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sustainability
Article
Why Do Firms in Emerging Markets Report?
A Stakeholder Theory Approach to Study the
Determinants of Non-Financial Disclosure in
Latin America
Ignacio J. Duran 1, *ID and Pablo Rodrigo 2ID
1Institute for Social Innovation, ESADE Business School – Ramon Llull University, Av. Torre Blanca 59,
Sant Cugat del Vallès, 08172 Barcelona, Spain
2Strategy Department, Escuela de Negocios, Universidad Adolfo Ibáñez, Av. Padre Hurtado 750,
Viña del Mar 2562340, Chile; prodrigo@uai.cl
*Correspondence: ignacio.duran@alumni.esade.edu
Received: 13 August 2018; Accepted: 28 August 2018; Published: 31 August 2018
Abstract:
Even though literature studying the determinants of non-financial disclosure (NFD) is
pervasive, Latin America has been overlooked in this tradition. In this sense, scholars have not
evidenced which factors compel companies in this context to report this information despite its
voluntary nature. Drawing on Stakeholder Theory as a basis, we derive eight possible antecedents of
NFD from extant literature and test them in a sample of 643 Latin American firms for a 10 year span
(2006–2015). Using a logit panel model, our evidence indicates that firm size, market-to-book ratio,
systematic risk, and industry membership are factors that pressure companies to report. However,
contrary to our conceptual development we find that profitability and regulatory quality inversely
affects NFD. This leads us to posit that Latin America is unique in terms of reporting because agency
costs may arise when disclosing data and also that feeble regulations could summon firms to fill this
void through NFD. We thus contribute to this strand by revealing that stakeholders in this milieu are
essentially different than in developed countries, and therefore the underlying reasons to engage in
NFD also differ.
Keywords:
determinants; Latin America; logit panel regression analysis; non-financial disclosure;
Stakeholder Theory
1. Introduction
The strand studying the determinants of non-financial disclosure (NFD) has greatly evolved in
the past decades [
1
–
3
]. Even though
Haller et al. [4]
evidence that there is no unique understanding
of NFD, as it has been conceived and interpreted differently throughout the years, they propose
that this type of information usually encompasses revealing non-monetary aspects of companies.
For instance, it could refer to ‘integrated reporting’ or to the European Union’s ‘directive 2014/95/EU’.
Within these various conceptualizations, scholars have oftentimes studied what causes corporations
to disclose reports that specifically focus on environmental, social, and governance (ESG) data that
communicates how firms address stakeholders’ concerns [
5
,
6
]. Although literature has utilized several
labels to refer to these type of publications—for instance, ‘corporate social responsibility reports’
or ‘sustainability-related reports’ (see [
1
,
3
])—following
Skouloudis et al. [7]
in this article we regard
NFD as companies’ annual reports containing ESG-related information for different parties, for example
in terms of energy use, pollution, biodiversity, employees’ safety/health, gender equality, education,
among other issues [8].
Sustainability 2018,10, 3111; doi:10.3390/su10093111 www.mdpi.com/journal/sustainability
Sustainability 2018,10, 3111 2 of 20
Scholars conceive at least three main reasons to investigate what compels firms to engage in
NFD. First, from a managerial stance, it seems a first step to better firms’ ESG performance [
9
],
given that executives can use this information to assess the entity’s impact [
10
] and as a basis for
stakeholder dialogue to subsequently reduce adverse outcomes [
11
–
13
]. In this sense, according to
Manes-Rossi et al. [8]
it could represent a way of showing that firm operations are within societal
boundaries, and hence that their activities are legitimate. Second, public policy makers have interest in
NFD because it enhances corporate transparency [
14
]: this way, governmental entities can more easily
oversee the impact that corporations have on society and hold them accountable if necessary [
15
].
Third, scholars can gain insight into this complex decision-making process and how it shifts in time
and across different contexts [
2
,
16
]. These points reflect the multifaceted importance of NFD, justifying
the urgency to delve into its determinants (for a list of secondary reasons, see Kolk [17]).
Despite the prolificness and relevance of this tradition, conclusions are entirely based on
developed settings, with a particular focus on Australia [
18
,
19
], Germany [
20
,
21
], Spain [
12
,
22
],
the United Kingdom [
9
,
23
], and the United States [
10
,
24
]. In fact,
Ali et al.’s [1]
literature review
endorses this idea, indicating that this strain has constantly neglected emerging markets. These authors
argue that developing contexts are under-theorized: scholars have not yet pinpointed the conceptual
reasons why companies in these milieus issue NFD in spite of their voluntary nature. Notwithstanding
some precursory investigations (e.g., [
25
–
27
]), no clear consensus exists regarding this phenomenon
in emerging markets. We thus lack insight concerning what compels firms to improve their impact
assessment and accountability by disclosing ESG information.
Given this gap, by using Stakeholder Theory as an overarching framework [
28
], this article’s
purpose is first to conceptualize, and then test some key NFD determinants in an emerging market
context. (We realize that other rationales have been proposed as well, for example, Legitimacy
Theory (e.g., [
6
]) and Positive Accounting Theory (e.g., [
21
]). However, all other frameworks seem
to stem or greatly relate to Stakeholder Theory (see [
11
,
26
,
29
])). The main underlying argument
from this approach has been that firms publish ESG reports as a response to the more powerful
information-seeking stakeholders they face. From a theoretical lens, this poses a challenge given that
literature has upheld that major stakeholder differences exist between developed and developing
countries due to institutional, historical, market, professional, and other conditions [
30
,
31
]. Therefore,
we cannot necessarily extend this tradition’s received wisdom to emerging markets, as parties in these
settings are bound to affect differently firms’ decision to release ESG reports.
For this reason, our main contribution is providing a deeper analysis to unveil why corporations
in a developing context are pressured to initiate NFD. A secondary contribution is that we follow
recent methodological trends and use a longitudinal approach [
32
] to reflect the underlying dynamics
of this phenomenon. As a case in point, we focus on Latin America (LatAm) for two main reasons.
First, from a practical lens, because it is an emerging region where grave socio-environmental problems
persist, such as poverty and pollution [
33
,
34
], and thus there seems to be a greater need to compel
firms to undertake NFD in order to inform and hold them accountable for their ESG impacts [
35
,
36
].
Second, from an academic viewpoint, the largest gap is in LatAm because only seven works exist on
the matter [
37
–
43
], yet they are descriptive and/or show cross-sectional results, implying that these
studies fail to capture the underlying complexity of companies’ decision to report, and also overlook
the evolution of stakeholder motives to demand NFD.
To achieve our goal and fill these voids, from our literature review we posit that the eight most
studied determinants of NFD that stem from Stakeholder Theory may also influence Latin American
firms, although in their own way. Confirming that relevant differences exist between developed
and emerging markets, our findings do not always conceptually and empirically coincide with the
extant consensuses. Hence, our evidence provides a promising start for scholars who wish to continue
researching NFD determinants in developing countries.
Sustainability 2018,10, 3111 3 of 20
2. Theory and Hypotheses Development
2.1. Stakeholder Theory and Non-Financial Disclosure
Stakeholder Theory has been the primary theoretical framework in NFD determinants
literature: formally incorporated by Roberts [
13
], it continues a dominant rationale in this tradition
(
e.g., [23,24,44]
). This theory’s central tenet is that firms are naturally linked to various groups that
have interests and/or are affected by organizations’ activities, and managers need to somehow address
their concerns and demands in order to create value and achieve long-term survival [28].
