Towards an integrated reporting framework for China
Sun, Y. (2021). Towards an integrated reporting framework for China (Thesis, Doctor of Philosophy (PhD)). The University of Waikato, Hamilton, New Zealand. Retrieved from https://hdl.handle.net/10289/14337
Permanent Research Commons link: https://hdl.handle.net/10289/14337
Integrated Reporting (IR) has emerged as a new corporate reporting approach to communicating to stakeholders about organisational value creation. IR is expected to produce better corporate reporting for stakeholders and promote greater transparency and accountability in the capital market. IR is not currently mandatory for Chinese companies. However, in view of the serious environmental pollution and social problems facing China and given that IR has the potential to contribute to societal and environmental well-being, IR is expected to gain momentum. Although only one Chinese (mainland) company has published integrated reports, a number of Chinese companies have traces of IR in their corporate reports (i.e., annual reports, sustainability reports, and corporate social responsibility reports). IR is important for China but there is currently no Chinese specific IR framework that comprehensively considers factors that are context-specific to China. Thus, the overall research objective of this thesis is to develop an IR framework for China and apply the framework to evaluate IR disclosure practices of Chinese listed companies. There has been a proliferation of CSR, sustainability, and intellectual capital studies; however, IR-related studies in the Chinese context are scarce. IR studies have not designed a context-specific IR framework that comprehensively considers the contextual factors inherent in the jurisdictions they investigate. Moreover, very few studies adopt a combination of a weighted IR disclosure index and a scoring system that are specifically designed for a specific jurisdictional context to examine IR disclosure practices. In particular, the scoring systems of previous studies lack consideration of the connectivity between financial and non-financial information, and the connectivity between quantitative and qualitative information. Another gap in the extant IR literature is that although many studies have used stakeholder consultation to collect participants’ views on the implementation of IR, those studies lack the participation of a broad range of stakeholder groups. This study provides an interpretation of the IR disclosure practices of Chinese companies using a framework of key theoretical underpinnings of stakeholder, agency, signalling, legitimacy, and institutional theories. The research methodology adopted in this study is a mixed methods approach. The choice of the research methodology is appropriate for the interpretive and statistical analysis approach as well as influenced by the author’s worldview, training, and experience. After two rounds of questionnaire surveys, a weighted IR disclosure index consisting of 68 items is developed in consultation with 51 Chinese stakeholders. The weighted index takes into consideration China’s idiosyncratic cultural, economic, political, legal, international, social, and environmental factors. The weighted IR disclosure index and a scoring system are then applied as instruments for content analysis to the top 100 Chinese listed companies’ corporate reports for the years 2014-2018. The collected data are quantified and analysed to gauge the extent and quality of IR disclosures. Following the evaluation of IR disclosure practices, the study also conducts a number of hypothesis tests to examine the determinants of IR disclosure practices and the effect of IR disclosure practices on agency costs. Lastly, the third round of questionnaire survey is conducted to gain the opinions of 51 Chinese stakeholders on the barriers to the adoption of IR and their recommendations for IR implementation in China. These surveys, evaluations and tests form the basis for recommendations for a framework of best IR practices in China. The results indicate that the IR disclosure practices of Chinese companies have been improving over the period 2014-2018. The extent of IR disclosures by Chinese listed companies is satisfactory, but the quality of IR disclosures still has significant room for improvement. Furthermore, there are a number of IR disclosure items that show a gap between the stakeholders’ expectations and the actual IR disclosure practices. This study indicates that there are differences in IR disclosure practices between A-share firms and dual A-and H-share firms, between state-owned enterprises (SOEs) and non-SOEs, and between firms in China and firms in other countries. This study also finds that there are anomalies in the conciseness and readability of corporate reports of Chinese listed companies. The findings indicate that many Chinese companies have already initiated the adoption of an IR approach for presenting disclosures in their corporate reports. However, IR disclosure practices (the extent and quality of IR disclosures) by some Chinese companies are at a low level. It is also found that pressures from customers, employees, and communities drive IR disclosure practices. Financial leverage, independent directors, CEO duality, and profitability also impact the IR disclosure practices of Chinese firms. Moreover, both the extent of IR disclosures and the quality of IR disclosures negatively affect agency costs. Additionally, the analysis of stakeholder perceptions reveals that eleven factors are barriers or challenges to implementing IR in China. Further, successful implementation of IR practices in China requires the support of the government as well as initiatives on education, organisations, technology, assurance, and activities. Several theoretical and practical implications are evident in the study. The findings indicate that there are three incentives motivating Chinese companies to adopt an IR approach: (1) to mitigate information asymmetry between the organisation and all stakeholders; (2) to signal superior quality, legitimacy and conformity to all stakeholders; and (3) to discharge accountability to all stakeholders. In this study, the findings regarding IR practices in China intensify socio-political theories (stakeholder theory, legitimacy theory, institutional theory). However, the findings both support and detract from economics-based theories (agency theory and signalling theory). The study also reveals that IR practices tend to be policy-driven and culturally-embedded in China. The study suggests that “integration” in IR means the integration of five dimensions: time (past-present-future); qualitative and quantitative information; financial and non-financial information; positive and negative information; and internal and external stakeholders. Specific policies and regulations for mandating IR can be designed with stakeholders’ participation, such as for certain sectors, for SOEs as well as non-SOEs, and for A- and H-share firms. The sustainability report and the annual report could be incorporated together; the pages should be shortened, and convoluted language and jargon should be avoided. To the best of the author’s knowledge, the current study is the first to extensively investigate IR practices in China. Specifically, the current study is the first to provide a holistic contextual analysis of IR practices in the Chinese context by comprehensively considering a number of aspects. This thesis also contributes to the methodology of evaluating IR disclosure practices in a unique way that comprises a combination of a list of IR disclosure items (an unweighted IR disclosure index), a weighting system and a scoring system that are specifically designed for the Chinese context. Furthermore, both the extent and the quality of IR disclosures are used respectively to examine the relationship between a set of factors and IR disclosure practices by Chinese firms. Analysing the relationship between potential impact factors and IR disclosure practices provides insights on factors that influence IR disclosure practices. This study also provides direct evidence of the positive effect of IR disclosure practices on mitigating agency costs. There are seven critical reflections in this thesis. Firstly, IR practices in China are complex and multifaceted, requiring comprehensive attention to many aspects. Using the mixed methods approach in this study is appropriate and is important to the multi-objective of the thesis. Secondly, there are three considerations for choosing appropriate theories for IR studies: suiting the nature of IR, interconnecting, and being adaptive to the context. Thirdly, a contextual approach, which can reflect contextual features, is important to the contextual nature of IR. Fourthly, the ultimate purpose of IR is to tell the story of organisational value creation for all stakeholders well and effectively. Fifthly, the decision by the top management to adopt IR or to change IR disclosure practices depends on external pressures from stakeholders, external incentives, and internal incentives. Sixthly, Chinese contextual factors have been changing and their impacts on IR disclosure practices are dynamic. Further, tensions may exist between contextual factors, resulting in an effect on IR practices. Lastly, as a result of the Covid-19 pandemic, IR is in transition towards a new format. Several lessons were learnt by the author in undertaking this study. Firstly, including all the possible disclosure items in an IR disclosure index is unrealistic. Secondly, the difficulty of content analysis limits the production of studies relating to IR disclosure practices. Thirdly, when doing survey studies, some cultural attributes in China may impede a researcher to successfully approach stakeholders who have no previous association with the researcher. Lastly, the IR framework for China established in this study will need to be adjusted and revised in the future according to changes in contextual factors.
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