CC BY
38
DOI https://doi.org/10.18551/rjoas.2018-11.25
COMPANY SIZE, CORPORATE PERFORMANCE AND CORPORATE SOCIAL
IRRESPONSIBILITY LEVEL: EVIDENCE FROM MANUFACTURING COMPANY
IN INDONESIA
Wahyudi Disty Amelinda*, Setyawan Arif Nugroho
Master's Program of Accounting, Faculty of Economic and Business, University of Airlangga,
Indonesia *E-mail: [email protected] ORCID: 0000-0002-9169-2246
ABSTRACT
The company's main objective has changed in recent years. Company is not only trying to make a profit, but it is more trying to maintain the sustainability of its business and the environment around it trough the act of Corporate Social Responsibility (CSR). Corporate Social Responsibility (CSI) is an idea that can not be separated with CSR activities. cSi and CSR run side by side because the company in its operation besides doing good is also required to avoid bad activities The term of cSi is less familiar than CSR terms. The form of CSI can be actions such as discrimination, improper information to consumers, pricing strategies, earnings management, corruption and everything that can harm the company. Company size and company performance have been demonstrated by some studies discussing a relationship with CSR disclosure, but there has not been much research linking it with CSI levels mostly in developing countries. This research tries to prove the relationship between company size and company performance with CSI level in Indonesia, by taking the population of manufacturing companies listed on BEI in 2014-2016 involving 116 companies. From those companies, there are 20 negative news in 2014, 12 negative news in 2015, and 13 companies that get negative news in 2016. The method used in this study is quantitative with logistic regression analysis.
KEY WORDS
Corporate social, responsibility, irresponsibility, size, performance, profit.
Corporate Social Responsibility (CSR) has become a topic of discussion, and a research in recent years. Many researches and understanding are related to the concept of CSR, some researchers understand CSR as part of an additional contribution to the well-being of the inherent community of the company (Lin-Hi & Muller, 2013). It should be acknowledged that CSR activities conducted by the company can bring tremendous benefits to the environment and community. CSR in addition to the demands of the authorities then became one form of corporate philanthropy and also a part of corporate strategy to maintain relationships with stakeholders. Doing a lot of activities for the benefit of the planet and people, causes CSR synonymous with the idea that the company will do goodness for society. However, in addition to doing good things, the company has other responsibilities that is to avoid bad activities and avoid the actions of irresponsibility (Corporate Social Irresponsibility - CSI) (Lin-Hi & Muller, 2013).
CSI is an activity that can damage corporate image, corporate reputation (Amujo et al., 2012) and then it will have an impact on the financial crisis for management. CSI can be called as a driver of CSR activities (Jones, 2010). Why is that? Because if we look at CSI, we find that the company's actions are not in accordance with what should be, which then demanding this company to do good things (CSR) and avoid the bad ones. The form of CSI in the study of Popa & Santa (2014) is described as discrimination in the workplace, providing improper information to consumers, pricing strategies and other frauds in various forms that could harm the company. Previous studies linked CSI with CSR, CEO turnover, corporate performance, CEO morale as well as company image and reputation (Walker et al., 2016; Chiu, 2016; Amujo et al., 2012; Ormiston & Wong, 2013) where all these
researches take samples of companies in developed countries. From our observations, CSI research related on developing countries is not as much as done in developed countries, therefore researchers intend to conduct research on developing countries.
Accounting scandals since several years ago involving large corporations are a form of the narrowness of a rational understanding of economic concepts in management theory (Manning, 2012). The scandals of big companies involving Enron (2001), Lehman brother (2008) and VW (2015) show the company's inability to understand that profit is not the main company's purpose. What caused the company later to fall was that there was a tendency for immorality due to the privilege of being misused for personal gain. Therefore, ethics and cooperation are less emphasized, causing such actions to lead to Corporate Social Irresponsibility (CSI). To avoid any CSI other than the company itself, government regulation is also needed to reduce the risk of CSI. However, it can not be denied that the government's demand for CSR can also be the trigger of the company to do tricks or planning that led to the action of CSI (Jones, 2010).
The concept of CSI may not be so familiar when compared to the CSR concept and is rarely noticed, whereas corporate social responsibility is seen as coexisting with corporate social irresponsibility throughout the business world, since managers' decisions / actions are sometimes done without purpose between moral and immoral action (Popa & Salanta, 2014). CSI provides a theoretical platform to avoid ambiguity, unclear arbitrariness and CSR mysticism and deserves to be a serious research subject and demands more scientific attention (Tench, et al., 2012). The lack of CSI as a research object may be caused by its negative connotations. Even some parties have interpreted it as an action or behavior that is not responsible (Riera & Iborra, 2017).
Making developing countries as research objects has its own reasons. Developing countries have a different character compared with developed countries, where the country tends to be vulnerable to social and economic problems, whether it is corruption, environmental pollution and workers' rights due to the prevailing laws (Dissanayake et al., 2016). Unlike previous studies that have been conducted, this study seeks to analyze the relationship between company size and company performance with CSI levels in manufacturing firms in Indonesia in 2014-2016 period. The basic logic used is the greater the size of the company then the company will be more vulnerable to conduct violations both intentional and unintentional that led to the action of CSI. Based on that background we compiled research questions as follows:
• How is the relationship between firm size and CSI level in the company?