Concerning this, in the past thirty years stakeholders have increasingly urged firms to disclose
information concerning ESG aspects of their operations [
1
] to discern how companies impact society
and the environment, and if necessary to hold them accountable for any negative effects [
6
]. A way in
which corporations often respond to these pressures and try to build meaningful relationships with
stakeholders is through NFD, which generally takes the form of standalone annual reports that
communicate firms’ ESG performance [
11
,
14
]. According to Reverte [
12
] and
Sierra-García et al.
[
45
],
through this practice companies convey their attempts to address non-financial concerns that
constituent groups have, thus satisfying informational needs of stakeholders.
However, stakeholders’ ability to scrutinize and pressure firms is heterogeneous [
28
]. Concerning
NFD, scholars argue that managers are selective when incorporating stakeholder concerns into
their accounting processes, and usually prioritize the demands of the more powerful parties [
29
,
46
].
Hence, consistent with arguments from stakeholder salience analysis [
47
,
48
], the motivation to engage
in this activity—and the resulting ESG information that will be included in these reports—seems to be
a function of the ‘stakeholders’ power’ over a certain firm [11,15].
Liu and Anbumozhi [
26
] hint that companies are pressured to satisfy informational needs through
NFD given that stakeholders possess at least one of two power sources. The first one stems from
controlling resources that are vital for firms’ operations (e.g., creditors lend money) and disclosing
ESG information could somehow facilitate obtaining these assets [
13
,
29
,
44
]. The second source derives
from the ability to affect value creation—for instance, through riots, boycotts, or fines—and publishing
non-financial information constitutes a means in which to persuade groups (e.g., consumers or
governments) that a company is being responsible and thus should not be disciplined [
12
,
23
,
24
].
Therefore, drawing on the classical power typology used in stakeholder analysis [
47
,
48
], power sources
that compel firms to engage in NFD can be ‘utilitarian’ (based on material or financial resources)
and/or ‘coercive’ (based on force or restraint), and depending on how these means are configured,
stakeholders’ capability of pressing companies into preparing ESG reports varies. (We are aware that
stakeholder salience analysis also recognizes a third power source: ‘normative’, which comes from
symbolic resources. However, literature in this tradition so far has not delved yet in this construct to
explain how stakeholders pressure companies into disclosing non-financial information).
From this conceptual basis, we posit that the eight main determinants stemming from Stakeholder
Theory may be triggering NFD in LatAm. Although we derive these factors from extant literature,
in each case we conceptualize how they might affect Latin American companies in their own
particular way. Concretely, the determinants we propose are: firm size,profitability,leverage,degree
of internationalization,market-to-book ratio,systematic risk,industry membership, and regulatory quality.
Each of these factors proxies that certain stakeholders—or a group of them—might be pressuring
corporations in LatAm to divulge NFD by means of their coercive and/or utilitarian power.
(Even though stakeholder salience analysis [
47
,
48
] has considered ‘power’, ‘legitimacy’, and ‘urgency’
as the most important variables to assess and prioritize stakeholders, consistent with our theoretical
framing (Stakeholder Theory) we deliberately focus only on power-related determinants of NFD.
While other works that have used Legitimacy Theory as a conceptual basis have centered on
legitimacy-related factors (e.g., [
14
]), this tradition so far has not deemed urgency as a valid grounding).
For the sake of clarity and completeness, in Appendix Awe summarize these determinants and offer
a brief explanation—with supporting articles—to describe how scholars so far have conceptualized
Sustainability 2018,10, 3111 4 of 20
these variables’ impact on NFD. In the next sections we develop them further and hypothesize their
influence in Latin American companies.
2.2. Stakeholder Theory and Non-Financial Disclosure in Emerging Markets
It has been vastly documented that stakeholder differences are particularly salient between
developed and developing markets [
31
], requiring firms in emerging markets to build new sets of
resources and capabilities for an effective stakeholder management [
49
,
50
]. Therefore, our view is that
the determinants of NFD mentioned in the previous section and in Appendix Acould be influencing
firms in LatAm, but that the underlying conceptual reasons differ.
To explain and conceptualize this issue, recently
Jamali et al. [30]
recently provided a detailed
account of how contextual differences in emerging markets shape firms’ behaviors. The typology of
these above authors posits six dimensions that explain why stakeholders could be innately distinct
in contrast to the developed world: ‘state’, governments operate under more complex or corrupt
schemes; ‘market’, stakeholders tend to have negative views on capitalism, yet expect firms to fulfill
social needs; ‘corporations’, oftentimes they are criticized because groups deem them too powerful;
‘professions’, managers do not always have a sufficient background to begin responsible practices;
‘family’, clan-based lifestyles affect stakeholder expectations and decisions; and ‘religion’, diversity
in terms of worship also could shape groups’ actions. These attributes have led scholars to argue
that emerging markets are a separate field of study in socio-environmental terms [
31
,
51
], reaffirming
our claim that extant conclusions based on Stakeholder Theory concerning NFD determinants in
developed countries cannot be necessarily assumed true and valid in emerging markets.
In fact, incipient evidence from Asian nations has shown significant differences from developed
settings. For instance, Liu and Anbumozhi [
26
] argue that the centralized and stringent character
of the Chinese state makes it a key stakeholder that compels companies to disclose non-financial
reports, and their evidence actually suggests a positive association between regulatory quality and
NFD. Muttakin and Khan [
27
] conjecture that because Bangladesh is the second largest exporter of
clothes in the world, then international-oriented companies are more bound to disclose non-financial
reports to global stakeholders. They indeed evidence a positive link between internationalization
and NFD. Finally, although they do not test this assertion,
Kansal et al. [25]
recognize that the Indian
family-centered management style could affect NFD.
These three articles uphold our claim based on
Jamali et al. [30]
that unique attributes from
emerging markets could affect NFD. In these cases, ‘state’, ‘market’, and ‘family’ related reasons,
respectively, are variables that influence companies’ disclosure of non-financial reports.
2.3. Stakeholder Theory and Non-financial Disclosure in Latin America
In the Latin American context only seven studies have been published on the matter, yet these
studies have several shortcomings that limit their academic soundness. Concretely, Baskin [
33
],
Logdson et al. [34]
, and
Paul et al. [36]
depict general characteristics and trends of reporting in this
region, but do not provide a bold theoretical rationale as they do not expose the conceptual reasons
why factors pressure firms into NFD.
Alonso-Almeida et al. [31]
and Meyskens and Paul [
41
] provide
historical narrations of how the issuing of ESG information has evolved in LatAm, and thus the
findings of these studies are mostly anecdotic. Finally, Araya [
32
] and
Wendlandt-Amezaga et al. [37]
attempt to understand the causes of disclosing non-financial information, yet their studies are based
on limited samples (short timeframes and few firms), and consequently their results are precursory
at best.
Hence, using the conceptual framework developed from Stakeholder Theory and emerging
markets literature, we conceptualize and test eight determinants of NFD (Appendix A) for the Latin
American context.
Sustainability 2018,10, 3111 5 of 20
2.3.1. Firm Size
Firm size is the most frequently studied NFD determinant (e.g., [
9
,
10
,
14
,
15
,
17
,
19
,
21
,
23
,
52
]).
