EXPLORING THE IMPORTANCE OF PROFITABILITY AND INDUSTRY

CATEGORIES ON CORPORATE RESPONSIBILITY DISCLOSURES BY SRIKEHATI

LISTED COMPANIES

1. INTRODUCTION
This paper specifically focuses on the effects of profitability categorized by industry on
corporate responsibility disclosure in Indonesia. The main motivation of this study is to
investigate and to explore whether or not profitability analysis from financial statements
affects corporate responsibility disclosure and characteristic. In recent years, customers,
employees, suppliers, community groups, governments, and some shareholders have
investigated the nature and frequency of profitability to corporate social responsibility
disclosures, their patterns and trends, and their general relationships. This study seeks
to extend our knowledge of the relationship between a profitability and industry
categories of social responsibility disclosures, This study use return on equity (ROE),
return on assets (ROA), net profit margin (NPM), earning per share (EPS) to measure
the profitability. Referring to regulation of "Badan Pengawas Pasar Modal"
(BAPEPAM) No. Kep-134/BL/2006, this study would like to investigate more about
the disclosure of corporate responsibility of the srikehati listed companies from 2007
2016.

CSR may be described as an approach to decision making which encompasses both

(social and environmental) factors. It can therefore be inferred that CSR is a deliberate
inclusion of public interest into corporate decision making, and the honoring of a triple
bottom line which are People, Planet and Profit. (Harpreet 2009 in Uadiale & Fagbemi,
2012). The triple bottom line is considering that companies do no only have one
objective, profitability, but that they also have objectives of adding environmental and
social value to society (Uadiale & Fagbemi, 2012).
A number of studies in the social responsibility area have examined the relationship
between profitability and corporate responsibility disclosure. Hermawan & Mulyawan
(2014), test whether companies profitability contributes to corporate social
responsibility disclosure. In this case they use Return On Equity (ROE), Return On
Assets (ROA), and Net Profit Margin (NPM) as a scale to measure the profitability of
the company. This study suggest not all profitability ratios are significantly correlated
to corporate responsibility disclosure. After that Patten (1991), examined whether
social disclosures are related to either public pressure (using size and industry
classification as variables) or profitability measures. The results of this study are both
size and industry classification (public pressure variables) were significant explanatory
variables, but the profitability variables were not significantly associated with the extent
of social disclosure. Both studies are inversely related to studies conducted by Cormier
and Magnan (1999) obtained that are pulp and paper; oil refining and petrochemical;
and steel, metals, and mines industries have a manner to disclose of environmental
reporting. The other result is there is some evidence that firms in good financial
condition choose to disclose more than firms in poor financial condition, where
financial condition is proxied as an accounting-based rate of return on assets or leverage
(Cormier and Magnan, 1999). Above the result, we have a perspective that firms in the
good financial have the good profitability.

LITERATURE REVIEW

Based on some previous study that profitability and CSR have a positive correlation.
On the other hand some of the research reported that there isnt any relationship
between Corporate Social Performance and profitability. Thus, corporate social
responsibility performance and financial performance causal linkage are still polemical
issues in related literature.
The purpose of research from Hermawan and Mulyawan (2014) is to test whether
companies profitability contributes to Corporate Social Responsibility in the Indonesia
context. The research used ROA, ROE and NPM as the variables to be tested to measure
the companies profitability. They used company size and Kompas 100 companies as
control variable of their research. The result from the research of Hermawan and
Mulyawan in 2014 is the companys profitability doesnt have any relationship with the
Companys CSR report. However, the firm size has close relationship to the CSR
motivation. They concluded that, the bigger firm size have willingness to disclose their
CSR activities than the smaller ones.
Previous research by Patten (1991) also has purpose to examine whether social
disclosure are related to either public pressure or profitability measures. He used size
and industry classification as scale of public pressure. He was hypothesized that level
of social disclosure will be more closely related to public pressure than profitability.
The result of the research is both size and industry classification are significant
explanatory variables. In contrast, the profitability variables included in the analysis
were not significantly associated with the extent of social disclosure (Patten, 1991).
Some of those researches suggest for the future research to add more variable to
measure profitability. Mcguire, Sundgren, & Schneeweis (1988) used return on assets
(ROA), total assets, sales growth, asset growth, and operating income growth as
accounting-based performance measures in their research of relationship between
perceptions firms corporate social responsibility and measures of their financial
performance. (Mcguire, Sundgren, & Schneeweis, 1988). From the introduction
section, Cormier and Magnan (1999) obtained these three industries with good financial
have a relationship to disclose environmental reporting. However, Cormier and Magnan
(1999) have an other result, that is pulp and paper firms are found to be disclosing more
environmental information than oil refineries and chemical firms and steel, metals, and
mining firms. In contrast, a firm in good financial condition disclosing similar
information will have the means to better resist stakeholders pressures and more
quickly resolve the environmental problem. Thus, a firm in good financial condition
may voluntarily engage in costly disclosure, since that would increase its credibility
among investors (Scott, 1994 in Cormier, 1999). For example, for a firm in poor
financial condition, the disclosure of implicit environmental liabilities or of new
pollution regulations may undermine its reputation as a reliable and trustworthy
supplier or debtor. Additional capital expenditures in the future may concern
debtholders, suppliers, and customers of a firm in poor financial condition. Such
disclosure implies that new financing will be required, cash flows will be diverted from
other investments or from debt repayment, and the future of some of the firms
operations may be jeopardized. All these implications may lead stakeholders to reassess
the terms of their business relations with the firm. Furthermore, pressure groups and
competitors may act upon the disclosed information, with the firm being ill equipped
to effectively respond to these actions. Overall, the firms poor financial condition
weakens its ability to withstand stakeholders pressures or actions. (Cormier and
Magnan, 1999).

REFERENCES
Mcguire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate Social Responsibility and
Firm Financial Performance. Academy of Management Journal, 31(4), 854872.
https://doi.org/10.2307/256342
Patten, D. M. (1991). Exposure, legitimacy, and social disclosure. Journal of Accounting and
Public Policy, 10(4), 297308. https://doi.org/10.1016/0278-4254(91)90003-3
Uadiale, O. M., & Fagbemi, T. O. (2012). Corporate Social Responsibility and Financial
Performance in Developing Economies: The Nigerian Experience. Journal of Economic
and Sustainable Development, 3(4), 4455.