• What is the relationship between company performance and CSI level in the company?
This research tries to answer the research questions above and gives an idea of how the CSI level in developing countries and indirectly intended to know how high the level of transparency in developing countries, especially Indonesia.
This research is arranged by quantitative method with logistic regression analysis. In proving the hypothesis, we used logistic regression analysis so that the relationship between variables more easily explained. The population used is a manufacturing company listed in Indonesia Stock Exchange (ISE) in 2014-2016, numbering to 116 companies. The dependent variable in this study is the CSI level projected by the number of negative issues (news) obtained through google search engine and online newspaper, while the independent variable of this study is the size of the company is projected with ROA and the company's performance is projected to total assets owned by the company.
The results showed that there was no significant influence between firm size and financial performance. These results indicate that companies in Indonesia are not yet accustomed to disclose corporate social responbility. This is interesting because companies that are floating on the Indonesian stock market are still reluctant to disclose their Corporate Social Irresponsibility. Though it could be that information will be able to influence the decision of stake holders.
This research is arranged in introduction, theory and hypotheses development, research method, result and conclusion.
Theory and Hypotheses Development. As the main objective of the company has changed to be more close to its environment, company has to maintain its relationship. Accordance to O'Donovan (2002) reffering to the legitimacy theory, for an organization to continue operating successfully, it must act in maner that society deems socially acceptable. The theory of legitimacy will provide a good explanation to the relationship between company and its stakeholder. The relationship between individual, society and organization can be seen as social contract. Larger companies engage in more activities than the smaller one, and thus have greater influence on society (Cowen et al., 1987). Therefore, the size of the company is closely related to the size of its responsibility and the size of the company can be assessed by using toal assets by transforming them into natural logarithms (Ghozali, 2006).
The theory of legitimacy explains that the greater the size of agencies or companies, then the influence of agencies or companies on society is greater. The impact of environmental performance of agencies or companies is also increasingly felt by the public due to the size of a large organization. In addition, public pressure on agencies or companies to publish environmental performance reports is also higher (Cowen et al., 1987). Large size organizations tend to prepare their accounting systems to increase the level of disclosure of environmental information to be more open than small size organizations so that the research hypothesis formula is: H1 = Company size is positively related to Corporate Social Irresponsibility (CSI).
The consensus of the negative impacts of poor economic conditions on corporate performance seem undeniable (Smith, 2010), the argument about the relationship between economic conditions and CSR has varied. At certain times the economic conditions affect CSR (Lee et al, 2013). The results of Walker's research, et al. (2016) finds CSR Levels when CSiR increases due to increased profitability and efficiency of the company. Given the company's performance is very influential on Corporate Social Irresponsibility, then prepared hypotheses is as follows: H2 = Company performance is positively related to Corporate Social Irresponsibility (CSI).
Conceptual Framework. From the background, the previously prepared theories and previous studies, the following conceptual framework is developed as the basis for answering the problem formulation.
Figure 1 - Research Framework
Y=a+p1X1+ /32X2+e
Where: Y = Corporate Social Irresponsibility; a = Constanta; p1 - p2 = Regression Coefisien of Independent Variable; X1 = Company Size; X2 = Company Performance (financial); e = Standard Error.
METHODS OF RESEARCH
This research uses quantitative method with logistic regression analysis. Logistic regression is used because this study uses dummy variable "1" for companies affected by negative reporting and "0" for companies not affected by negative news.
The population in this research idea is listed manufacturing companies and submits financial report on Indonesia Stock Exchange within 2014-2016 period. Sources of data in this research idea uses secondary data, namely the company's annual report during the study period obtained from the data center of Faculty of Economics and Business Airlangga University Surabaya. Researchers uses two criteria in selecting a list of companies, namely companies whose financial statements ended December 31 and who received bad news in the mass media. Of the 116 companies in the manufacturing industry, there are 31 Companies that for 3 years alternately exposed negative news, in detail there were 20 companies that got bad news in 2014, 12 companies that got bad news in 2015 and 13 companies that got bad news in 2016.
Table 1 - The sum of news
No. Year Companies got bad news
1 2014 20
2 2015 12
3 2016 13
This study uses two variables that are dependent and independent. The dependent variable in this study is the CSI level (Y) projected by the number of negative issues (news) obtained through google search engine and online newspaper, while the independent variable of this study is company size (X1) which is projected with Total Assets and company performance (X2) is projected with ROA.