In general, two main rationales exist: first, larger firms are more visible and thus more prone to
be pressured by the general public and stakeholders to exhibit some accountability [
11
,
25
,
26
,
53
].
Second, they interact with a greater number of groups, such as suppliers or employees [
54
], implying
a stronger dependence and impact in ESG terms than smaller companies [
7
,
27
]. Hence, these companies
could be motivated to disclose non-financial information in order to show how responsible they are
with affected parties [
55
]. For these reasons, stakeholders are more likely to enforce their coercive and
utilitarian power on bigger firms, which has led researchers to posit a positive link between firm size
and NFD. Larger enterprises engage in this practice as a response to their heightened exposure and
subsequent pressure from influential stakeholders that demand annual reports.
Specifically in LatAm, Fifka’s [
2
] review reveals that firm size has been scantly tested as
an antecedent of non-financial data. However,
Wendlandt-Amezaga et al. [43]
show that larger
Mexican and Chilean companies report more, suggesting a positive association with NFD
although with no conceptual framework to uphold these findings. However, recently Haslam
and Tanimoune [
56
] argue that firm size is a predictor of corporate-stakeholder conflicts in Latin
America. These authors claim that bigger companies are more prone to clash with stakeholders
because large-scale projects have salient consequences in socio-environmental terms. Therefore,
when exercising their coercive power to demand ESG-related information, for example through rioting
or picketing, stakeholders are likely to target larger entities [
3
,
38
]. As a consequence, these Latin
American firms could respond by engaging in NFD with the goal of showing responsible behaviors
and try to avoid conflict with powerful stakeholders. We therefore conjecture that:
Hypothesis 1. A positive relationship exists between Latin American firms’ size and NFD.
2.3.2. Profitability
Literature has ascertained that managers may influence NFD in two ways. First, if they have
the skills to achieve superior economic performance, they also may have the ability to manage
groups’ pressures, including demands for annual reports to satisfy informational needs [
7
,
10
,
57
].
In this scenario, executives are skillful enough to handle multiple responsibility matters, including
the disclosing of non-financial information [
12
]. Second, profitable companies have slack financial
resources so that managers can fund the disclosure of ESG data [
13
,
21
,
44
], which seems to be a necessary
condition to begin this type of reporting [
3
,
52
]. The common denominator of both rationales is that
executives seem to depend on their ability to create wealth in order to discretionarily initiate NFD. In
this sense, managers can only command the publication of ESG information insofar that they have the
utilitarian power to do so, which is a function of financial resources. Hence, past works have generally
predicted a positive link between profitability and NFD.
Even though this rationale is based on Stakeholder Theory, it has a connection with Agency Theory
because it concerns two stakeholders that have key roles in companies: owners and managers [
28
].
Concretely, Agency Theory studies the relationship between a principal and an agent (i.e., usually
the owner and manager, respectively) where each has its own goals, and it is costly for the principal
to verify what the agent is actually doing [
58
]. In this interplay, agency costs arise because owners
have to monitor executives’ behaviors to make sure that they act in the organization’s long-term best
interest, and are not seeking private gain [
59
,
60
]. So, if the arguments in the previous paragraph are
true, then agency costs are low or non-existent, as managers will be seeking owners’ profitability goals,
while also balancing this aim with satisfying other stakeholders’ demands, in this case, due to the
publication of ESG information [61].
Findings from emerging markets are consistent with these rationales and tend to report positive
associations (e.g., [
3
,
25
,
27
,
55
]). Although this variable has never been included in Latin American
Sustainability 2018,10, 3111 6 of 20
studies within this tradition [
2
], we believe that a positive link also exists in this case. The reason
is that researchers have recognized that Latin American executives value the importance of firms’
ESG responsibility in order to avoid any problems that could arise and hopefully gain a competitive
edge [
62
,
63
]. Therefore, our argument is that as slack resources from profit become available, managers
in this setting may allocate a portion of these assets to responsible actions such as NFD. In fact,
consistent with our claim,
Perez-Batres et al. [64]
demonstrated that Latin American leaders have been
pioneering in voluntarily adopting reporting standards (e.g., Global Reporting Initiative). Therefore,
we propose that:
Hypothesis 2. A positive relationship exists between Latin American firms’ profitability and NFD.
2.3.3. Leverage
Creditors may constitute a powerful stakeholder when companies heavily rely on debt [
13
,
52
].
In this scenario, reports constitute a way of conveying a solid ESG performance to lenders [
10
,
12
,
15
],
who desire this information because it allows for a better screening of companies’ risks in non-financial
terms, reducing any potential information asymmetries [
25
,
26
,
55
]. In fact, according to Stanny and
Ely [
53
], firms with external financing are more closely monitored by creditors, and consequently more
prone to disclose non-financial data. Thus, highly-leveraged companies have the incentive to keep
debt-holders’ expectations optimistic in ESG terms through NFD because otherwise a greater risk
implies a steeper cost of debt [
3
,
24
], which could raise financial expenses and/or limit the ability to
obtain future loans. Firms then disclose non-financial information as a response to creditors’ utilitarian
power because financial resources are at play.
Although Latin American studies in this strain have not studied leverage as an antecedent of
NFD [
2
],
Sáde Abreu et al. [63]
evidence that, despite being an emerging region, LatAm possesses
developed financial markets, where companies have vast access to credit. In this context,
Céspedes et al. [65]
argue that enterprises have the tendency to greatly rely on debt, despite the fact
that they lack tax benefits and have higher bankruptcy costs in comparison to developing countries.
The reason is that shareholders favor a concentrated ownership to avoid sharing control rights,
deliberately increasing the amount of liabilities in their firms’ capital structure to precisely avoid new
shareholders [66]. This growth in obligations could increase lenders’ utilitarian power, implying that
highly-leveraged Latin American companies should consider this stakeholder in their NFD to avoid
any unwanted outcomes when obtaining money from creditors, such as higher costs of debt or not
being able to obtain fresh financial resources [37,50,61]. So, we posit that:
Hypothesis 3. A positive relationship exists between Latin American firms’ leverage and NFD.
2.3.4. Degree of Internationalization
Fortanier et al. [5]
,
Gamerschlag et al. [21]
, and Muttakin and Khan [
27
] posit that when
companies internationalize they are scrutinized by more stakeholders, particularly foreign
governments and multinational buyers. While the former might legally coerce firms—for example,
through laws or regulatory bodies—to be more transparent and hence present annual reports [17,67],
the latter could boycott products and services that do not have a certain global ESG standard [
10
,
12
].
This implies that foreign governments and international customers could have significant levels of
coercive and utilitarian power, respectively. Accordingly, as companies increase their exposure to these
third parties overseas, they might be more likely to publish NFD to show these two key stakeholders a
superior ESG performance. In fact, this argument has been supported by studies from both emerging
and developed markets (e.g., [7,22,27,67]).
Sustainability 2018,10, 3111 7 of 20
Latin American evidence concurs with this view: Araya [
38
] reports that corporations with
international sales are up to 4.7 times more likely to report in contrast to counterparts that only
sell locally. While surveying Mexican firms, Meyskens and Paul [
41
] concur with this view, as they
find that entities respond to pressure from global stakeholders by publishing non-financial reports.
Furthermore,
Perez-Batres et al. [64]
show that when Latin American companies are exposed to
international markets, this raises the chance of reporting to show responsible behaviors to stakeholders
worldwide. Following Schmidheiny [
68
] and Delai and Takahashi [
69
], the reasoning is that NFD
allows firms in LatAm to convey solid ESG performance and show that goods and services are
fit to be sold in developed settings such as Europe and the United States, where stakeholders are
stricter concerning firm responsibility and accountability. These groups could coerce Latin American
companies by boycotting their good/services [
3
], and NFD could persuade international buyers
otherwise. We then propose that:
Hypothesis 4.
A positive relationship exists between Latin American firms’ degree of internationalization
and NFD.
2.3.5. Market-to-Book Ratio
Some works have emphasized the importance of market-to-book ratio (MBR) as a relevant
determinant because it proxies information asymmetries for investors [
24
,
70
]. High levels of this
variable might indicate that aspects of firms’ operations might be concealed from stakeholders seeking
investment opportunities [
3
,
52
]. For example,
Forte et al. [71]
argue that MBR could estimate the
aptness of companies’ intangible assets, given that markets reward entities for the good quality of their
intellectual capital (e.g., knowledge, brands, patents), and this is made evident when their capitalization
value positively differs from their accounting book value (i.e., a high MBR exists). Because this scenario
entails the existence of information asymmetries, potential investors might demand NFD in order
to holistically screen companies and determine if firms have an adequate intellectual capital gauged
toward a good ESG performance that could explain the enhanced levels of MBR [
61
]. Therefore,
entities in this case could be prompted to report non-financial information with the goal of revealing
to potential investors the actual assets that allow for the actualization of responsible outcomes. In this
sense, these possible financers possess a utilitarian type of power because companies depend on these
resources, so enterprises have an incentive to report non-financial information to make it easier to
obtain these investors’ money.
In the case of LatAm, evidence has shown that investors have a harder time compiling
information about companies [
36
,
50
,
65
], which might deter the efficiency of investments. According
to
Khoury et al. [66]
, weak legal systems in Latin America—where penalties and fines are typically
not enforced—usually fail to protect investment decisions. This scenario might lead investors to be
proactive and seek other sources of corporate information, and thus be extra cautious when deciding
where to invest their money, especially in settings of higher uncertainty due to any information
asymmetries that could exist [
64
]. NFD therefore plays a key role because in LatAm investors may
depend even more on ESG data to get a better assessment of corporations. Because money is at play,
investors continue to possess a significant level of utilitarian power that could pressure companies in
this region to report non-financial information. Hence, we posit that:
Hypothesis 5. A positive relationship exists between Latin American firms’ MBR and NFD.
2.3.6. Systematic Risk
Systematic risk (Beta) is a measure of companies’ sensitivity to changes in the market. In this
context, authors have argued that when companies have higher Beta levels then stakeholders may have
Sustainability 2018,10, 3111 8 of 20
trouble estimating economic returns [
25
,
57
]. In this situation, groups that want to invest in riskier firms
might demand ESG to accurately assess these risks [
3
,
18
,
20
]. Hence, generally a positive association is
proposed between Beta and NFD. Similar to the prior determinant, investors are the main stakeholder,
as they are deciding where to put their resources and thus have a utilitarian power, which explains
why they could compel companies to engage in NFD.
Latin American companies face turbulent market conditions and weak institutional frameworks,
which usually leads to higher volatility and uncertainty in market returns [
34
,
66
]. Consequently,
under higher levels of systematic risk, possible investors could be more prone to seek other sources of
information to obtain a completer understanding of other risk factors, particularly those related to
socio-environmental reasons (e.g., riots or pollution). In this sense, NFD constitutes a way that these
stakeholders could assess any potential threats in ESG terms. Actually, consistent with this proposition,
in a sample that includes Brazilian companies,
Garcia et al. [50]
evidence that sectors with a higher
Beta rating are generally more prone to report non-financial information to try to reduce any other
sources of risk, and hence attract financiers. It is relevant to clarify that although investors are also a key
stakeholder in this determinant, reasons differ from the previous variable (MBR). Hence, we posit that:
Hypothesis 6. A positive relationship exists between Latin American firms’ Beta and NFD.
2.3.7. Industry Membership
Literature has evidenced significant differences in reporting across industrial sectors because
certain segments are more heavily scrutinized than others given their salient features that
heighten their exposure (e.g., [
7
,
9
,
15
,
17
,
52
]). For instance, high-impacting industries such as mining,
oil, or forestry/paper generally tend to report more due to their negative socio-environmental
effects [
67
]. Concretely, the repercussions in ESG terms of some of these sectors seemingly attract
more stakeholder attention, which makes certain companies more likely to engage in NFD given
the risk of riots or boycotts [
6
,
12
,
26
,
27
], implying a high level of coercive power. In this scenario,
non-financial reporting would then constitute a way that certain segments utilize to reassure their
salient stakeholders, and hence convey a positive image regarding ESG matters [3,16].
Regarding LatAm, industry membership has received some evidence. Araya [
38
] and
Paul et al. [42]
indicate that some industries in this region, for example, those that saliently pollute,
are subject to higher levels of stakeholder scrutiny. In fact, recent works claim that stakeholders
in LatAm evaluate some sectors with a more critical eye because they represent large portions of
these nations’ gross domestic product [
33
], yet they pose grave socio-environmental impacts such
as community displacements, resource depletion, waste disposal, among others [
36
,
56
]. Due to this
salience, we believe that certain industries in LatAm are more pressured than others to engage in NFD
to convey their responsible efforts [50]. Therefore, we believe that:
Hypothesis 7. In LatAm, significant differences exist across industries regarding NFD.
2.3.8. Regulatory Quality
According to extant theory, the rigorousness of local regulatory quality is bound to affect
NFD
[9,10,13]
. The contention is that governments and enforcing bodies may be powerful stakeholders
that pressure and discipline companies, and this coercive stance could increase a firm’s proclivity
to divulge non-financial information to show legal compliance and good ESG performance [
1
,
3
,
72
].
The firm’s willingness to provide this information is in order to avoid any retaliation, such as fines or
operation bans [
17
,
26
]. Consistent with this view, empirical findings show that this variable positively
affects NFD (e.g., [13,15,18]).
Sustainability 2018,10, 3111 9 of 20
In LatAm, Araya [
38
] and Baskin [
39
] incipiently evidence that stronger government regulation
leads to more NFD. This echoes the findings of
Rodrigo et al. [33]
who report that as institutional
quality rises, firms’ socio-environmental performance improves, with Chile being perhaps the best
example in this specific context [
72
]. Even though weak regulations mar LatAm, affecting how firms
function in these countries [
34
,
66
],
Barkemeyer et al. [73]
argue that corporations have responded to
stronger regulatory regimes through NFD. The reason is that it constitutes a credible way to show
stringent governments and controlling entities that a firm is not only complying, but also undertaking
socio-environmental actions beyond what is required by law [
50
]. This way, enterprises can avoid
coercive actions from the state (e.g., penalties, levies). We then suggest that:
Hypothesis 8. A positive relationship exists between regulatory quality and Latin American firms’ NFD.
3. Methodology
3.1. Data Sources and Sample
Data availability is a serious obstacle in LatAm due to the lack of large, thorough datasets. We thus
constructed our sample from public sources in several steps. First, we chose six Latin American
nations that according to
Perez-Batres et al. [64]
and
Rodrigo et al. [33]
are the ones where NFD is
pervasive: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Second, we accessed the financial
information of all companies in these countries that are listed in Bloomberg, with the goal of having
the most representative sample possible. This amounted to 1920 firms for a 10 year period (2006–2015).
