Sustainability Reporting and Board Diversity in Malaysia

Abstract

This study examines the extent and quality of Sustainability Reporting among Malaysian listed companies after the amendment of listing requirement in October 2015. In addition the study also examines the impact of corporate governance element, which is board diversity on Sustainability Reporting. This study uses content analysis method and independent t-test to accomplish the objectives. The extent and quality of SR among Malaysian listed companies are still low. In addition, it also found that companies that have female-gender board member have significant impact on their SR but not for age and ethnic diversity. Female directors have different way of perceptions, thinking and ideas that could impact companies' sustainability initiatives and reporting. The study contributes to the literature of corporate governance-sustainability by focusing specifically the impact of board diversity on SR.

Board governance mechanisms and sustainability reporting quality: A theoretical framework

“…Al-Shaer and Zaman (2016) in the UK equally document an increased SRQ based on the number of female directors on the board. The positive effect of female directors on SRQ is also evident in the few Malaysian sustainability disclosure quality research (e.g., Bakar et al, 2019;Katmon et al, 2019;Zahid et al, 2020). But these studies mostly looks at the proportion or ratio of female representation and not the critical mass of at least 3 or 30% female representation that constitutes the measure of gender diversity in this study.…”

“…These studies show the significant effect of gender diversity on sustainability disclosures which indicates the corporate relevance of female directors 5 (Rao & Tilt, 2016). Hence, gender diversity enhances balanced decision as the way of thinking of women differs from men (Bakar et al, 2019). Also, the female directors are more sensitive to issues concerning sustainability, more generous in terms of community issues, and are more stakeholderoriented as they pay attention to employees, the environment, and communities, and have different leadership style (Adams, 2015;Al-Shaer & Zaman, 2016;Adams & Ferreira, 2009).…”

“…This is consistent with previous studies like Harjoto et al (2015) in the USA; Ibrahim and Hanefah (2016) in Jordan;and Al-Shaer and Zaman (2016) in the UK that document a significant positive association between board gender diversity and SR. In the same vein, there are studies in Malaysia relating to board gender diversity and SR that depicts a significant positive relationship (e.g., Abdullah & Ismail, 2013;Bakar et al, 2019;Katmon et al, 2019;Zahid et al, 2020). On the contrary, other investigations recorded a significantly negative relationship between gender diversity and SR (Abdullah & Ismail, 2013;Handajani et al, 2014;Zhuang et al, 2018).…”

“…Also, the female directors are more sensitive to issues concerning sustainability, more generous in terms of community issues, and are more stakeholderoriented as they pay attention to employees, the environment, and communities, and have different leadership style (Adams, 2015;Al-Shaer & Zaman, 2016;Adams & Ferreira, 2009). Besides, women are known for supporting effective decisions that could enhance the firms' sustainability strategies thereby improving SR (Al-Shaer & Zaman, 2016;Bakar et al, 2019). Further, women on the board could enhance the credibility of corporate disclosures through the reinforcement of the mechanisms of stakeholder engagement (Manetti & Toccafondi, 2012).…”

“…Further, women on the board could enhance the credibility of corporate disclosures through the reinforcement of the mechanisms of stakeholder engagement (Manetti & Toccafondi, 2012). In terms of style of communication and personality, they are different (Liao,Luo,& Tang,20,015) and are risk-averse regarding the loss of reputation and litigation (Srinidhi et al, 2011) Meanwhile, based on the argument of Friedman (2007), engaging in SR is symptomatic of agency problems which could be ameliorated by an effective board that enhances firms' responsibility in terms of SRP through gender diversity (Bakar et al, 2019;Jo & Harjoto, 2011). This is consistent with previous studies like Harjoto et al (2015) in the USA; Ibrahim and Hanefah (2016) in Jordan;and Al-Shaer and Zaman (2016) in the UK that document a significant positive association between board gender diversity and SR.…”