The company's financial performance can be measured through fundamental performance. Financial performance based on fundamental performance is measured using ROA. To calculate the fundamental performance of the company is done by calculating Return On Assets (ROA):
ROA = Net Income / Total Assets
The company size on the idea of this study is assessed based on the total size of the company's assets. Company's asset displays the assets used in the company's operational activities. Increasing the amount of asset value that is also accompanied by the increase of operating results adding external parties trust to the company, so it is possible the creditor interested in investing funds to the company (Weston and Brigham, 1994). The calculation of the size of the company is done by calculating the natural log of total Assets: Company Size = Ln (Total Asset)
RESULTS AND DISCUSSION
Chi Square Analysis. Based on the case of processing table summary, it can be seen that there are 93 samples (31 companies multiplied by 3 years of research period) then the data inputted no missing.
Table 2 - Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
Bad News * Ukuran Pemsahaan 93 100.0% 0 0.0% 93 100.0%
Bad News 4 ROA 93 100.0% 0 0.0% 93 100.0%
We used Chi Square test for company size variables, it is known that the results if the data for variable size of the company is 0.451 which means the relationship between variables is not significant.
Table 3 - Chi-Square Tests
Value df Asymp, Sig. (2-sided)
Pearson Chi-Square 93.0003 92 .451
Likelihood Ratio 128.829 92 .007
Linear-by-Linear Association .573 1 .449
N of Valid Cases 93
a. 186 ceils (100.0%) have expected count less than 5. The minimum expected count is .48.
The results are not much different for the Chi Suare test of the financial performance variable (ROA), it is known that the results if the data for variable size of the company is 0.588, which means the relationship between variables not significant.
Table 3 Continue
Asymp. Sig. (2-
Value df sided)
Pearson Chi-Square 30.5823 33 .588
Likelihood Ratio 40.376 33 .177
Linear-by-Linear Association 1.287 1 .257
N of Valid Cases 93
a. 66 cells (97.1%) have expected count less than 5. The minimum expected count is ,48.
Based on the results of logistic regression test, first we have to determine dummy variables for companies affected by bad news given the value of "1" and unfavorable bad news given the value of "0" with the number of companies affected by bad news for 3 (three) years study period is as much 45 companies.
Table 4 - Dummy variables
_Original Value_Original Value
Companies affected bad news 1
Companies unaffected bad news 0
Table 5 - Classification Table
Predicted
Bad News
Observed Tidak Ada Bad News Ada Bad News Percentage Correct
Step 0 Bad News Tidak Ada Bad News 48 0 100.0
Ada Bad News 45 0 0
Overall Percentage 51.6
a. Constant is included in the model
b. The cut value is .500
Based on logistic regression testing, it is known that the effect of firm size (X1) and corporate financial performance (X2) in corporate social irresponsibility disclosure are as follows:
Table 6 - Variables in the Equation
95% C.I..
B S.E. Wald df Sig. Exp(B) Lower
Step 1a X1 .041 .103 .153 1 .695 1.041 .850
X2 1.537 1.657 .860 1 .354 4.648 .181
Constant -.857 1.515 .320 1 .572 .424
Variable size of the company has a significant value of 0.695. The value is much greater than the significant level of 0.05, it can be concluded that the test results show H1 is rejected. These results indicate that firm size variables are not proven in affecting corporate social responsibility. Companies with large assets do not become the impetus to disclose corporate social irresponsibility, companies with small amounts of assets behave similarly.
Researchers try to argue that the absence of correlation can also be caused by the size of a large company able to control the news so that it can reduce or even eliminate negative news in order to maintain the company's stability. Given the unstable condition of the company, it can make the stock market value of the company fluctuate uncontrollably.
Variable of financial performance has a significant value of 0.354. The value is much greater than the 0.05 significant level, thus it is concluded that based on the test indicates H2 is rejected. These results indicate that the variable financial performance is not proven to influence the disclosure corporate social irresponsibility company. Even though a company posted good financial performance, it does not make the company dare to deliver corporate social irresponsibility. The same thing happens to companies whose financial performance is not good; they still try to keep the information so as not to be exposed by the public.
CONCLUSION AND RECOMMENDATIONS
Based on the result of research, it is known that this research has not found correlation between company size and company performance with level of willingness to present or reveal bad news (corporate social irresponsibility). The researcher tries to guess why there is no relationship between firm size and financial performance against corporate social irresponsibility disclosure, one of which may be the cause is independent variable in chi square test didn't make it. Another thing that may be because Indonesia is not yet familiar with corporate social irresponsibility (CSI).
Another limitation of this research is in Indonesia there is no CSI measurement tool. Different with developing country such as United States, they have KLD data statistic which help to measure the strength and concern of a company using multiple indicators within seven qualitative issue area. There is no singel data of bad action of the company in Indonesia that collected by one indeks. That is why we try to use bad news from newspaper, magazine or online portal to measure the bad news. If Indonesia could provide some of this data the disclosure of CSI is not impossible to influence the stakeholders (stake holder's) in making economic decisions.
Therefore, we suggest that future research can conduct research with other variables or more comprehensive and supported a wider scope, eg in companies in ASEAN and using KLD index to help them measure CSI. We then recommend that authorized and regulatory authorities promptly regulate the disclosure of corporate social irresponsibility to firms that market on the stock exchange.
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