Third, we depurated this database to eliminate duplicated items. Fourth, when Bloomberg did not
have the required data, it was extracted from the firm’s annual ESG report, their website, and/or
financial statements. If we were not able to obtain all necessary information, that particular firm
was discarded. Fifth, we cross-referenced the extracted information with the World Bank database to
acquire other needed variables.
After this process, the final sample was structured as a balanced panel of 643 firms for the whole
10 year span (Appendix Bpresents its distribution by country and industry).
3.2. Model and Measures
We utilized a binary outcome (logit) panel data model [
32
,
74
]. We used as a basis cross-sectional
econometric models from extant literature (e.g., [
5
,
38
]), but following
Frías-Aceituno et al. [70]
we
extended them to fit a longitudinal regression analysis with random effects. The benefit of doing this
was that it allowed us to control for individual unobserved heterogeneity, given that companies are
studied across time. With this guide, we specified the following model (below we explain each term):
NFDit =β1Assetsit +β2Revenueit +β3ROAit +β4ROEit +β5Leverageit +β6DegI nterit
+β7MBRit +β8Betait +
17
∑
j=9
βjIndMemberj+β18 RegQkt +γ0+γ1Localit
+γ2GDPPCkt +eijkt
Please note that the subscript letters indicate the following: t, year; i, firm; j, industry; k, country.
Also, in this specification we are deliberately omitting one industry membership dummy variable to
avoid perfect multicollinearity.
3.2.1. Dependent Variable
To measure NFD, we used Bloomberg’s ESG dataset to determine if a firm disclosed this type
of information or not. If it did, we represented this with a one, otherwise we represented this with
a zero. Four dependent variables were constructed: the composite ESG score, if reporting was done
Sustainability 2018,10, 3111 10 of 20
in all three dimensions; and its subcomponents: environmental, social, and governance disclosure,
if reporting was made in one of these subcategories.
3.2.2. Independent Variables
The first independent variable was firm size, and following
Fortanier et al. [5]
,
Kansal et al. [25]
,
and
Ortas et al. [55]
we used the natural logarithm of both total assets (Assets) and revenue (Revenue).
To represent profitability, we used two commonly utilized variables: return on assets (ROA) and return
on equity (ROE). They were calculated as earnings before interests and taxes divided by total assets
and total equity, respectively [7,52]. Leverage was evaluated as the debt-to-asset ratio [26,27].
Following Echave and Bhati [
22
], degree of internationalization (DegInter) was estimated as the
natural logarithm of export revenues. The measures of market-to-book ratio (MBR) and systematic risk
(Beta) are straightforward financial measures from Bloomberg. Consistent with most articles [
12
,
21
,
55
],
dummy variables were used to represent industry membership (IndMember).We followed Bloomberg’s
economic sector classification, which considers 10 different sectors (see Appendix B). We assigned a one
if a firm belonged to a particular sector, and a zero if otherwise. To measure regulatory quality (RegQ),
we used
Marano et al. [35]
and
Rodrigo et al.’s [33]
suggestion and used as a proxy measure the mean
of two World Bank Governance Indicators that measure regulatory bodies’ capacity to formulate and
enforce polices: ‘government effectiveness’ and ‘regulatory quality’ [75].
3.2.3. Control Variables
Because our investigation considers six different Latin American countries, we have to control
for differences among them. To this end, previous research has included two relevant factors: local
versus multinational enterprises [
5
,
7
], and individuals’ purchasing power [
33
]. For the former, we used
a dummy variable (Local), where one indicated a Latin American company, and a zero if otherwise;
for the latter, we used gross domestic product per capita (power purchase parity; GDPPC).
3.3. Pre-Estimation Considerations
Three main issues must be taken into account before estimation. First, we must determine if there
is a serious risk of collinearity among the variables, which could distort our results [
35
]. According
to
Hair et al. [76]
, it is a problem if Pearson correlation coefficients have an absolute value over 0.9.
When analyzing our correlation matrix (Appendix C), the only variables that could have posed an issue
were the measures of firm size (Assets and Revenue), as their value is 0.883. Even though it is below
the suggested threshold, we tested them separately to avoid any chance of collinearity. Therefore,
we ran eight models in total: one for each dependent variable (four)
×
two separate measures of firm
size (see Table 1).
Table 1. Model distribution. ESG: environmental, social, and governance.
Firm Size Measure Dependent Variable (disclosure)
ESG Environmental Social Governance
Assets Model I.1 Model II.1 Model III.1 Model IV.1
Revenue Model I.2 Model II.2 Model III.2 Model IV.2
Second, following Baltagi [
32
] and Cameron and Trivedi [
74
], we used panel-robust
standard errors to correct for heteroskedasticity and assure estimator consistency and efficiency.
Third, we removed one industry membership dummy variable to avoid perfect multicollinearity.
In this case, we chose as a benchmark the ‘financials’ sector because it is the largest industry in our
final sample, therefore allowing a good point of comparison (see Appendix B).
Sustainability 2018,10, 3111 11 of 20
4. Results
Table 2presents the estimates of the eight logit panel models. All have a significant Wald
chi-squared statistic, suggesting good fit. Hypothesis 1 is strongly supported, as all measures of firm
size are positive and significant. Therefore, larger Latin American firms are more prone to disclose
non-financial data. Hypothesis 2 is rejected: contrary to our conjecture, in models II–IV the significant
ROA/ROE coefficients are negative, implying an inverse relationship between profitability and NFD.
Hypothesis 3 is also rejected, as there is always a non-significant link between leverage and reporting,
implying that debt in LatAm does not have any influence.
Hypothesis 4 is not supported, as degree of internationalization is always non-significant. Hence,
international stakeholders do not compel Latin American companies to engage in NFD. Market-to-book
ratio and Beta receive partial support because in models I–III some coefficients are positive and
significant. This implies that the existence of information asymmetries and systematic risk triggers
NFD, supporting Hypotheses 5 and 6. Regarding industry membership, evidence shows significant
differences among sectors as the consumer, energy, industrial, and materials industries report
significantly more, upholding Hypothesis 7. Finally, Hypothesis 8 is strongly rejected: coefficients for
regulatory quality are all significant, yet negative. This indicates that weaker regulatory contexts lead
companies to disclose ESG information.
Table 2. Estimates (standard errors) of the logit panel regressions.
