Auditing & Accountability Journal, Vol. 26 No. 7, pp. 1072-1106. https://doi.org/10.1108/AAAJ-03-2013-1261

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited