Stakeholder attributes and sustainability disclosure in the malaysian construction industry: stakeholder salience perspective

Abstract

It has been widely proven that businesses should have sustainable operations to ensure resources such as clean air, clean water, and community welfare are preserved for future generations. Despite the growing demand for sustainability disclosure within the accounting domain, the collective progress on reducing the negative impacts of business activity, especially construction activity, is growing too slow. The construction industry is known to have a significant impact on the environment, economy, and society. Nevertheless, companies in this industry are still left behind in making progress for good disclosure. Therefore, there is always an opportunity for research to look for ways to enhance sustainability disclosure in the construction industry. One way of looking into this matter is from the perspective of the stakeholders’ role in reporting. The stakeholder theory proposes that firms manage broad and conflicting stakeholders' interests to increase firm performance. The primary stakeholders, such as shareholders, employees, customers, and business partners, have profit motives for investing in the companies. This conviction does not apply to secondary stakeholders, such as the local community, media, and NGOs. The managers do not have direct obligation to create value for them. Hence, it is interesting to search for stakeholder attributes that are possibly associated with sustainability disclosure. Therefore, this study was conducted to examine the stakeholder attributes that would influence or motivate companies to do sustainability disclosure. The attributes involved in this study were stakeholder power, legitimacy, and urgency. The variance in the attributes can influence the companies in carrying out sustainability disclosure. The sustainability disclosure in the annual reports of 140 construction and property companies in Malaysia was repeatedly observed for three years (2015-2017) and statistically analysed using fixed-effects model. The empirical results suggest a positive relationship between sustainability disclosure and stakeholders’ legitimacy and urgency. However, these relationships are marginal for the secondary stakeholders when stakeholders' legitimacy and power are interacted. Furthermore, this study found limited evidence to support sustainability disclosure as a function of stakeholder power. Since the power attribute is usually held by internal stakeholders, this finding is aligned with the reporting practice where sustainability disclosure is used for engagement purposes with external stakeholders. Overall, this study supports the claim that stakeholder attributes affect sustainability disclosure. Notably, it supports the idea of focusing on primary stakeholders in the sustainability disclosure choice because it is practical for businesses and avoids neglecting the need of important stakeholder groups. The stakeholder groups' needs are deemed to be fulfilled if a company can correctly identify the right group of stakeholders and its sustainability concerns relevant to the industry.