Indep. Variables
and Controls
Dependent Variable (disclosure)
ESG Environmental Social Governance
Model I.1 Model I.2 Model II.1 Model II.2 Model III.1 Model III.2 Model IV.1 Model IV.2
Assets 3.250 ***
(0.251)
1.415 ***
(0.353)
1.433 ***
(0.350)
1.470 ***
(0.256)
Revenue 2.686 ***
(0.456)
2.131 ***
(0.346)
2.206 ***
(0.340)
1.797 ***
(0.283)
ROA −0.021
(0.033)
−0.020
(0.017)
−0.002
(0.021)
−0.019
(0.015)
0.002
(0.021)
−0.016
(0.016)
−0.027 *
(0.014)
−0.032 **
(0.014)
ROE −0.004
(0.010)
−0.004
(0.007)
−0.009 *
(0.005)
−0.010 *
(0.133)
−0.013 *
(0.007)
−0.014 **
(0.006)
0.002
(0.007)
0.001
(0.008)
Leverage −0.009
(0.012)
−0.003
(0.008)
0.002
(0.009)
0.005
(0.011)
0.004
(0.008)
0.008
(0.011)
−0.003
(0.006)
−5.94 ×10−4
(0.006)
DegInter 0.138
(0.1531)
–0.017
(0.1370)
0.141
(0.1589)
–0.117
(0.1528)
0.209
(0.1393)
–0.061
(0.1484)
0.163
(0.1313)
–0.050
(0.1275)
MBR 0.001
(0.003)
−0.001
(0.005)
0.002 **
(0.001)
0.002
(0.002)
0.002 **
(0.001)
0.002
(0.002)
−2.53 ×10−5
(9.20 ×10−4)
−0.001
(0.001)
Beta 7.84 ×10−4*
(4.70 ×10−4)
0.001
(0.006)
4.34 ×10−4*
(2.16 ×10−4)
9.05 ×10−5
(4.97 ×10−4)
3.99 ×10−4*
(1.10 ×10−4)
8.13 ×10−5
(4.81 ×10−4)
4.16 ×10−4
(4.01 ×10−4)
−2.74 ×10−5
(5.47 ×10−4)
Cons. disc. 3.650 **
(1.485)
1.090 *
(0.717)
−0.189
(1.659)
2.496 *
(1.663)
−0.791
(1.590)
3.263 *
(1.776)
0.901
(0.913)
1.276 *
(0.705)
Cons. staples 3.236 **
(1.466)
1.510 *
(0.909)
0.771
(1.102)
1.641 *
(1.061)
0.432
(1.067)
2.074 *
(1.044)
1.560 *
(0.889)
0.651
(0.871)
Energy 0.426
(2.207)
4.440 ***
(1.480)
0.173
(1.934)
2.845 *
(1.554)
0.907
(1.856)
3.748 **
(1.570)
1.457
(1.640)
3.807 **
(1.590)
Health 3.753
(2.380)
−1.881
(1.439)
2.151
(1.651)
−0.336
(1.495)
1.579
(1.643)
−0.978
(1.510)
0.581
(1.516)
−1.989
(1.451)
Indust. 2.657 *
(1.369)
1.302*
(0.786)
−1.554
(1.973)
3.489 *
(2.016)
−0.951
(1.411)
2.882 **
(1.254)
0.838
(0.854)
1.027 *
(0.700)
Info. tech. 13.183 ***
(2.343)
7.262 ***
(1.880)
5.878 ***
(2.060)
3.967 **
(2.016)
6.959 ***
(1.870)
5.345 **
(2.069)
7.032 ***
(1.250)
4.904 ***
(1.303)
Mat. 4.940 ***
(1.539)
0.343
(0.991)
3.112 ***
(1.163)
1.327
(1.040)
2.606 **
(1.119)
0.824
(1.012)
1.632 *
(0.968)
−0.458
(0.890)
Telecom 1.107
(4.677)
−1.397
(3.908)
2.562
(2.502)
0.503
(2.816)
1.912
(2.578)
−0.288
(2.963)
0.762
(2.572)
−0.824
(2.662)
Utilities 6.337 ***
(1.977)
3.546 ***
(1.236)
4.411 ***
(0.935)
3.367 ***
(0.969)
3.919 ***
(0.899)
2.805 ***
(0.965)
3.526 ***
(0.806)
2.477 ***
(0.811)
RegQ 6.258 ***
(1.091)
5.174 ***
(0.811)
3.154 ***
(0.685)
2.825 ***
(0.723)
3.617 ***
(0.696)
3.385 ***
(0.734)
4.194 ***
(0.625)
4.044 ***
(0.635)
Sustainability 2018,10, 3111 12 of 20
Table 2. Cont.
Indep. Variables
and Controls
Dependent Variable (disclosure)
ESG Environmental Social Governance
Model I.1 Model I.2 Model II.1 Model II.2 Model III.1 Model III.2 Model IV.1 Model IV.2
Local 0.900
(1.141)
1.008
(0.825)
0.352
(0.849)
0.684
(0.848)
0.751
(0.887)
1.114
(0.883)
0.574
(0.698)
0.806
(0.635)
GDPPC 16.983 ***
(2.857)
15.582 ***
(2.484)
9.274 ***
(1.690)
8.866 ***
(1.702)
9.536 ***
(1.647)
9.187 ***
(1.645)
11.657 ***
(1.637)
11.770 ***
(1.732)
Constant −244.56 ***
(35.764)
−211.36 ***
(26.381)
−129.66 ***
(18.484)
−133.89 ***
(19.047)
−133.51 ***
(17.948)
−139.22***
(18.466)
−152.24 ***
(16.366)
−154.08 ***
(18.932)
Wald chi-squared 159.13 *** 181.61 *** 132.40 *** 138.83 ***147.90 *** 142.65 *** 212.08 *** 205.63 ***
Note: * p≤0.10; ** p≤0.05; *** p≤0.01.
5. Discussion
Consistent with our theoretical development, results show that firm size,MBR,Beta, and industry
membership are NFD determinants in LatAm, whereas leverage and degree of internationalization have no
influence whatsoever. (Because our evidence suggests that leverage and degree of internationalization
have no impact on NFD in Latin American companies, we deliberately do not address these variables
in the discussion section of our article). However, the most intriguing finding is that profitability and
regulatory quality are contrary to received wisdom, and hence we will attempt to expand our reasoning
to try to explain this particularity of ESG reporting in LatAm. Subsequently, we further discuss
how the other significant variables affect companies in this setting, consistent with our conceptual
development above.
Our evidence concerning profitability challenges worldwide findings (e.g., [
3
,
25
,
44
,
55
]).
Apparently, lower financial performance is a factor that triggers publishing ESG information in
LatAm, which leads us to posit that managers’ role in NFD is more complex that in other regions.
We propose two possible explanations for a negative link between profitability and NFD: first,
following Reverte [
12
], following poor results Latin American managers could disclose ESG data
to distract or justify bad performance. It could be argued that annual reports and investments
presented in these documents will pay in the long-term, and hence low profitability is expected when
companies commence NFD. Echoing findings by
Bae et al. [61]
,
Cormier et al. [20]
, and
Ortas et al. [55]
,
this suggests that in LatAm agency costs might arise, given that there is no certainty if NFD is
indeed a source of competitive advantage. Hence, contradicting works by Koljatic and Silva [
62
]
and
Sáde Abreu et al. [63]
, managers in this setting do not always value responsibility in ESG for
the ‘correct’ motives, as they could use reporting as an excuse or justification for poor returns
(i.e., increasing agency costs). This could be deemed as the ‘reporting opportunism’ hypothesis.
The second possible interpretation stems from the fact that in models II-II the ROE coefficient is
negative. Given that this measure generally interests owners, we believe that in LatAm this stakeholder
might be involved as well. As ascertained by
Prado-Lorenzo et al. [15]
, because shareholders are
interested in long-term results they are likely to demand NFD in order to increase firms’ accountability
and avoid any possible problems in the future. Contrary to our arguments in the previous paragraph,
owners could be seeing reports as a way to reduce information asymmetries, and hence agency costs
(see [
20
,
55
,
61
]). To this end, they might consider NFD a first step, implying that shareholders in this
region could foster moving towards reporting. Considering both accounts regarding profitability,
it puts managers and owners in an intricate scenario, as both initiate NFD but for different reasons:
while the former tries to hide poor performance (i.e., increasing agency costs), the latter tries to enhance
corporate ESG transparency (i.e., trying to reduce agency costs).
It was also unexpected to find a negative and significant association between regulatory quality
and NFD in LatAm. Contrary to worldwide evidence (e.g., [
1
,
10
,
13
,
17
,
26
]), companies in this region
are more prone to report in nations with weaker regulations, suggesting that this regulators’ influence
on NFD is more complex than conjectured. To interpret this matter, we use
Gray et al.’s [9]
work as
Sustainability 2018,10, 3111 13 of 20
a starting point, as these authors report that in some cases as governments pull back, companies fill
this gap by divulging NFD.
To further explain that claim, use as a basis literature on ‘institutional voids’, which has proposed
that under feebler regulatory environments companies could take the initiative and self-regulate in
order to ‘fill-in’ these voids and build new and beneficial regulations [
35
]. Rathert [
77
] has coined
this as the ‘institutional substitute hypothesis’, given that as firms might take advantage of weak
regulations to take a positive role in improving societal welfare. We believe that this might be the case,
because LatAm is plagued by regulatory deficiencies [
33
,
34
,
66
,
72
], yet firms publish ESG reports to
show key stakeholders the correctness of their operations. Sooner or later NFD could be a requirement
in LatAm, and our position is that, given its institutional voids, firms have taken a proactive stance
and self-regulated themselves in order to anticipate regulations that might be passed in years to come.
Regarding firm size as a general indicator of stakeholder pressure, we concur with Latin American
specific [
38
,
43
] and worldwide [
1
,
2
] evidence, as larger companies in this context do tend to engage
more in NFD. This resonates with the notion proposed by Haslam and Tanimoune [
56
], which posits
that Latin American firms with large-scale projects are more prone to engage in social conflict because
not only are they likely to cause greater impacts but also affect a bigger number of stakeholders. In fact,
this coincides with the explanations posited by virtually all of the extant literature (e.g., [
14
,
21
,
23
]),
which leads us to conclude that even in LatAm bigger firms—due to their enhanced visibility—respond
to stakeholder pressure by issuing ESG information to try to show an adequate performance and
adherence to societal expectations.
Investors also seem to have a certain impact on NFD in LatAm, as expected, as some coefficients
for market-to-book ratio and systematic risk were positive and significant. This implies that at least under
two circumstances potential financiers would seek to screen ESG information. First, and in relation to
MBR, it indicates that when information asymmetries exist then these stakeholders try to explain them
by examining more closely a Latin American firm’s non-financial information. In fact, echoing what
Forte et al. [71]
proposed, it could even entail that investors try to use these reports to investigate if
entities possess any significant intangible assets that could eventually lead them to having outstanding
ESG performance, with the aim of making better investment decisions.
Second, concerning Beta as a determinant, given that the volatile market conditions and
weak institutional frameworks that characterize LatAm trigger unstable market returns [
34
,
66
],
NFD constitutes a valuable source to assess companies’ liabilities beyond what systematic risk
entails. Therefore, we concur with the arguments presented by
Garcia et al. [50]
that indicate that
those companies that have a higher Beta tend to divulge non-financial information with the goal of
reassuring investors that, despite having an inherent systematic risk, any other risks that could surge
for ESG-related reasons are being controlled, thus presenting a good investment opportunity. In sum,
this account and the one exposed in the previous paragraph leads us to ascertain that investors in
LatAm do require and are in search of more information (i.e., NFD) due to this setting’s uncertainty.
Ultimately, we wish to address findings concerning the industry membership variable, as due
to data availability we used Bloomberg’s classification. This implies that we are unable to report
which particular sub-industries are reporting more in relative terms. Nonetheless, a quick tally of our
sample shows that various oil/gas firms are included in the “energy” category, and forestry/paper and
mining companies in the “materials” classification. Given this, consistent with past Latin American
evidence [
36
,
38
], we could conjecture from our data that extractive industries are among the firms that
report the most in LatAm.
This is a plausible assumption because, as
Rodrigo et al. [33]
show, extractive industries are
particularly scrutinized in LatAm due to their enhanced socio-environmental impacts, such as
air/water pollution, community displacements, resource depletion, among others. Also, generally
these sectors could easily represent around 12–19% of Latin American countries’ gross domestic
product, hence being essential to these nations’ wealth generation [
78
]. Due to the economic importance,
yet sometimes negative socio-environmental impacts of these industries, they are seemingly more
Sustainability 2018,10, 3111 14 of 20
salient in the eyes of different stakeholders, and groups that are powerful enough to do so could
be pressuring firms to raise their transparency and accountability [
79
]. Otherwise, as Haslam and
Tanimoune [
56
] show, extractive companies in LatAm could be subject to protests, lawsuits, or other
coercive behaviors. It thus seems that these industries in LatAm tend to report first and more in
comparison to other industrial sectors as a way keep these powerful stakeholders informed on firms’
efforts to reduce impacts in ESG terms. For instance, the Chilean mining company Codelco was among
the first enterprises to report under the Global Reporting Initiative guidelines in 2000 in order to
show stakeholders how they dealt with indigenous communities and environmental issues. After that,
Latin American mining firms apparently began engaging in NFD following Codelco’s example.
6. Conclusions
Our article’s main contribution is drawing on Stakeholder Theory to determine some determinants
of NFD in LatAm. Specifically, we found that out of the eight proposed determinants of non-financial
reports in this scenario, only six have a significant influence: firm size,profitability,market-to-book ratio,
systematic risk,industry membership, and regulatory quality. Consequently, from a conceptual standpoint
this confirms our assertions that stakeholders in LatAm affect companies differently in comparison
to developed settings; as such, we are able to make a valuable contribution to the discipline from
the viewpoint of Stakeholder Theory. This is particularly true for profitability and regulatory quality,
given that results did not support our hypotheses, so we had to propose rather new interpretations so
that future research can further delve into these phenomena. Finally, we also contribute by using a
more robust methodology (logit panel model) that corrects for firms’ unobserved heterogeneity and
also takes into consideration how this decision-making process varies through time.
This study has two main practical implications. First, from a managerial standpoint, it allows
executives in LatAm to better comprehend not only which stakeholders pressure companies to disclose
non-financial information but also which are the mechanisms or rationales through which this process
occurs. For instance, we show that bigger firms, those that may have information asymmetries,
a higher systematic risk, and also that belong to certain industrial sectors, will have a stronger demand
from information-seeking groups. Consequently, managers with this information can assess their
salient stakeholders and determine if and when commencing to divulge NFD is appropriate. Second,
from a public policy lens, Latin American governmental enforcing entities can rest assured that
companies have slowly begun reporting ESG data despite the institutional weaknesses present in this
setting. However, this does not mean that governing bodies should not be more stringent. In fact,
we propose that nations should develop actual mandatory guidelines to help companies in LatAm
deepen their disclosure efforts and make NFD a pervasive activity so that corporate transparency is
fostered throughout this part of the globe.
From our findings, we propose a research agenda in three distinct directions to address our
article’s limitations. First, using
Haller et al. [4]
as a starting point, we have focused on one particular
understanding of NFD (i.e., ESG information). Therefore, we summon scholars to delve into the
determinants of other variants of non-financial data in LatAm, such as Integrated Reporting. Second,
we have deliberately proposed NFD determinants from Stakeholder Theory as a first step, although
we acknowledge that other frameworks have been proposed as well (e.g., Legitimacy Theory, Positive
Accounting Theory). Therefore, using these groundings, future research should attempt to test other
determinants that we might have omitted. Third, given that data is scarce in LatAm, scholars should
attempt to expand and refine our findings with broader, more thorough datasets. For example,
as aforementioned, given Bloomberg’s industry classification we were unable to delve into which
particular sub-industries (e.g., oil, mining) are the ones that report the most.
We hope that practitioners and investigators find our work engaging and essential in guiding
future decisions and research. It might constitute a cornerstone in improving firms’ ESG accountability
and reducing their impacts on society.
Sustainability 2018,10, 3111 15 of 20
Author Contributions:
Both authors contributed equally to the development of this article, specifically in
its conceptualization, conceptual framing and hypotheses construction, methodology design, data analysis,
and writing-reviewing-editing.
Funding: This research received no external funding.
Conflicts of Interest: The authors declare no conflict of interest.
Appendix A
Table A1. Summary of the main determinants of NFD that stem from Stakeholder Theory.
Determinant Power Type Rationale Some Supporting NFD Literature
Firm size
Coercive
Larger firms are more visible and thus
heavily scrutinized by information-seeking
stakeholders, who could coerce companies
into engaging in NFD.
Belkaoui and Karpik [57];
Cormier et al. [20];
Gamerschlag et al. [21];
Gray et al. [9];
Haddock-Fraser and Fraser [23];
Ho and Taylor [10]; Kolk [17];
Lee [19]
Liu and Anbumozhi [26];
Prado-Lorenzo et al. [15];
Reverte [12]; Roberts [13];
Skouloudis et al. [7];
Tagesson et al. [44];
Thorne et al. [14]
Utilitarian
Bigger firms have a greater dependence on
other stakeholders, and also a larger impact
on society. NFD occurs as a mechanism to
dialogue with these stakeholders.
Profitability Utilitarian
If managers have the ability to achieve
superior performance, then they also have
the skill to disclose NFD.
Profitable companies have slack resources to
respond to more stakeholder demands,
including NFD.
Belkaoui and Karpik [57];
Gamerschlag et al. [21];
Hahn and Kühnen [3];
Ho and Taylor [10];
Muttakin and Khan [27]
Ortas et al. [55];
Prado-Lorenzo et al. [15,52];
Reverte [12]; Roberts [13];
Skouloudis et al. [7];
Tagesson et al. [44]
Leverage Utilitarian
For highly leveraged companies, creditors are
a powerful stakeholder because debt-holders
are interested in ESG information to assess
non-financial risks. As a response, firms
engage in NFD to reduce the cost of capital.
Belkaoui and Karpik [57];
Ho and Taylor [10];
Kansal et al. [25];
Prado-Lorenzo et al. [15];
Ortas et al. [55]
Reverte [12]; Roberts [13]
Degree of
internationalization
Coercive
As companies go international, they are
visible to a greater number of stakeholders
that could pressure them to engage in NFD.
Echave and Bhati [22];
Gamerschlag et al. [21];
Hahn and Kühnen [3];
Ho and Taylor [10]; Kolk [17]
Lokuwaduge and Heenetigala [6];
Muttakin and Khan [27];
Reverte [12]
Utilitarian
NFD could be a tool to present themselves as
a good corporate citizen internationally, and
hence, enter new markets.
Market-to-book ratio Utilitarian
A high market-to-book ratio could entail
information asymmetries, and investors
could require NFD in order to reduce
these differences.
Goettsche et al. [24]; Hahn and Kühnen [3]; Prado-Lorenzo et al. [52]
Systematic risk (beta) Utilitarian
Firms in risky markets are generally more
visible, and thus, they have incentives to
signal stakeholders a good public image.
NFD might help in this endeavor.
Belkaoui and Karpik [57]; Cormier et al. [20]; Hahn and Kühnen [3];
Kansal et al. [25]
Industry membership Coercive
Extractive sectors, due to their enhanced
socio-environmental impact, are subject to a
higher stakeholder scrutiny. This increases
the likelihood of NFD.
Gamerschlag et al. [21];
Gray et al. [9];
Haddock-Fraser and Fraser [23];
Ho and Taylor [10];
Kansal et al. [25]; Kolk [17];
Liu and Anbumozhi [26]
Lokuwaduge and Heenetigala [6];
Muttakin and Khan [27];
Prado-Lorenzo et al. [15,52];
Reverte [12]; Roberts [13];
Skouloudis et al. [7]
Regulatory quality Coercive
Governments and regulatory bodies can
affect companies through political
interference. NFD acts as a tool to show that
the firm is being properly managed in ESG
terms, and government influence is
not necessary.
Gray et al. [9];
Hahn and Kühnen [3];
Ho and Taylor [10]; Kolk [17];
Liu and Anbumozhi [26]
Prado-Lorenzo et al. [15];
Reverte [12]; Roberts [13]
Appendix B
Table A2. Number of firms in the final sample by country and industry.
Argentina Brazil Chile ColombiaMexico Peru Total
Consumer discretionary 5 24 34 7 13 18 101
Consumer staples 1 7 32 9 9 8 66
Energy 3 7 2 4 6 22
Financials 8 44 46 10 24 71 203
Health care 8 4 2 2 1 17
Industrials 6 18 31 8 7 23 93
Information technology 5 1 6
Materials 5 6 20 13 6 18 68
Telecommunication services 2 2 1 1 1 7
Utilities 4 12 21 7 16 60
Total 32 133 193 61 62 162 643
Sustainability 2018,10, 3111 16 of 20
Appendix C
Table A3. Correlation matrix and descriptive statistics for all non-dummy variables.
1 2 3 4 5 6 7 8 9 10
1. Assets 1
2. Revenue *** 0.883 1
3. ROA *** −0.069 *** −0.037 1
4. ROE * 0.027 *** 0.068 *** 0.655 1
5. Leverage *** −0.335 *** −0.268 ** −0.035 **−0.033 1
6. DegInter *** 0.732 *** 0.847 *** −0.061 *** 0.055 *** 0.066 1
7. MBR *** −0.106 *** −0.082 −0.009 0.014 *** 0.232 0.012 1
8. Beta ** 0.033 *** 0.039 −0.008 −0.004 −0.002 *** 0.041 −0.004 1
9. RegQ *** 0.124 *** 0.054 −0.006 *** 0.059 ***−0.065 *** 0.058 * −0.023 −0.012 1
10. GDPPC *** 0.055 *** 0.043 ** −0.029 *** −0.050 ** 0.029 *** 0.088 −0.007 0.007 *** 0.629 1
Mean 18.981 18.030 0.061 0.217 0.408 17.750 17.722 0.566 0.211 14.764.2
SD 2.716 2.940 0.146 0.163 0.123 2.162 4.279 4.694 0.633 4379.99
Min 5.298 4.441 −0.453 −0.739 0.039 3.993 1.27 ×10−60.107 −0.468 7404.29
Max 25.136 23.499 0.769 0.839 0.914 22.979 29.544 17.723 1.214 23,266.5
Note: * p≤0.10; ** p≤0.05; *** p≤0.01.
Sustainability 2018,10, 3111 17 of 20
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